FIRE: Financial Independence, Retire Early

Because who wants to work until they're 65?

Alison Banney's headshot
Richard Whitten's headshot

By

Alison Banney

&

Richard Whitten

Updated

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Key takeaways

  • FIRE requires you to drastically reducing your spending, work more and invest while you're young so you can retire earlier.
  • FIRE is not a set-and-forget strategy it's an entire lifestyle change that requires ongoing work.
  • Financial independance doesn't mean you'll never work again. Instead, you can choose what you want to do and how often you do it.

What is the FIRE movement?

The Financial Independence, Retire Early (FIRE) movement involves investing and saving as much as you can while you're young so you can retire in your 30s or 40s.

It challenges the status quo of getting a mortgage, working 5 days a week for 40+ years to pay off that mortgage and then retiring at age 65 (if you're lucky!).

How to achieve financial independence

To be financially independant you need to pay off your debt, reduce your spending, increase your income and invest your money.

Lacey Filipich – Co-founder of Money School, author and TEDx speaker

Lacey Filipich

I like to talk about FI (Financial Independence) and RE (Retire Early) separately. Very few people will retire early in the sense we typically mean retirement – as in, never working again. Really, people who achieve FI become time rich – they get to choose how they'll spend their time because they don't need a wage to survive. That might include periods of not working, but most people will find something meaningful to replace paid work, or will continue working. It's just that they're not in it for the money anymore.

Retiring early and your FIRE number

To retire early you need to build up enough money to fund your lifestyle without needing to work. There are a few ways to estimate what your goal is here.

The "4% rule" and "25x rule"

The FIRE community often uses the 4% rule and the 25x rule as a guide for how much money they need to retire.

In short, the idea is you calculate your annual expenses and times this by 25. Once you have this amount, you can retire and withdraw 4% annually to cover your expenses, while the remainder stays invested.

For example, let's say you've calculated your annual living expenses to be $50,000. You multiple this by 25 to get $1,250,000 - this is how much you need to have in cash and investments to retire.

In your first year of retirement you can withdraw 4% of this amount to fund your living expenses, which is $50,000.

However, one flaw of the 4% rule for the FIRE movement is that it's based on a 30-year retirement timeframe. According to global investment giant Vanguard; "The 4% rule gives an investor with a 30-year retirement horizon about an 82% chance of success—but a FIRE investor with a 50-year retirement horizon only a 36% chance of success."

The ASFA retirement standard

The ASFA retirement standard estimates that Australians need to budget for annual living expenses of $52,085 for a comfortable retirement, and $33,134 for a modest retirement.

Is FIRE right for you?

It's more than just setting a budget and cutting out a few luxuries. Ask yourself if you're willing to cut out (or at least drastically cut back on) the following:

  • Overseas holidays
  • Entertainment like concerts and festivals
  • Cafe breakfasts
  • Expensive meals
  • Nice clothes
  • Hobbies that require expensive equipment
  • The latest tech
  • A nice car
  • Weekends away

FIRE doesn't mean you can't spend any money at all, but the serious savings you need to make require sacrifices. FIRE is both a radical lifestyle change and a long-term financial plan.

If the sacrifice sounds too much, then FIRE probably isn't for you. If the frugality sounds like a challenge and you're keen on a minimalistic lifestyle, then FIRE might be your path to a freer life.

Frequently Asked Questions

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Editorial Manager, Money
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Alison is an editor at Finder and a personal finance journalist with over 10 years of experience, having contributed to major financial institutions and publications such as Westpac, Money Magazine, and Yahoo Finance. She is frequently quoted in media outlets like SmartCompany and SBS, offering expert insights on superannuation and money management. Alison holds a Bachelor of Communications in Public Relations and Journalism from the University of Newcastle, and has earned three ASIC RG146 certifications in superannuation, securities and managed investments and general financial advice, ensuring her expertise is fully aligned with ASIC standards. See full bio

Alison's expertise
Alison has written 574 Finder guides across topics including:
  • Superannuation
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Co-written by

Senior Money Editor

Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

Richard's expertise
Richard has written 755 Finder guides across topics including:
  • Home loans
  • Credit cards
  • Personal finance
  • Money-saving tips
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