FIRE Fundamentals: How Much Do You Really Need to Retire Early?

No matter what generation you're in, there's a good chance that you'd like to retire as soon as possible so you can spend more time on what matters to you. Most of us won't be lucky enough to win the lottery or pick the next big stock, but that doesn't mean we're doomed to work until our 60s or 70s.

The Financial Independence, Retire Early (FIRE) movement is full of people who refuse to take this path, aiming instead to retire in their 50s, 40s, or maybe even 30s. As you might imagine, this takes a lot of money to pull off. How much money might surprise you.

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What kind of nest egg do you need for FIRE?

There's no exact dollar amount you need to save to retire comfortably. It depends on a lot of factors, including where you live, when you plan to retire, and the kind of lifestyle you want to have. That said, we can infer some things based on what we know about FIRE savings rules and average spending habits.

The traditional retirement savings rule says you should save 25 times your annual expenses and withdraw 4% of your savings in the first year of retirement, adjusting thereafter for inflation. That's supposed to help your savings last you at least 30 years. But it could be insufficient for FIRE adherents. Fidelity recommends you save 33 times your annual expenses if you plan to retire before 62. This assumes you withdraw just 3% of your retirement savings in the first year of your retirement with annual adjustments for inflation.

The average U.S. household spent $77,280 in 2023, according to the Bureau of Labor Statistics. If we take 33 times that amount, we wind up with a savings goal of $2.55 million.

Many people struggle to save this much even when they work until their 60s or 70s. FIRE followers aim to do this much sooner, and that demands a high savings rate. Setting aside at least 50% of your income is considered pretty standard among this group and some save as much as 75% of what they earn.

This high savings rate is key if you hope to retire early, but it's not easy for everyone to maintain. It can force you to give up a lot of things in the present and it causes some to burn out. So that's something to weigh when deciding whether FIRE is right for you.

FIRE isn't just one option

A $2.55 million nest egg is a rough target to aim for if you want to join the FIRE movement, but that could be more or less than what you actually need depending on how you envision your lifestyle in retirement.

There are many variations of FIRE, including:

• Lean FIRE: This assumes you'll spend no more than $40,000 per year, adjusted for inflation, in retirement. If you go this route, you may be able to get by with a smaller nest egg, but you'll also have less wiggle room to deal with any unexpected expenses that arise.
• Fat FIRE: Fat FIRE assumes you'll spend $100,000 or more each year. This can give you a much more comfortable lifestyle, but you'll also need to save a much larger nest egg.
• Coast FIRE: Coast FIRE is where you save aggressively until you've set aside enough money to "coast" on investment earnings until a traditional retirement age. Once you've hit a certain target, you don't contribute any more to retirement savings, allowing your investments to sit untouched and grow for decades.
• Barista FIRE: Barista FIRE involves aggressive savings and an early retirement date, but it assumes you'll work some sort of flexible job, like being a barista, throughout your retirement. Having a steady paycheck to supplement your personal savings means you can get by with a smaller nest egg.

There isn't a right or wrong answer here. You just have to figure out which approach fits best with your income and lifestyle. Once you have an idea of how much you'll spend annually in retirement and whether you'll have a job to cover any of that, you'll have a clearer idea of how much you need to save for retirement.

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