If You Want to Retire Early but Dont Want to Scrimp, Fat FIRE Might Be for You – NextAdvisor

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You can pursue financial independence without giving up the finer things in life.

I have the ability to splurge on quality and luxury items and experiences including world travel, says Teri Ijeoma, founder of Trade & Travel, an online course that teaches an advanced form of stock market trading as a way to create supplementary income. Ijeoma is work-optional at age 38.

Back when I worked as an assistant principal, I hid in my office placing trades, she says. Unexpectedly, my boss strolled in at the moment my computer announced, Your trade is successful. That day, I made more in one trade than an entire month of my salary. At that moment, I knew trading was my exit strategy.

Teris lifestyle is an example of Fat FIRE, a beefed-up version of FIRE (Financial Independence, Retire Early) in which you anticipate more than $100,000/year in annual living expenses. If you want to pursue early retirement but dont want to live on a tight budget, the Fat FIRE approach may be what makes the most sense for you. With enough time and planning, some people can get there through low-cost, low-risk index fund investing.

Heres what you need to know about how to achieve Fat FIRE and reach financial independence.

The FIRE movement is about calculating your FIRE number the amount of invested assets you need to live off of investment income and retire early and then increasing your income and lowering your expenses to reach your net worth goals faster. A ballpark FIRE number can be calculated by multiplying your annual expenses by 25.

Annual expenses x 25 = FIRE number

This equation was popularized in the research paper Retirement Savings: Choosing a Withdrawal Rate That is Sustainable, written by three Trinity University professors and published in the American Association of Individual Investors Journal in 1998. Better known as the Trinity Study, the papers data set calculated that retirement plans over a certain net worth which had withdrawal rates of 4% per year or less had a 0% of running out of funds.

By keeping your expenses low, youll hit your FIRE number sooner, an approach known as traditional FIRE or Lean FIRE. But some people dont want to keep their expenses low, or they cant because of certain family circumstances. Enter Fat FIRE.

While we originally set our sights on Lean FIRE, we changed our goals after a few realizations, says Brian Davis, a real estate investor and founder of SparkRental, a company that helps middle-class people replace their salary with passive rental income. Davis and his wife live overseas to support her job as an international school counselor. First, I realized that my wife would never be content with a lean lifestyle, Davis says. But I also realized that, while we can live comfortably overseas on a relatively modest income, we could end up back in the U.S. at any time. Our parents are getting older, and their health will decline at some point. Or we may simply get sick of being so far away from our family and friends. Regardless, I cant count on a low cost of living forever.

Fat FIRE is typically classified as pursuing a FIRE number of $2.5 million or morewhich, with a 4% withdrawal rate, would yield income of $100,000 a year. The motivations of Fat FIRE enthusiasts may include:

I am a single woman with no children, so I am in a position to enjoy this wealth myself, says Ijeoma. But most importantly, I can offer these same experiences to the people I love and care for.

Fat FIRE is the same as regular FIRE, but the numbers are bigger across the board. You want a lifestyle that will require higher monthly expenses, which means your FIRE number and annual investment income will need to be higher and may take longer to achieve.

Davis and his wife are currently at about $600,000 in net worth, and on track to break the seven-figure mark in the next two years. Were still pretty far from some of our goals, he says. But its more about comfort and flexibility and reassurance as opposed to retirement itself.

The $2.5 million net work benchmark can feel steep; know that some people achieve FIRE and retire early with $1 million or less in their retirement savings.

Related: I Paid Off $50K in Student Loans On A $62,000 Salary and Set My Personal Finances Up to Retire At 45. Heres How I Did It

Lean FIRE, in contrast, is a net worth benchmark that assumes youll only have minimum expenses for food, housing, and transportation in retirement. Lean FIRE is sometimes defined as a lifestyle in which your current annual spending will remain under $40,000/year in retirement. Going by the Trinity study, such a lifestyle would require an investment portfolio worth $1 million. In contrast, Fat FIRE anticipates annual expenses of over $100,000/year in retirement, which requires a portfolio worth $2.5 million.

If youre pursuing your Fat FIRE number, youll reach and pass your Lean FIRE number along the way.

Here are some of the other popular interpretations of FIRE:

In Barista FIRE, you keep a part-time or low-stress job in retirement for residual income and health insurance to help offset annual spending costs. Many Americans aspire to Barista FIRE without even realizing it; they want to accumulate enough wealth to change or downshift their career.

Related: Is Your Starbucks Barista Secretly a Millionaire? Why Early Retirees Are Embracing Barista FIRE To Still Have Health Insurance

Coast FIRE is a retirement planning strategy in which your accounts have enough money invested to let compound interest get you the rest of the way to your FIRE number. When you hit your Coast FIRE number, you can stop contributing to your retirement accounts, freeing up monthly income, but your retirement timeline might be pushed back as a result.

You dont have to work full-blast all the way up until the day you retire. Consider checkpoints on your journey toward your Fat FIRE number in which you can downshift your workload and create more freedom.

A common theme among FIRE approaches is to aggressively pay down debt now so that youll be less burdened by expenses in retirement.

Related: Our Family Achieved FIRE at 39 and 41 on Salaries Of Under $100K a Year. Heres How We Did It

As my income grew, I became dogmatic about paying off all of my debt, says Ijeoma. Now Im debt-free even though I own multiple homes; I invested in some passive income [drivers], such as renting out my homes, Airbnb super hosting, and stablecoins, which give me interest each month.

For the entrepreneur, adopting a FIRE lifestyle is about stepping into who you truly want to become in life, says Ijeoma.

Now I purely work for fun and purpose. I feel like I still have a lot to give to the world.

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If You Want to Retire Early but Dont Want to Scrimp, Fat FIRE Might Be for You - NextAdvisor