How I figured out the $ I need to retire

FIRE me up

Author

My name Jeff
May 24, 2024

FIRE, LeanFIRE, and FatFIRE

Retiring early and knowing you’re financially set for life - that’s the dream right? For some, it’s more than a dream; it’s part of their plan. Knowing how much you need to retire is a key part of the process in planning for financial freedom.

The goal of financial independence and retiring early, known amongst the circles of Reddit trolls as “FIRE”, has become super popular. But there are a few different paths in the FIRE community, including LeanFIRE and FatFIRE. 

Now, I should say, there are only three things I can’t stand in this world: acronyms, people who are intolerant of others people’s cultures, and the Dutch. So let’s break down what FIRE and its various flavours actually mean, and how you can calculate your own FIRE retirement. 

“What is FIRE?” - Cavemen and also people escaping the 9-5 grind

FIRE stands for Financial Independence, Retire Early. Those Reddit trolls can make a catchy acronym, I’ll give them that. At its heart, FIRE is about encouraging good financial behaviour. It encourages saving and investing a significant portion of your income to reach a point where work becomes optional, letting you retire much earlier than the usual age of 65. 

What is LeanFIRE?

LeanFIRE is a frugal approach to FIRE. It means achieving financial independence with a cheaper lifestyle and lower annual spending. People pursuing LeanFIRE typically aim to live on $40,000 or less per year in retirement. Basically, let’s be honest, this is survival. Sounds like it sucks!

What is FatFIRE?

FatFIRE is on the other end of the spectrum. It’s about achieving financial independence with a higher standard of living. Those aiming for FatFIRE plan to have a more luxurious retirement, with annual spending over $100,000. This is starting to sound a bit more like what I’m after. 

Differences Between FIRE, LeanFIRE, and FatFIRE

  1. Lifestyle Choices:

  • LeanFIRE: Frugal and minimalist. (boring)

  • FatFIRE: Comfortable and luxurious. (let’s go)

  • Standard FIRE: Somewhere in between, balancing frugality and comfort. (manageable)

  1. Annual Spending:

  • LeanFIRE: Around $40,000 or less. (brutal)

  • FatFIRE: Typically over $100,000. (I’m interested)

  • Standard FIRE: Approximately $50,000 - $100,000. (could manage)

  1. Savings Goals:

  • LeanFIRE: Lower savings requirement due to frugal retirement lifestyle. (But, I want a lavish retirement lifestyle)

  • FatFIRE: Higher savings requirement to support a lavish lifestyle. (this is the lifestyle I was talking about)

  • Standard FIRE: Moderate savings requirement. (make it more lavish plz)

How to calculate your FIRE numbers

Thankfully, it’s actually a very straightforward formula. 

  1. Estimate your annual expenses: Best way to do this is look at your current expenses and think what you may be doing differently in retirement. Traveling more? Commuting less? Downsizing? Take a guess how your desired retirement lifestyle would impact your current savings, then adjust accordingly, and be conservative.

  2. PRO TIP: Don’t forget inflation! A $100 expense today would be $181 in 20 years with 3% inflation.

  3. Calculate your FIRE number: Multiply your estimated annual expenses by 25, which follows a common rule of thumb based on the 4% safe withdrawal rule, some voodoo formula around a safe amount you can withdraw from your investment accounts every year without running out of money.

FIRE Number = Annual expenses in retirement * 25

My FIRE example:

  • My monthly expenses now are about $6,000. 

  • I’ll want to travel a couple times a year in retirement, let’s say that costs $7,000 each time. 

  • So my estimated annual retirement expenses would be $6,000 * 12 + $7,000 + $7,000 = $86,000

  • If I want to retire in 20 years, assuming 3% annual inflation, my annual expenses would be (1+0.03)^20 * 86,000 = $155,326

  • Multiplying my annual inflation-adjusted expenses of $155,326 by 25 =.........

  • …..pause for effect….

  • $3,883,139

Me rn

FIRE away

Whether you choose LeanFire, FatFire, GreaseFIRE (not real), ChubbyFIRE (real), BlueFIRE (real in Game of Thrones), BaristaFIRE (also real), or something in between, the key is always to start saving and investing early. 

Understanding your financial goals and planning accordingly will get on the path to financial independence and retiring early, whatever weird acronym you want to use. 

So get that FIRE lit.

Bonus

Reply

or to participate.