Financial independence (FIRE)

Also called financial independence, retire early, FI number

Having enough savings and other income to cover living costs without needing to work; FIRE adds the goal of retiring early.

What it means

Financial independence means investment income and other reliable sources can pay for a person’s lifestyle, so work becomes optional. The FIRE movement, short for financial independence, retire early, pursues this through a high savings rate, often a large share of income, invested mostly in low-cost funds. A common shortcut sets the target at 25 times annual spending, which reflects the 4% rule.

Variations include lean FIRE on a minimal budget, fat FIRE with a more generous one, coast FIRE, where existing savings are left to grow without further contributions, and barista FIRE, which relies on part-time work. Early retirees face added challenges: retirements that may last longer than the 30 years the 4% rule studied, health insurance before Medicare, and rules limiting penalty-free access to retirement accounts before 59½.

Formula

FI number = Annual spending ÷ Withdrawal rate

Annual spending = expected yearly living costs in retirement
Withdrawal rate = chosen safe withdrawal rate as a decimal (4% = 0.04, which equals multiplying by 25)

Example

For example, a household that spends $40,000 a year and uses a 4% withdrawal rate would aim for $40,000 ÷ 0.04, or $1,000,000. Cutting spending to $36,000 would lower the target to $900,000.

How it’s used

Setting a long-term savings target
Planning an early or flexible retirement
Measuring progress toward optional work

Strengths and weaknesses

Strengths

Clear, measurable goal
High savings rates build resilience against job loss
Gives more control over time and career choices

Weaknesses

Long retirements raise sequence and longevity risk
Requires very high savings rates for many years
Health insurance and early account access need planning
Spending estimates decades ahead may prove wrong

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.