The FIRE movement challenges the idea of working 9-to-5 until age 65. At its core, FIRE is about retiring early and living on income generated by investments alone. To achieve this lifestyle, investors must be willing to save aggressively, invest wisely, and live frugally to build up a substantial investment portfolio to cover living expenses.

This article explores FIRE’s key strategies and variations to help you craft your own FIRE plan.

What’s the FIRE movement?

FIRE is an acronym for Financial Independence, Retire Early. People who follow this financial strategy save a significant portion of their income — often 50–70% — and invest it strategically so they can retire in their 30s or 40s.40s or even in their 30s. 

Vicki Robin and Joe Dominguez spearheaded the movement in 1992 with their book “Your Money or Your Life.” The concept has since taken off due to new publications and online forums looking for alternatives to the traditional employment track.

Key strategies to achieve financial independence

FIRE relies on several foundational strategies, including the following.

The Rule of 25: Save 25x annual expenses

A key cornerstone of FIRE is the Rule of 25, which states that you must save at least 25 times your annual living expenses to retire. For example, if you spend $40,000 annually, your “FIRE number” is $1,000,000 ($40,000 x 25). 

The 4% Rule: 4% W: Safe withdrawal rate for early retirement

The 4% Rule says you can safely suggests that a retiree can withdraw 4% of their your investment portfolio annually (adjusted for inflation)in the first year of retirement, and adjust for inflation in subsequent years and still have their savings last for 30 years.. Following this tip means your retirement funds will likely last over a 30+ year period. 

High savings rate: 50%–75% of income

Traditional financial planners often recommend people save 10–15% of their pre-tax earnings annually. Alternatively, FIRE retirement planning involves saving a significant portion of  income 50–75% or more, which helps build your investment portfolio faster.

Aggressive investing: Stocks, index funds, Roth IRAs, brokerage accounts

FIRE investing typically focuses on investments with the potential for significant long-term growth, such as low costdiversified index funds and ETFs, . These investments, held in tax-advantaged accounts like Roth IRAs and 401(k)s, and taxable brokerage accounts form the foundation of your wealth-building strategy. The goal is to live exclusively off these earnings in early retirement.taxable accounts which can bridge the account between retirement and the age that you can take penalty free withdrawals from tax-deferred retirement accounts.

Compound growth: Start early, stay consistent

The primary long-term growth driver is compound interest — FIRE’s secret weapon. Compounding refers to interest earned on top of interest. 

Say you invest $100,000 in a fixed annuity with annual compounding at 5%. In the first year, you’ll earn $5,000. The insurance company adds that to your initial investment, so now you have $105,000. In the second year, you earn 5% on $105,000, which is $5,250 — a little more than the year before because now you're earning interest on a bigger amount.

By starting in your 20s or 30s, even modest investments grow significantly through compound growth. This makes compounding a key factor in achieving financial independence sooner rather than later.

Tax efficiency: Strategies like Roth conversions and brokerage account savings

Minimizing taxes is critical to maximizing investment returns. FIRE investors often follow tax-efficient strategies like: 

• Contributing to Roth accounts
• Accessing Roth IRA conversions in lower-income years
• Using Health Savings Accounts (HSAs) for their triple tax advantages
• Managing investments in taxable brokerage accounts to reduce capital gains taxes

Types of FIRE: Fat, Lean, and Barista

FIRE finance strategies vary based on your desired lifestyle and spending habits. The three most commonly discussed types are Fat FIRE, Lean FIRE, and Barista FIRE.

Fat FIRE

Fat FIRE is a strategy for those wanting financial independence and a high-end lifestyle. It requires saving a larger nest egg (often $2–5,000,000 or more) to support annual expenses of $100,000 or higher. 

Lean FIRE

Lean FIRE focuses on minimalism, with annual expenses as low as $20,000–$40,000. This approach allows for a more modest investment portfolio, making it more approachable to investors at multiple salary ranges. But lean FIRE also demands strict budgeting and a simpler lifestyle, including moving to lower-cost-of-living areas and reducing optional spending. 

Barista FIRE

Barista FIRE is a hybrid approach. You save enough to gain partial financial independence but continue working part-time or in low-stress jobs (like being a barista). This minimal employment helps you cover some expenses, get benefits like health insurance, and feel a sense of purpose. 

How to build your FIRE plan: Step-by-step guide

Creating a FIRE plan requires clarity, discipline, and a roadmap. Here are the main steps.

1. Build an emergency fund (3–6 months of expenses)

Before aggressively investing, save 3–6 months of living expenses. Keep these funds in a readily accessible place, such as a high-yield savings account. This financial safety net protects against unexpected costs like job loss or medical emergencies, ensuring you stay on track.

2. Calculate your FIRE number (use the Rule of 25)

Start by determining your annual expenses, including housing, food, and insurance. Multiply this by 25 to find your FIRE number. Be realistic about these expenses, and factor in future lifestyle changes. 

3. Set a savings rate aligned with your timeline

Based on your FIRE number and current financial situation, determine how much you’ll need to save to reach your goal. The higher your savings rate, the faster you'll reach financial independence.

4. Maximize retirement and tax-advantaged accounts

Take full advantage of retirement and tax-advantaged accounts. Contribute the maximum to 401(k)s, IRAs, and HSAs to reduce taxes and grow wealth faster. 

5. Choose appropriate investments based on risk tolerance

Select investments that align with your risk tolerance and timeline. A diversified portfolio of low-cost index funds and ETFs encourages long-term growth. 

6. Plan for healthcare, early withdrawal taxes, and inflation

Carefully consider potential challenges associated with early retirement. Healthcare costs, early withdrawal penalties, and inflation can eat into your savings, especially during a long retirement period.

7. Use a FIRE calculator to track progress

Use a FIRE calculator to help you track savings, investment growth, and withdrawal scenarios. Regularly monitoring your finances gives you time to adjust your plans if needed.

Add annuities to your savings strategy with Gainbridge

The FIRE movement offers a bold path to financial independence. By embracing high savings rates, strategic investing, and intentional living, you can enjoy early retirement.

Ready to take control of your financial future? Visit Gainbridge to explore how annuities help you build wealth and achieve your FIRE goals.

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This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes.

Guarantees are subject to the financial strength and claims paying ability of the issuing insurance company. Annuities are issued by Gainbridge Life Insurance Company, located in Zionsville, Indiana. Annuities are long-term investment vehicles and contains terms for keeping them in force.