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The FIRE Glossary: What is fatFIRE, leanFIRE... seaFIRE?

The FIRE Glossary: What is fatFIRE, leanFIRE... seaFIRE?

Introducing the #FIRE Glossary

As I’ve become more engaged in the personal finance community, I’ve learned a great deal about the different types of FIRE (Financial Independence, Retire Early). It seems like every day that passes, there’s a new variant of the acronym: fatFIRE, leanFIRE, seaFIRE… even baristaFIRE! Today, I am going to dissect each of the different variants of FIRE, starting with FIRE itself!

What is FIRE?

FIRE stands for financial independence, retire early. Those that seek FIRE intend to leave the 9-5 workforce before the traditional retirement age, and support their lifestyle through a combination of savings, part time work, or monetized hobbies.

Lifestyle characteristics of FIRE

There are often significant lifestyle changes and cost reductions that are necessary in order to retire 10 or more years before the traditional retirement age. The reason is simple. By following the standard 4% safe withdrawal rate on a traditional portfolio, every dollar needed in retirement corresponds to $25 in required savings. Conversely, every dollar that ISN’T needed in retirement is $25 that ISN’T needed in retirement savings. This means that those who are attempting to FIRE can either save a TON of money, or cut a little on the cost side. You can use my retirement income calculator below to see how much money is required to reach each a set amount of income.

There are many ways that people reduce costs in order to reach FIRE. Many people move from a high cost of living area to one with significantly lower costs of living. That alone can reduce costs by 20-30%. Some people even choose to forego a traditional home altogether, and travel in a moterhome, RV, or camper. Costs can also be lowered by growing or raising food at home, avoiding eating out, and eliminating extraneous costs like cars or vacations. After all, every day in retirement is a vacation! Theoretically.

FIRE devotees believe that a free life is one that is lived pursuing ones passions, outside of a rigid 9-5 work life. Think Save Retire is a fairly representative FIRE blogger, if you want to learn more.

Investment philosophy for FIRE

Investing is a cornerstone of any traditional FIRE strategy, since early retirement necessitates a lifelong stream of steady income from someplace other than a 9-5 job. Most people who are attempting to FIRE are ardent followers of the index investing philosophy popularized by John Bogel. Instead of trying to beat the market, or find “home run” investments, index investors attempt to match the steady but ordinary returns of the stock market as a whole. If you haven’t seen it already, the Bogelheads forum is an excellent place to learn more about this. Often, portfolios will be simple constructions of 2-4 stock or bond index funds, which are regularly rebalanced and held for the very long term.

FIRE also requires an intelligent mix of pre and post tax investments to take advantage of tax advantaged opportunities like 401ks and IRAs, while also enabling access to assets during early retirement. The FIRE community has become increasingly sophisticated about this in recent years, with tools like backdoor ROTH conversions.

It isn’t uncommon for those who are seeking FIRE to have real estate investments, as well.

Generally, FIRE requires savings of more than $1,000,000 to ensure an income of at least $40,000, which will likely be complemented by social security or other sources (as below).

Income in FIRE

Reducing costs and saving more are the two most obvious ways to ensure an early retirement. But, there is a third! Early retirees often have a great deal of energy and enthusiasm to apply once they leave their day job, and it’s only natural that they would seek to apply that towards a hobby, craft, or side-hustle that they are passionate about. In many cases, these activities can also generate income that can be used to offset the cost. It probably won’t surprise you to learn that blogging is one of the most popular side hustles for FIRE seekers.

What is fatFIRE?

fatFIRE is a variant of Financial Independence, Retire Early. fatFIRE adherents attempt to save a large enough sum of money that they can retire early while not making any lifestyle sacrifices in an attempt to lower their cost of living.

Lifestyle characteristics of fatFIRE

Unlike regular FIRE, fatFIRE is characterized by a lifestyle lived with little to no compromise. Those who seek fatFIRE intend to live a full lifestyle, with the house, car, vacations, and things that they want. This isn’t to say that fatFIRE is entirely without compromise of any kind. Although it may be possible for someone to retire early in San Francisco with $5,000,000 in investments (ensuring $200,000 in retirement income), they would likely be able to live a much better lifestyle by moving to Seattle or Arizona and reducing their cost of living by 15-30%.

