By Barbara O’Neill, Ph.D., CFP® and
Martie Gillen, Ph.D., MBA, AFC®, CFLE
FIRE is an acronym for Financial Independence (FI), Retire Early. FIRE enthusiasts live frugally and invest a large part of their income to reach a “walking away number” where they can leave a 9-to-5 job and live life on their terms decades before the traditional retirement age.
Since most service members share the same young adult demographic as FIRE proponents, Personal Financial Managers may get questions about FIRE. Below are six things to know:
- FIRE History– Many people trace the origins of FIRE to the 1992 book Your Money or Your Life, which addressed the concept of “enough” and advocated spending less time working and more time with family, friends, and meaningful pursuits. FIRE gained attention in blogs and media outlets in the 2010s.
- FIRE Objective– The goal of FIRE is for young or middle-aged adults to reach the point where they don’t have to work for a living, but they can if they want to. In other words, a very different life from that of their parents. There is no one “central source” of FIRE information, which can be found in many places.
- Guiding Principles– An underlying theme, stretching back to the Great Recession, is to “take care of yourself because there is not necessarily someone (e.g., employer) to take care of you.” The basic tenets of FIRE are to maximize income, minimize expenses, and increase savings.
- The 25-4 Rule– To determine their “FIRE number” (savings goal), many proponents multiply their desired annual income by 25 and withdraw 4% of savings annually, which can be supplemented with gig jobs and other income. The goal: have passive income exceed living expenses until pensions and/or Social Security begin.
- FIRE Categories– There are five degrees of FIRE: Traditional FIRE (accumulating 25x annual expenses and withdrawing 4% annually), Fat FIRE (growing larger than average savings), Lean FIRE (minimalist retirement on a bare-bones budget), Barista FIRE (enough savings to switch to part-time work for retirement income), and Coast FIRE (saving enough to stop saving and still reach FI in the future).
- FIRE Trade-Offs– FIRE is not for everyone and will not work for those who are living “paycheck to paycheck.” Many vocal FIRE advocates once had jobs with six-figure salaries and did not have children. FIRE also requires intense discipline and a comfort level with living modestly and without employer-provided health insurance. Some people will feel that the sacrifices needed to achieve early FI aren’t worth it.
Can service members practice FIRE principles? Certainly! FI is a worthy goal and disciplined budgeting and spending can help anyone. Even Barista FIRE is a significant accomplishment. Service members have multiple savings outlets including the thrift savings plan, IRAs, taxable accounts, and the Savings Deposit Program.
Photo by Tony Litvyak on Pexels.
