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Retirement is often characterized as a time to relax and enjoy the finer things in life. But do you really want to wait until you’re in your 60s or 70s to enjoy that lifestyle? Not everyone does. And they are joining a new movement called FIRE. This stands for “Financial Independence, Retire Early.” But it comes at a cost.
The FIRE movement revolves around intense saving, investing, and budgeting in order to earn enough money to retire far before traditional retirement age. Some FIRE participants save and invest 50 to 75 percent of their incomes and make certain sacrifices when it comes to spending.
But there are different approaches to FIRE. So let’s take a closer look.
The Rule of 25
The Rule of 25 suggests you need 25 times your annual income in order to retire. So to arrive at this number, begin by multiplying your monthly expenses by 12 to get your annual expenses. Then multiply that by 25.
For example, if your monthly expenses are $7,000, multiply it by 12, to get $84,000. Then, multiply that by 25 to get $2.1 million. That would be your retirement number. So as you can see, this would require intense saving and investing for the average worker.
The 4 Percent Rule
This rule states that you can withdraw 4 percent of your savings each year in retirement and then adjust for inflation each following year. However, keep in mind that this accounts for a 30-year retirement goal. So it may not be suitable for the more ambitious FIRE participants.
Take Advantage of Tax-Advantaged Accounts
A traditional IRA and 401(k) allows you to make tax-deductible contributions, and your money grows tax-free. However, you need to pay taxes when you make qualified withdrawals at age 59.5. Nonetheless, many financial experts point to these accounts as vehicles that make achieving millionaire status feasible. But you also have the option of a Roth IRA. These accounts won’t let you make tax-deductible contributions. But withdrawals are tax-free as long as you’re at least 59.5 years old and the account has been open for at least five years. Plus, you always have access to your contributions tax- and penalty-free.
In any case, try to max out these retirement plans. According to the Internal Revenue Service, for 2025, the maximum contribution you can make to a 401(k) is $23,500, along with an additional “catch-up” contribution of $7,500 for those age 50 or older. The contribution limit for traditional and Roth IRAs is $7,000 plus a $1,000 catch-up contribution for those age 50 or older.
But keep in mind that both traditional and Roth IRAs, as well as 401(k)s, have penalties for withdrawing money before reaching age 59.5 in most cases. So, if you want to retire before that age, you may want to prioritize a taxable brokerage account. You can make penalty-free withdrawals from these accounts anytime, but you’d need to pay taxes on the withdrawal as well as capital gains taxes when you sell investments for a profit.
Moreover, you should also keep on hand a liquid emergency fund that supports at least six months of living expenses. This would help cover unexpected expenses in your working years.
Types of FIRE
The FIRE movement can also be categorized into different types. For example, “lean” FIRE may work for minimalists who can live on very little and are able to save and invest the rest. On the other hand, “fat” fire revolves around funding the current lifestyle you have. So it requires extreme saving and investing, as well as higher incomes.
“Barista” FIRE involves saving enough to be able to retire, but also working while pursuing something you care about or working less.
Origins of FIRE
The exact origin of FIRE is unknown. But many of its concepts were popularized by the best-selling 1992 book “Your Money or Your Life,” by Vicki Robin and Joe Dominguez. The main message of that book was that people should analyze every expense based on the number of working hours it took to pay for it.
The Bottom Line
It is possible to retire early through the FIRE movement. But it takes extreme discipline and an intense commitment to aggressively saving and budgeting. With that may come some sacrifice. You may need to postpone vacations, dining out, and other luxuries to hit your retirement number early. But sticking to a sound plan and taking advantage of tax-advantaged retirement accounts as well as taxable brokerage accounts can help you get there.
Javier Simon is a freelance personal finance writer for The Epoch Times. He specializes in retirement planning, investing, taxes, fintech, financial products and more. His work has been featured by major publications including Fox Business, The Motley Fool, NerdWallet, and Money Magazine.
