Asking for a Friend - When someone says they want to achieve FIRE, what does that mean?

August 1, 2022

Q: When someone says they want to achieve FIRE, what does that mean?

A: First, let’s start with what the acronym means: FIRE stands for Financial Independence, Retire Early.

  • Everyone has a different vision for what FIRE means to them.

    • Some people truly want to retire the moment they are financially able to do so and never work again

    • Others would like the ability to do what they want, when they want. This could be taking a long sabbatical, working part time, or changing careers to a more fulfilling career even if it involves a pay cut.

  • How do you become financially independent?

    • You have to save a very large portion of your income while you are working. The savings rate we often see with people working to achieve financial independence is upwards of 70% of their income.

    • Some people have side hustles while they are working to create an additional income stream to allow an increased savings rate.

  • When do you know that you are financially independent?

    • This is a tough question because it really comes down to your living expenses and being able to maintain a budget.

    • A general rule of thumb is that you need at least 30 times your annual expenses saved before you can be financially independent.

  • How do I create an income stream if I retire early?

    • You will be living off your savings so you will need to take distributions from your investment accounts and/or savings accounts.

    • To make your money last you will need to monitor your withdrawal rate, which we typically like to keep to 3% - 4% of your balance.

  • What if I thought I achieved financial independence but now my expenses are exceeding my withdrawal rate?

    • You can re-evaluate your expenses to see if you can live off less.

    • Or you can always resume working at any point in time and target the traditional retirement age instead.


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