What is FIRE and How to Do it

The acronym FIRE isn’t as dangerous as it sounds. If done right, joining the FIRE movement can be a safe way to have financial freedom and retire early.
FIRE stands for Financial Independence, Retire Early, a movement that started in 1992 as a way to reach early retirement and live off small withdrawals from money accumulated by saving aggressively.
We’ll discuss how the movement started and the two main parts of FIRE — financial independence, and retire early. We’ll also go into how its members try to accomplish each, and some of the biggest ways to achieve each step.

What is FIRE?

Not all “movements” throughout history are worth joining. But for people seeking early retirement, and who can cut expenses and earn plenty of money to save for it, then the FIRE movement is something they may want to consider joining.
FIRE uses frugality, extreme savings, and investments to save up to 70% of annual income and invest that money. Small withdrawals are made from the accumulated funds to retire early. How early? For some people, it can be in their 30s and 40s.

How FIRE started

The FIRE community started with the 1992 publication of the book “Your Money or Your Life,” by Vicki Robin and Joe Dominguez.
A focus of the book was on how expenses and time spent at work compare to the rest of your time. Every expense costs not only money, but a certain amount of time at work to earn money for the purchase.
More recently, Millennials have joined the FIRE community intending to retire long before the traditional retirement age of 65. Pete Adeney, also known as Mr. Money Mustache on his blog, is a well-known supporter of this form of financial independence.

How FIRE works

The first part of how FIRE works is achieving financial independence by saving 70% of your annual income and investing it.
The second part is to use that money to retire early. To get there, the general rule is once your savings has reached about 30 times your annual expenses, usually about $1 million, you can quit working and retire.
Retiring at a young age requires making your savings last. To do that, FIRE recommends using 3-4% withdrawals from savings each year.

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Financial Independence

The first part of FIRE starts with achieving financial independence. It means having enough money that you no longer need to work. Ever.
Getting there can take more than a few ways. We’ll go into detail later on specific ways to achieve financial independence through FIRE, but three basic ways to do it are:
  • Keep your expenses extremely low.
  • Raise your income substantially.
  • Seek investments with an 8% annual return.

It can be scaled back

Achieving financial independence doesn’t have to come at once with immediate retirement. You could retire early and still have a part-time job to still save money for full-time retirement someday.
Or you could quit working entirely and do whatever you want, provided you can afford it, and stick to the FIRE rule of no more than 4% annual withdrawals from your retirement accounts. We’ll go into retirement options later, but you should start your FIRE education by knowing that you can choose when you want to retire and that it can be part-time if you need to earn money to get there but still want to enjoy retirement immediately.
The point is that FIRE helps you choose if you ever want to work again. By saving a substantial amount of money and cutting expenses while you’re young, and investing that money, you should be able to retire early.

How much should you save?

Depending on where you look, the FIRE movement recommends having 25 to 30 times your annual expenses in investments. That works out to 300 times your monthly expenses.
If you want to retire before your 40th birthday, for example, that can mean saving a lot of money quickly. An income in the six-figure range may be needed in your 20s and 30s to reach that savings goal.
That shouldn’t discourage you from living a FIRE lifestyle and saving for early retirement. If you have 20 years to invest, and you start with only an initial deposit of $100 and contribute $2,000 a month to an investment that pays an 8% annual return, you’ll have $1,099,444 in 20 years. Find a compound interest calculator online and do the math yourself. You might be amazed at what compounding can do.
And yes, saving $1 million or so in 20 years is a huge goal. But remember that one part of FIRE is to save 70% of your annual income and invest it. That leaves you 30% of your take-home pay each month to live on. The standard recommendation for someone retiring around age 67 is to save 10-15% of their income during their working life.
A much bigger income, such as $100,000 and up, makes it easier to accomplish FIRE than for someone with an average income. But there are still ways to do it, as we’ll detail later, such as living off one spouse’s income, and taking on extra work, and investing that extra money in the stock market.

Why 25 times expenses?

The rule of having 25 times your annual expenses in investments is used because it allows you to fully retire for at least 30 years once you’ve reached that threshold. Having that amount of savings allows people to withdraw 4% of their initial portfolio each year, according to researchers at Trinity University who wrote the Trinity Study, which is often cited by FIRE followers as a rule of thumb to follow.
Simulations for up to 30 years were done in the original study, with 4% annual withdrawals allowed to sustain a retiree’s lifestyle. The amount can be increased by the rate of inflation each year.
However, if you need your retirement money to last longer than 30 years, you may want to lower the withdrawal rate to 3%. That requires having 33.3 times your annual expenses to reach financial independence, instead of 25 times your annual expenses.

