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FI, FIRE, FIOR, LeanFIRE… a lot of terms are bandied about in the personal finance/financial independence community, and I thought it would be good to take a look at these in a little more detail. As Ty reminds us so well – personal finance is, well – personal. One size fits one, and one person’s FIRE is not going to look like another’s!

With that in mind, here are a few key definitions and concepts related to FIRE…

Financial Independence (FI) – When you have enough in savings to cover your annual expenses, assuming a 4% withdrawal rate. For many, this is roughly 1 million invested, which would give you an annual income of $40,000 – but again, this number will vary depending on what your spending is. Basically, once you have 25x your annual spendings in savings/investments, you are FI.

Financially Independent, Retired Early (FIRE) – Those who have reached financial independence and given up their day jobs. Most people tend to continue doing some sort of “work” after early retirement, which can sometimes bring out the Internet Retirement Police…

One key aspect, for me at least, is the ability to work doing what I enjoy, rather than working because I need the money. I’m really, really passionate about what I do, so I can’t imagine giving it up altogether – but of course, that can always change as well. Steve from Think Save Retire has a great piece on the freedom of turning down work in early retirement – this is #goals for me. Another really interesting take on that comes from Michael Dinich, who talks about the term “Financially Independent Entrepreneur”, or FIE – that is, people who’ve reached a level of financial independence, but are still making money from blogging, side gigs, etc… To me, this is similar to the concept of Financial Independence, Optional Retirement (FIOR), which is our target.

LeanFIRE – Mr. and Mrs. 2P from Tuppennys Fireplace are a good example of this – they are on the cusp of reaching early retirement in their 50s. They have saved enough for the bare necessities and a bit more – some local trips, replacing their car when it needs it, and so on… but not brand new cars, new electronics, and multiple fancy vacations per year. They’ve decided that their priorities lie in being able to stop work a bit earlier, even if it means living just a little bit leaner.

Michael Dinich makes some really great points about the risks associated with LeanFIRE as well…things like changes in healthcare laws and regulations, medical emergencies, or a prolonged stock market downturn. A lot of these can be mitigated with…

FatFIRE – On the other end of the spectrum, we have FatFIRE. Although this concept has been embraced by a lot of people, I think Physician on Fire is kind of the go-to guy for this. FatFIRE is essentially continuing to live large into early retirement. While there’s not a clear number set for this, PoF mentioned the 100K/year annual spending as a sort of target – which would mean about 2.5 million banked to support this level of spending on a 4% withdrawal rate. One very clear benefit to this FIRE target is that if the SHTF, those on the FatFIRE path have a lot more discretionary spending to cut. Of course, the drawback(s) are that you need a higher level of income to meet this target, and/or it may take longer to reach FatFIRE than LeanFIRE.

On the topic of FatFIRE, Lily from the Fugal Gene has a good time letting her mind run wild with the idea of Morbidly Obese FIRE (moFIRE) which some estimate in the range of 200K spending/year (although again, there’s no real hard and fast rule for that)!

Barista FIRE (also sometimes called “SoftFIRE” or “CoastFIRE”) – this is where you have almost funded your early retirement, and only need to earn a little bit extra to fully fund your lifestyle (so maybe you can live on a 4% withdrawal rate *and* an extra $10,000 per year that you earn from side hustles, part time work, etc.). Financial Panther has an excellent overview of this – essentially – if you can earn $10,000 per year, you will need $250,000 less in your portfolio in order to live. This can help you reach “early retirement” a lot sooner than if you needed to fully fund your entire lifestyle. I also think there are lots of other benefits to this – you still get the engagement of working (something most of us still value), you sharpen old skills or learn new ones, and you may keep yourself marketable should there be a sudden, prolonged downturn in the market.

Another way to approach this is like Gwen, from Fiery Millenials (as posted here on Go Curry Cracker) who front-loaded her retirement portfolio so that she can pursue her (lower-paying) interests while her retirement fund “percolates” – when she’s ready to fully retire, it will be there waiting for her!

For those of us who are really passionate about our work, I think this is a great target – I can pretty easily earn a couple thousand dollars doing a few shifts per month of something I really enjoy and don’t want to give up anyhow. If the market tanks or something crazy happens, my licenses are still good and my skills are up to date, so finding a part- or full time job would be a lot easier. Meanwhile, the less I touch of the nest egg, the bigger it grows, and the more “fluff” I’ll have in my fully retired life, whenever that happens..!

Related:

Lin shares a great post over on GenY Finance Guy about discovering the FIRE community a bit late…. It really spoke to me, because even though we are still “early” for some, we are definitely later than many in the FIRE community – I’m 35, my husband’s 39, and we have at least ten years left to FI – so when I hear about people 5+ years younger than me who are already there, it stings just a bit… especially since we were so much closer before a series of bad decisions kicked us in the ass… but, we picked ourselves up, brushed ourselves off, and got back on the road- just like Lin talks about here.

Steve from Think Save Retire has a great list of early retirement buzzwords and acronyms – he and his wife are S.H.I.T.s!!

Drew from the FIIntrovert shares some great alternatives to early retirement – I love this, because there are so many ways to work less, enjoy life more, and be fulfilled without having exactly 25x your annual spending in Vanguard 😉

J. Money over at Budgets are Sexy has an awesome (epic… can we say epic? Dammit, I’m going with it!) EPIC list of 40+ Financial Acronyms. I’m a SIK FIGMY$HIT FULLTRASH !!

So, what “Flavor of FIRE” are you?!

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