Fat FIRE, Lean FIRE or FIRE- What Kind Of Retirement Do You Want?

Many of us aim for FIRE (financial independence / retire early.) After all, who doesn’t want the freedom that comes with early retirement? But did you know that there are different forms of FIRE? Depending upon your anticipated average spending, you might aim for Fat FIRE or Lean FIRE.

What Is FIRE?

FIRE simply stands for having the financial independence to retire early. The focus is really more on the financial independence part than the retiring early part. In other words, FIRE is about attaining the financial freedom to do what you want with your time, which may or may not be to continue working.

Here are some of the common features of a FIRE lifestyle:

Beginning to invest as early as possible (in your twenties if you’re wise!)
Aggressive accumulation of assets
In particular, focus on passive income assets
Decreasing spending in order to facilitate ramped up savings
Working towards a specific retirement income goal

How Much Do You Need For FIRE Retirement?

In order to figure out how much you need for FIRE retirement, you need to calculate what you spend annually. Assuming that you’ll withdraw about 4% of your saved money after retirement, you should have at least 25 times your annual spending amount before retiring.

So, if you spend $10,000 per year, then you’ll need $250,000 to retire. Of course, most people spend more than that. But that gives you the idea of how to calculate basic FIRE income.

Fat FIRE vs Lean FIRE

The average American household spends about $61,000 per year on various expenses. Therefore, the average FIRE asset level to aim for is $1,525,000. If you reach that amount of money then you can safely assume that you’re able to retire early. This is the current FIRE amount.

Fat FIRE and Lean FIRE refer to the different spending habits that people have. If you typically spend more than $61000 per year, then you need a Fat FIRE plan. On the other hand, people who typically spend less than $61000 per year can use a Lean FIRE plan.

The calculation is still the same – 25x the amount of spending. But obviously the final number are different. Someone who spends $40,000 per year only needs $1 million for early retirement. That’s Lean FIRE.

In contrast, perhaps you want to retire in more luxury. If you want to spend $150,000 per year, then you need a Fat FIRE goal of $3,750,00.

What Kind of Retirement Do You Want?

It all comes down to the kind of retirement life that you want to lead. If you are willing to live a frugal lifestyle, then you can implement a Lean FIRE plan. In particular, if you’re willing to live in an area with a lower cost of living and to embrace minimal spending, then Lean FIRE can work for you.

However, many entrepreneurs, millennials and others want to live a more expensive lifestyle in a pricier urban environment. There’s nothing wrong with that. It simply means that you need to save more for early retirement. You have to plan for a Fat FIRE. As long as you have a realistic picture of your ongoing spending habits, you should be able to plan accordingly to have the kind of retirement that you wish to have.

Retirement Apps for You

App	Fees and Minimum	Best for:
Betterment	0.25% per year no account minimum	Saving for retirement
Ellevest	$1-$9 per month no account minimum	Retirement especially for women
Personal Capital	Free	Planning retirement

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.

Kathryn Vercillo

Kathryn Vercillo is a professional writer who loves to live a balanced life. She appreciates a good work-life balance. She enjoys balance in her relationships and has worked hard to learn how to balance her finances to allow for a balanced life overall. Although she’s only blonde some of the time, she’s always striving for total balance. She’s excited to share what she’s learned with you and to discover more together along the way.