Retire early

This is the second part of FIRE and can be where the fun starts. Retirement can be whatever you want it to be. It can be years of traveling the world, relaxing on a beach, going to college, learning new skills, and even working part-time or volunteering in a field you’ve always wanted to be in.
Many people rely on Social Security to fund their retirement, and FIRE members can also use it to supplement their retirement savings. Retiring at 65 was traditionally done with a mix of funds, such as Social Security and defined pension plans.
About 40% of older Americans only receive income from Social Security in retirement, according to a 2020 report from the National Institute on Retirement Security.
Social Security wasn’t intended to be the only financial resource for retirees. Typically, those benefits replace about 40% of pre-retirement income. Financial planners often recommend at least a 70% income replacement rate for retirees.
A roughly equal number of older people receive income from defined benefit pensions, which are different from retirement contribution plans.
Compared to the traditional retirement age, kicking your feet up and retiring in your 50s, 40s, or earlier is early retirement.
But even if the amount of money in your retirement accounts and elsewhere is enough to quit your job earlier than most people, it doesn’t mean you have to. Options include:
  • Working part-time
  • Switching to another career
  • Start your own business
  • Take a leave of absence from work

The biggest steps to get to FIRE

Getting to FIRE sounds like a big mountain to climb when you look at the numbers:
  • Save 25X annual expenses
  • Save 70% of income
  • Funding 30+ years in retirement
  • 8% annual return on investments
  • Withdrawing only 4% annually in retirement
The steps to get there can be broken down into smaller ones. And if you can’t reach one goal, such as saving 70% of your income, then you can try other ways to get there. Here are some of the biggest steps to reaching financial independence so you can retire early.

Cut expenses

Cutting expenses is a common refrain among personal finance experts. Eliminate a daily Starbucks visit and save $100 or more each month. Cook at home instead of eating out.
The coronavirus pandemic may have already helped you do some of this. A Bank of America survey found that 64% of Americans say their spending habits have changed since the start of the pandemic. Entertainment spending dropped 22% from 2019, the study found, and travel spending dropped 21%.
Other costs have increased during the pandemic, and some in a good way. Americans have put 41% more money into investments. Spending on pets has gone up 23% and food and dining went up 6%. Finding a contractor to work on your home may be more difficult, as spending money on a home went up 9%.
Cutting your expenses permanently can leave you more money to invest for retirement. Cut $100 a month for 25 years from your budget and put that savings aside, and you’ll have $30,000 in extra savings. And that’s before that extra money is invested.
Just don’t cut too many expenses too quickly. It can be a jolt to your daily life and end up being a sacrifice you don’t want to make. A frugal lifestyle is a smart goal, but not if some of it makes you miserable.

Earn more

Earning more money can be more difficult than cutting expenses, but in the long run, it might be worth it because you won’t have to change your lifestyle much to get there. Other than working more hours, of course.
Or you could work fewer hours and charge more for your services, such as working as an independent contractor with a high hourly rate.
An easy way to start is to take on a side hustle to earn some extra money and put all of that extra income into an investment for retirement. Your day jobs may increase with a side hustle, and you don’t want a side gig to get in the way of your main job, so start slowly and see how it goes.


The national savings rate in savings accounts was 0.05% as of Feb. 1, 2021. Contributing $100 per month to such an account would get you 33 cents in interest in a year. That amount of money earned won’t get you far toward retirement, though the extra $1,200 per year is something.
What FIRE requires, however, is much more than a savings account. A savings account is a good place to put your living expenses and an emergency fund, and maybe for a short-term goal, but that’s about it.

0.05% investment return vs 8%

Where FIRE takes hold is in putting all of that money you’re looking to accumulate in investments that will earn 8% annual return over 20 years or longer.
And while you may be able to find a better savings account interest rate than 0.05%, it may not be by much. The national rate on a 60-month CD was 0.32% on Feb. 1, 2021, according to the FDIC. Make the same contributions as the savings account example listed above of $100 per month, and in one year the CD would earn $2.08 in interest.
Keep it for the full 60 months, and at the end of those 5 years, you’d earn $19.35 in interest, assuming you put $1,200 in to start and didn’t contribute to it afterward. That $19 won’t get you far in retirement.
Instead of a savings account, the FIRE community recommends investing in index funds and managing them yourself. Financial advisors typically earn 1% for managing mutual funds.
Some FIRE proponents recommend a three-fund portfolio of U.S. equities, international equities, and U.S. bonds. Others suggest adding assets such as small-cap value stocks, emerging markets, or REITs.
The point is that not all of your investments should be in one area so you can ride the ups and downs of the stock market and economy. Real estate investments may be hot one year, but the next year they could be down. The goal is to buy and hold and not to have to sell investments at a loss.

