The FIRE movement has a simple goal: to retire early and enjoy life on their terms. While it seems like a pipe dream for some, achieving early retirement is possible with smart budgeting and big dreams. (And a higher-than-average income doesn’t hurt, either.)
But if you want more financial flexibility, not just any ole FIRE will do. For greater security and a higher standard of living, you’ll have to aim high for Fat FIRE.
First, a primer: what is FIRE?
The Financial Independence, Retire Early (FIRE) lifestyle focuses on saving enough quit the workforce as soon as possible. Generally, this is accomplished by saving at least 25x your desired annual income before retiring.
Naturally, there are different versions of FIRE. Some, like Lean FIRE, involve scrimping and saving as much as possible now and later. Barista FIRE focuses on saving enough to semi-retire while working enough to cover your expenses and healthcare.
And there, there’s Fat FIRE – the retiree’s ultimate dream.
What is Fat FIRE?
Fat FIRE goes beyond financial independence to drop its adherents in the lap of luxury. The goal is simple: to save an even bigger nest egg and live large and luxurious in retirement. (Alternatively, to build a larger cushion while enjoying a moderate lifestyle with room to spare.)
Often, that means the ability to vacation frequently, live in a large house or expensive location, and afford excellent healthcare. In many cases, Fat FIRE followers never work again. Others continue to work on passion projects, saving and earning even more – on their terms.
Calculating your Fat FIRE number
Before you can achieve Fat FIRE, you need to set a savings target.
FIRE followers generally aim to save 25x as much as they plan to spend in retirement. Doing so means that (in theory) they can follow the 4% rule – which says you should limit portfolio withdrawals to 4% of your balance annually to be able to live off income from your portfolio.
For instance, someone who wants to withdraw $50,000 annually should save at least $1.25 million ($50,000 x 25).
But Fat FIRE followers want to live much larger. While some set their goal at $100,000 annually, many aim higher – at least $200,000. At that rate, you’d need to stash at least $5 million before leaving the workforce ($200,000 x 25).
More conservative Fat FIRE followers may choose to save even more to secure their futures. If you don’t mind working longer, you may try to save 30 or even 40 times your annual expenses before retiring. (And/or withdrawing less of your portfolio – say, 2-3% each year.)
How much do I need to retire with Fat FIRE?
Saving at least $5 million is a good start if you hope to spend around $200,000 annually in retirement. But the amount you’ll actually need depends on personal factors, like:
- Your desired withdrawal rate
- Your retirement area’s cost of living
- How often you hope to travel
- The size of your family
- Any mitigating factors (like expensive hobbies or medical conditions)
And that’s not all. If the 2020s have shown us anything, it’s that predicting the future is a fool’s errand.
To start, there’s no way to guarantee that your savings and investments will perform well enough to guarantee a 4% withdrawal rate. As recent years have proven, turbulent financial markets and fluctuating interest rates can do a number on your returns.
It’s also worth noting that the 4% rule doesn’t leave much room for inflation to eat into your budget. Setting a higher savings goal means that you’ll have a financial buffer in your accounts should inflation spike…again.
Benefits and drawbacks
Like all budgets and financial plans, Fat FIRE comes with its own benefits and drawbacks. Below, we'll look at a few reasons to FIRE away…or not.
Fat FIRE benefits
- Financial security. The biggest advantage of Fat FIRE is the enormous amount of financial stability it provides. Even if you continue working, you’ll rest easy at night knowing your bills are paid for the rest of your life.
- Financial freedom. More than security, Fat FIRE provides the ultimate financial freedom. You can enjoy your life to the fullest, from hobbies and vacations to expert medical care and time for charity.
- Lifestyle freedom. Have you ever fallen in love with a hobby that made some money, but not enough to live on? A bigger nest egg lets you enjoy that hobby – and even bring in some side income – with a hefty safety net.
- You can scale your expenses up or down. Another sizable advantage is that you have plenty of wiggle room in your finances. If you choose to have a “lean” year now so you can enjoy a “fat” year next year, you can!
Fat FIRE drawbacks
- You need a high income to start with. While Fat FIRE aims to live large in retirement, chances are, you’ll need the ability to live large now to achieve your dreams. Saving $5 million for retirement isn’t an easy feat if you earn $50,000 per year. (In fact, it’s nearly impossible.) Most Fat FIRE followers have mid-6-figure incomes to start with.
- Even if you’re a high earner, saving takes time (and sacrifices). Say that you earn $500,000 a year and save $12,500 per month ($150,000 per year) at 5% returns. Even saving nearly 1/3 of your income for retirement alone, it will still take almost 20 years to achieve Fat FIRE.
- Retirement may not be all you’ve dreamed of. For some people, retiring at 50 or earlier is all parties and roses. But many people find themselves bored or lonely if they don’t have a community to enjoy. Before retiring, be sure you know what you’ll do with your time.
- You’ll have to plan for taxes. One essential consideration involves your taxable investment accounts. Because 401(k) and IRA accounts have low contribution limits, you’ll likely have to put the bulk of your savings in a taxable investment account. That means you’ll be on the hook for a bigger capital gains tax bill – particularly if you’re living large.
- You’ll still have to budget. One hidden danger of Fat FIRE is that your budget still matters. Even if you have a larger budget, you’ll still want to limit your spending to ensure your savings will outlast you.
Is Fat FIRE right for you?
For many future retirees, Fat FIRE represents the ultimate American Dream: The ability to retire and live large. For others, actually achieving Fat FIRE takes more work or money than they’d like. Still, the lessons that Fat FIRE followers teach – namely, responsible saving and spending – can help guide your own retirement plans.