FIRE stands for Financial Independence, Retire Early. It's a lifestyle movement defined by extreme frugality and high savings rates (often 50-70% of income) to retire decades earlier than the norm.
The 4% Rule
The core math of FIRE relies on the 4% rule. If you can live on 4% of your portfolio annually, you are financially independent. This means you need to save 25 times your annual expenses. If you spend $40,000 a year, your FIRE number is $1 million.
Types of FIRE
There is "Lean FIRE" (living on very little), "Fat FIRE" (retiring with a large budget), and "Barista FIRE" (working a part-time job for benefits while semi-retired).
Criticisms and Risks
The FIRE movement isn't without its critics. Some argue that extreme frugality deprives you of enjoying your youth. Others point out that the 4% rule might not hold up in a prolonged economic downturn or high-inflation environment.
The Healthcare Puzzle
In countries without universal healthcare, retiring early means losing employer-sponsored health insurance. Planning for FIRE requires a robust strategy for covering medical costs, often through private insurance or health savings accounts (HSAs).