Get started

Cutting expenses, earning more, and investing all of that money are the big ways to save for early retirement? But how do you break it down into manageable tasks that you can do daily?
Here are some smaller ways to reach that first, important step of financial independence.

Track your money and set a budget

Knowing where your money goes is a good start to FIRE or any other financial goal you want to accomplish. Do this by tracking where every dollar that goes into or out of your checking account goes for a month.
This will give you a great look at your monthly expenses and income and can be the start of a monthly budget. You can see how much money you’re spending at restaurants, for example, and cook more dinners at home to save.
A budget can also help you see how much, if any, money you have leftover at the end of the month so you can decide where to put it.
Before funding FIRE investments, you may want to contribute to an emergency fund so that you can pay your bills for three to six months if you lose your job. Or you may want to contribute to your children’s college account or pay down debt.

Max out retirement contributions

Once you have a budget and are funding an emergency fund, you may want to start maxing out your retirement accounts. Start by saving 15% of your gross income in retirement plans like a 401(k) and a Roth IRA, and pick mutual funds with a great track record that allow you to diversify your investments.
Once you’re comfortable saving 15% of your monthly income, follow the FIRE recommendation of 70%.

Side hustles

Side gigs are all about earning extra money. If you need such work to meet your monthly bills, then FIRE may not be for you yet. However, with enough side jobs and you could find yourself with a full income and enough money to start saving big for retirement.
Some side hustles are easier than others, depending on your skills. Evaluate your skills and what you like to do to see if you can find a side job to earn some extra money. Some side hustles to consider are:
  • Freelance work on Fiverr
  • Selling things on Etsy
  • Work for TaskRabbit putting furniture together
  • Food delivery through DoorDash
Perhaps better than these jobs are side hustles that give you passive income. Write an ebook and the sales can give you a passive income for a lifetime.

Get out of debt

You can use your side hustle money, or extra money you have at the end of the month, to pay off credit card debt, student loans, and other forms of debt that are taking away money that you could use to save for retirement.
The mean credit card debt of U.S. households is $5,700, according to the Survey of Consumer Finances by the U.S. Federal Reserve. Drop your credit card debt to zero and you’ll be amazed at how much extra money you have each month.

Pay more of your mortgage each month

One of your biggest debts is probably your mortgage. Paying off your mortgage early can free up a lot of money for other things, including doing a lot to get you to early retirement. Not having a house payment also means living for almost nothing in your home, which can make an early payoff that much more enticing.
To start, round up your monthly mortgage payment by $300 or so to an amount that’s just a little uncomfortable for you. The average mortgage payment in the U.S. is $1,500 per month, according to the U.S. Census Bureau.
Suppose you have a 30-year, fixed-rate, $200,000 mortgage at 4.5% interest that you’ve had for five years. Add $500 per month to your $1,013 principal payment and you’d shorten your mortgage repayment by 11 years and seven months. You’d own your home in about 13 years instead of 25 years, saving you $60,994.
Retirement could come to a lot quicker by cutting your home loan payoff timeline in half.

Pros and Cons of FIRE

Even financial independence and retiring early have pros and cons. Here are some to consider.


  • You can retire in your 30s if you can save enough.
  • Follow FIRE and you can be financially independent.
  • You can work part-time and lower the amount needed to save for retirement.
  • You’ll see how much an hour of work buys.
  • Supplemental income for Social Security and other retirement funds.


  • You may not be able to afford to accomplish FIRE unless you earn $100,000 or more per year in your 20s, 30s, and 40s.
  • Saving 70% of your income.
  • Spending only 3-4% of your savings in retirement.
  • Lifestyle changes to afford retiring early.
  • May have to drastically cut expenses.
  • Save 25-30 times your monthly expenses, vs 15% for traditional retirement.

The bottom line

If you’re willing to save 70% of your income, then you could end up saving enough to retire early by following the recommendations of the FIRE community.
Frugality, a side hustle or two, and a big stake in an index fund in the stock market, and you could be on your way to a retirement plan that outpaces traditional ones. With enough hard work early on, you could spend a lot more years in retirement than many people do.

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