The FIRE (Financial Independence, Retire Early) movement is a lifestyle movement whose goal is financial independence and retiring early. The model became particularly popular among millennials in the 2010s, gaining traction through online communities via information shared in blogs, podcasts, and online discussion forums.
Those seeking to attain FIRE intentionally maximize their savings rate by finding ways to increase income or decrease expenses. The objective is to accumulate assets until the resulting passive income provides enough money for living expenses in perpetuity. Many proponents of the FIRE movement suggest the 4% rule as a guide, thus setting a goal of at least 25 times estimated annual living expenses. Upon reaching financial independence, paid work becomes optional, allowing for retirement from traditional work decades earlier than the standard retirement age.
FIRE is achieved through aggressive saving, far more than the standard 10–15% typically recommended by financial planners. Assuming constant income and expenses, and neglecting investment returns, observe that:
- At a savings rate of 10%, it takes (1-0.1)/0.1 = 9 years of work to save for 1 year of living expenses.
- At a savings rate of 25%, it takes (1-0.25)/0.25 = 3 years of work to save for 1 year of living expenses.
- At a savings rate of 50%, it takes (1-0.5)/0.5 = 1 year of work to save for 1 year of living expenses.
- At a savings rate of 75%, it takes (1-0.75)/0.75 = 0.33 years of work to save for 1 year of living expenses.
From this example, it can be concluded that the time to retirement decreases significantly as savings rate is increased. For this reason, those pursuing FIRE attempt to save 50% or more of their income. At a 75% savings rate, it would take less than 10 years of work to accumulate 25 times the average annual living expenses suggested by ‘the 4% safe withdrawal’ rule.
The main ideas behind the FIRE movement originate in the 1992 best-selling book Your Money or Your Life written by Vicki Robin and Joe Dominguez, as well as the 2010 book Early Retirement Extreme by Jacob Lund Fisker. These works provide the basic template of combining simple living with income from investments to achieve financial independence. In particular, the latter book published the relationship between savings rate and time to retirement which allowed individuals to quickly project their retirement date given an assumed level of income and expenses.
Started in 2011, the Mr. Money Mustache blog is an influential voice that generated interest in the idea of achieving early retirement through frugality and helped popularize the movement. Other books, blogs, and podcasts continue to refine and promote the FIRE concept, including Financial Freedom author Grant Sabatier, who works closely with Vicki Robin and popularized the idea of side hustling as a path to accelerate financial independence. In 2018, the FIRE movement received significant coverage by traditional mainstream media outlets. According to a survey conducted by the Harris Poll later that year, 11% of wealthier Americans aged 45 and older have heard of the FIRE movement by name while another 26% are aware of the concept.
Some critics allege that the FIRE movement “is only for the rich”, pointing to the difficulties of achieving the high savings rates needed for FIRE on a low income. Another common criticism is the FIRE movement’s early retirees have not adequately saved for retirement. Because the retirement phase of FIRE could potentially last 70 years, critics say that it is inappropriate to apply the 4% rule, which was developed for a traditional retirement timeframe of 30 years; this criticism is based on the lack of empirical evidence supporting the 4% rule over a much larger time horizon.
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Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.