The Mathematics of FIRE
Savings Rate · Lean FIRE · Fat FIRE · 4% Rule
Financial Independence, Retire Early (FIRE) is a movement of people who refuse to wait until age 65 to start living their lives. By saving a massive percentage of their income and investing it in index funds, they are able to buy back their time decades early.
Why Savings Rate is Everything
In traditional finance, advisors tell you to save 10% or 15% of your income. In the FIRE movement, people regularly save 40%, 50%, or even 70% of their after-tax income.
Why? Because your savings rate has a dual effect on your timeline. If you make $100,000 and save $50,000 (a 50% savings rate), you are simultaneously adding $50,000 to your investments, while proving that you only need $50,000 a year to live happily.
The Magic of 50%
At a 50% savings rate, every 1 year you work pays for 1 year of retirement. When you factor in compound interest, it only takes roughly 15 to 17 years to go from $0 to full Financial Independence!
Lean FIRE vs. Fat FIRE
Your FIRE number is completely dependent on your annual expenses.
- Lean FIRE: Living on $40,000 or less per year. This requires a much smaller portfolio ($1,000,000 or less) and allows you to retire extremely early.
- Fat FIRE: Living on $100,000 or more per year. You'll live in luxury, but you will need to save $2,500,000+ to achieve it.
Optimizing Your Path
To hit FIRE, you must maximize tax-advantaged accounts to keep more of your own money. The very first step is utilizing our 401(k) match calculator to ensure you capture 100% of your employer's free money. Second, use a Roth IRA to ensure your investments grow completely tax-free.