The FIRE movement came to prominence in 1994, when financial advisor William Bengen developed the theory that you could retire early if you live by the traditional (though, some argue, outdated) “4% rule”1: Save 25 times your annual living expenses and withdraw 4% of your savings each year in retirement. For example, if your living costs are $40,000 a year, you’d need to save $1 million before retiring, assuming your investments earn 5% to 8% per year after inflation.
While many people are interested in the “retire early” part, FIRE isn’t without detractors. For example, some don’t want the ultra-frugal, super-disciplined lifestyle required for extremely early retirement, while others simply don’t have the finances to make it work. What’s more, the sooner you retire, the more years you’ll likely have to fund.
Here’s a look at FIRE, how you can apply it to your finances, and whether the movement makes sense for you.
Fanning the flame
FIRE’s supporters say that many people can cut their spending and, in turn, boost their savings and investments—by a lot. Indeed, some have even been able to retire as early as their 30s.
Consider FIRE blogger Pete Adeney, a.k.a. Mr. Money Mustache, who advocates saving half your income for early retirement.2 Adeney, who retired from his software engineering job at age 30, has lived a meticulous but comfortable life holding to the tenets of FIRE.
True, opinions are split on how practical this lifestyle is for the average person—especially if you have kids (and their related costs). Even so, some FIRE practices are worth considering.