In the first two parts of this mini-series on the financial side of retirement, we looked at how much you need to retire and the concept of the ‘safe withdrawal rate’. In recent years, you may have heard of the concept of FIRE (Financial Independence, Retire Early). This movement is rooted in the idea of getting away from traditional retirement ages (“Freedom 55”) to allow more time to pursue more non-work passions. Even within the FIRE community, there are variations that cater to different lifestyles, goals, and family situations. In this post, we will explore what FIRE is, and the pros and cons of the variants of FIRE (Fat Fire, Lean FIRE, etc.).
What is FIRE?
At its core, FIRE is a lifestyle choice that focuses on achieving financial independence through aggressive saving, mindful spending, and strategic investing. The goal is to accumulate enough assets to cover living expenses for the rest of your life, allowing you to retire from your day job faster than the commonly cited retirement ages (like age 65). This idea can be especially appealing to practicing MDs, who may feel they are in a race to save enough money before burnout catches up with them. Physicians may also feel that they put off non-work activities like art, music and sports to concentrate on medical school, residency and staff work, hoping to get to it later (delayed gratification). We all have heard stories of people who die early or suffer health conditions that rob them of their ‘golden years’, so why not retire as soon as feasible?
Two key components of FIRE
As the name suggests, the two key components are Financial Independence and Retire Early. Financial Independence is reached when your passive income from investments covers your living expenses for the rest of your life, freeing you from the need for work income. Keep in mind that statistically, the earlier you retire, the more non-working years you need to save for. If you retire at age 50, you may need to cover expenses for another 50+ years, including the expensive years near the end when you may require nursing care. Since your working years are fewer in number than average, you may need to save 50% or more of your income for investment, a percentage much higher than the oft quoted 20%. Aiming for such a high savings rate likely means that you will need to live relatively frugally your entire career, which is not for everyone.
The ‘Retire Early’ part of FIRE doesn’t necessarily mean never working again; if you love what you are doing, keep doing it. However, it may allow you to drop parts of the job you don’t enjoy as much (e.g. weekend/night call, inpatient ward coverage, committee work), or just know that if your work environment changes for the worse, you can simply walk away without worrying about financial implications. Some physicians who have achieved financial independence continue to work in the medical field but have the freedom to concentrate on traditionally underpaid parts of the job, such as education, research or tackling complex disease states.
Variants of FIRE (one size does not fit all)
Lean FIRE: This variant is characterized by a frugal approach to lifestyle and spending, achieving financial independence with modest living expenses, leisure activities, and habits. Lean FIRE may involve living in underserviced low-cost areas, embracing minimalism, and prioritizing affordable experiences over material possessions.
Pros: This may lead to a greater sense of freedom and flexibility, as you are less reliant on high-paying jobs to sustain your lifestyle. Proponents say that this can get you to retirement at the youngest age humanly possible.
Cons: Sticking to Lean FIRE takes sacrifice and discipline due to the strict budgeting. It’s probably not suitable for those with high living expenses or financial obligations. Lean FIRE also assumes that you won’t suddenly increase your spending rate and lifestyle after retirement.
Fat FIRE: This is the opposite of Lean FIRE, where you plan on a more comfortable and indulgent retirement lifestyle, with the ability to afford luxury expenses and experiences. This entails accumulating a larger nest egg to support higher spending levels.
Pros: Achieving Fat FIRE provides greater financial security and flexibility, as you have a larger buffer for unexpected expenses or market fluctuations.
Cons: Typically requires a higher income level and longer savings period, which may not be possible for everyone. Fat FIRE also requires careful planning and disciplined spending to not go overboard on your desired lifestyle and deplete savings too quickly.
Barista FIRE: This is a middle ground between your full-time career and full-on retirement. In Barista FIRE, you aim to achieve financial independence to cover basic living expenses, allowing you to pursue part-time or lower-stress work for supplemental income or to stay engaged in the workforce (such as preparing specialty coffee drinks, like the upside-down double espresso)
Pros: Can provide a smoother transition into retirement and mitigate some of the challenges associated with sudden lifestyle changes. You can continue to have social interaction in a work environment.
Cons: Finding suitable part-time work can be challenging depending on your skills and interests. You may be considerably older than other employees.
Coast FIRE: Coast FIRE involves reaching a point where your investments will continue to grow to meet your financial independence goal without any additional contributions. Once this milestone is achieved, you can reduce or stop saving and let your investments ‘coast’ until reaching your desired retirement target at a later date.
Pros: This is a more relaxed approach to saving, allowing you to gradually transition to financial independence without aggressive saving or extreme lifestyle changes. It provides a sense of progress and momentum towards retirement.
Cons: Simply put, more math is involved. Achieving Coast FIRE requires patience and discipline, as well as careful monitoring of investment performance and market conditions to ensure you hit your target number at your desired age.
Is FIRE right for you?
Even if retiring earlier than your peers is not a goal of yours, the concept of attaining financial independence for you and your loved ones is a core part of any retirement plan. The ideas of disciplined saving, sensible spending and calculated investing are also universal in shaping your retirement. FIRE is a flexible and customizable approach to financial planning that empowers you to take control of your finances and design the life you want to live during and after your main career years.
Comments