FatFIRE devotees are maximalists by nature. They ask, how can I make more, do more, experience more, and see more in my lifetime. Financial Samurai is a great example of a fatFIRE.

Investment philosophy for fatFIRE

fatFIRE is very similar to regular FIRE when it comes to investing, however those who are seeking fatFIRE often have a greater breadth of investments outside of their core portfolio. Reaching the $3m-$10m in savings that characterizes fatFIRE often requires significant ownership in a business, along with real estate, private equity or venture capital investments.

Income in fatFIRE

Generally, those who reach fatFIRE will do so without the need for additional side income. However, given the advanced careers and business experience needed to reach such a high level of savings, consulting opportunities, board seats and part-time business engagements aren’t uncommon. Of course, there are many fatFIREes who send their time on their hobbies, and may monetize them in the same manner as regular FIREes.

What is leanFIRE?

Lifestyle characteristics of leanFIRE

leanFIRE is the antithesis of fatFIRE: it is characterized by the vicious and unrelenting reduction of costs of any kind. LeanFIREes are often the earliest retirement seekers: they look to eliminate their 9-5 job by the time they reach 35 or even much earlier. Quite simply, the only way to do this is by having nearly no costs at all. This means living in yurts, or in very low cost areas, or even potentially off the grid entirely. LeanFIRE often also means no cars, traditional vacations, eating out, or new clothes. In every way, leanFIRE asks: How much can you cut?

At the same time, many leanFIRE devotees are minimalists my nature. They ask, how can I reduce the excess clutter in my life and focus inwardly on the things that truly bring me happiness. Mr. Money Moustache is a LeanFIRE blog that helped to popularize the concept.

Investment philosophy for leanFIRE

LeanFIREes are almost identical to “normal” FIREes in their investment philosophy. Of course, by definition they often have less to invest so they may have an even less complex investment plan.

Income in leanFIRE

Income is crucial in leanFIRE. Because many leanFIRE devotees will retire much earlier than those seeking fatFIRE or normal FIRE, their investments need to stretch further and their side income needs to be higher. Furthermore, healthcare costs can be a significant concern for those in leanFIRE (since they are often fixed, and high), which means that side jobs that offer healthcare can provide a significant benefit to those pursuing leanFIRE without forcing them into a traditional 9-5 job.

The other FIREs

You thought that was it! Definitely not. Every day that passes, there’s a new type of FIRE. Here are a few of my favorites.

What is baristaFIRE?

BaristaFIRE is a type of normal or leanFIRE where the retiree has enough savings to partially support their lifestyle, but needs a part time job to fully support their lifestyle. This is often a popular option for those who need healthcare, since employers like Starbucks offer healthcare to their workers who meet certain criteria.

What is seaFIRE?

SeaFIRE is FIRE… but in SouthEast Asia! Since the cost of living in Thailand, Vietnam, Malaysia or Indonesia can be less than $10,000 per year, even leanFIREes can live a relatively full lifestyle… on the beach! Of course there are negatives as well, like being far from family and friends and not having access to high quality healthcare. However, for those who are young and eager for an adventure, seaFIRE can be an excellent option for 3-5 years.

What type of FIRE am I looking at?

Although I am more fatFIRE than anything else, I think the honest answer is that I am a mix of all the FIREs. I would love to spend a year or two in Southeast Asia, and I wouldn’t complain if that lowered my costs. As evidenced by this blog, I have a passion for finance and I would love to continue writing the blog in retirement, with the small but significant income stream it affords helping to lower my savings needs. At the same time, I enjoy a good meal and a fancy vacation as much as anyone else, so I can’t really call myself leanFIRE.

For now, my focus is on saving as much as possible. I am still 15-20 years away from retirement of any sort, and the biggest gains for me will be realized in my savings. I am using Personal Capitals free retirement calculator tool to catalogue all of my savings and investments and develop a comprehensive view of my retirement plan. In the visualization below you can see my planned build up to retirement at 53. Admittedly, it isn’t that early of a retirement, but I also don’t hate my job.

What about you? What is your retirement plan? How are you planning on getting there?

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