Can you retire early with the FIRE movement?

For most people, the path to retirement is straightforward: Get a job, steadily progress in your career, and eventually retire sometime in your 60s.

For those who are striving to reach financial freedom as soon as possible, there’s the FIRE movement.

What is the FIRE movement? Here, devotees of this retire early movement break down everything you need to know about this new approach to retirement, so that you can decide whether or not it’s right for you.

What is the FIRE movement?

FIRE—which stands for Financial Independence, Retire Early—is a retire early movement that’s attracted a growing number of supporters. It has led many to rethink the conventional path to retirement.

Within the FIRE movement, the goal is to achieve financial independence. This involves living within one’s means without having to rely on a regular full-time job to cover expenses. It could involve quitting your job completely and retiring early to pursue your passions while living off investment income. It could also mean working only a part-time gig while maintaining a low-cost lifestyle and living off of savings.

There are lots of reasons that people “pursue FIRE.” For married couple Kristy Shen and Bryce Leung, it was the fear of burnout in their demanding engineering careers.

Shen and Leung wanted to protect themselves from the physical and psychological risks of overworking. They began reading books and blogs that described the retire early movement. They applied the principles of FIRE (more on those below) to their lives as they worked and diligently saved. Eventually, they were both able to quit their jobs and retire at the age of 31.

Shen and Leung wrote a book about their tips for retiring early, which became an influential book in the FIRE movement. Today, they run a blog as they travel the world.

Melanie Allen is hoping she can retire early, too. She still works her day job, but she’s been carefully saving money. She’s been documenting her own FIRE journey on her blog.

“I and others who pursue FIRE don’t want to work in the traditional nine-to-five job for 40 years and then have a traditional retirement,” she says.

Instead, Allen and a growing FIRE community have rallied around the same basic tenets that underpin what the FIRE movement is and how FIRE works. While everyone’s approach to FIRE is unique, there are principles that many in the retire early movement say can shorten the waiting period for retirement from decades to years.

How does the FIRE retirement plan work?

There are a lot of tactics and strategies for pursuing FIRE. They are all more effective the earlier you start, Allen says. She was just about to turn 30 when she first learned of FIRE. She wishes she had begun her journey sooner. There would have been more time for her FIRE savings plan to grow through compound interest.

Regardless of age, you can still apply these principles of the FIRE retirement plan to your own life. Here’s how:

Get—and stay—out of debt

In order to avoid housing debt, Leung and Shen decided to avoid a mortgage. Instead, they put the money they had earmarked to buy a house toward their FIRE retirement plan while they continued to rent. They were then able to save large chunks of their paychecks until they had over a million dollars invested in the market. This money produced passive income.

Debt is a financial obligation that can weigh down your personal balance sheet. It can also be expensive if you carry a balance and have to pay interest. If you find yourself carrying too much debt, Leung recommends that you set up a repayment plan. This can help you get your finances back into positive territory as soon as possible.

Spend meaningfully

“This movement is not about cutting your own hair and clipping coupons,” Leung says. Instead, he says that people pursuing FIRE should spend their money on what they truly value without guilt. They should divert money away from things that don’t matter to them.

Allen agrees with this principle of the FIRE retirement plan. For example, she says that if you value treating yourself to dinner at nice restaurants, then you can avoid spending money on fast food. Instead, you can prepare inexpensive meals at home during the week. You can then use your extra cash to enjoy a special meal out over the weekend. (There are even ways you can save money eating out at your favorite restaurants.)  

Leung and Shen decided that the thousands of dollars they spent each year on travel was worth it to them. However, having a nice car in a city like Toronto that has excellent public transit was not.

Learn how to invest in the stock market

Investing wisely is critical for anyone on a FIRE retirement plan, Shen says. “If you learn to invest and build a portfolio instead of putting everything into a house, for example, then that portfolio will spin off passive income—not just in capital gains, but in the form of dividends and interest,” she says.

That recurring dividend income from a substantial investment portfolio must eventually be large enough to support your living expenses, Leung adds.

To reach that goal of sustained, passive investment income, Allen recommends “investing early and often. And as much as you can, for as long as you can.” That’s because the earlier you invest, the sooner you can benefit from the power of compounding.

Of course, you should always consider your unique financial situation and goals before making an investment decision.

Get a side hustle

In the FIRE community, retiring early doesn’t necessarily mean that you aren’t making some extra cash to support your lifestyle. In fact, building a side hustle is often encouraged as part of a FIRE retirement plan.

“For us, it’s writing,” Leung says. “We run a blog, and we also wrote a bestselling book.”

There are many reasons you need a side hustle. Leung notes that after “retiring,” a side hustle—even one that generates $5,000 to $10,000 a year—can dramatically enhance your financial position. The extra cash flow can help you limit the amount you need to withdraw from your investments, allowing your nest egg to continue to compound over the years.

If writing isn’t your thing, there are plenty of opportunities to earn extra money in today’s economy, Allen says. Selling arts and crafts on an online marketplace or driving for a ride-share company are great ways to boost the longevity of your financial independence.

Reduce your cost of living

One of the most effective ways to expedite your FIRE retirement plan is to keep your living costs down, Shen and Leung say. That way, you’re able to funnel even more savings into the market, where your nest egg can grow.

If you’re interested in the retire early movement, you’ll be interested in these two ways to manage your living costs:  

Travel can actually keep a lid on costs

Shen and Leung have always had the travel bug, and they’ve found that traveling has actually helped them reduce their living expenses in early retirement.

Shen notes that when they were living in Toronto, they were spending between $40,000 and $50,000 a year on living expenses.

“But when we started traveling the world,” Shen says, “we spent $40,000 a year and it hasn’t gone above that amount for the past five years.”

Leung says that they no longer pay rent like they did when they were saving for early retirement. Instead, they typically live out of their backpacks and pay for low-cost accommodations as they travel the world.

“We’ve found that not only is travel worth it, it’s actually helped us mitigate our risks in our portfolio because we were able to control our costs,” Shen says.

Geoarbitrage can improve the gap between income and expenses

Shen admits that globe-trotting isn’t for everyone. For people who would rather stay in one place as they pursue FIRE, she recommends geographic arbitrage. It’s also known as “geoarbitrage” for short in the FIRE community.

It’s a simple idea: Live and work in a city with a competitive job market and command a high salary. Then move to a lower-cost city or neighborhood while continuing to make the same salary.

You might be able to score a new gig in a lower-cost location without facing a salary adjustment, or you could commute from a lower-cost area if you’re not able to change your headquarters. Remote work might also be a possibility.  

“One outcome of the pandemic was that more and more people were able to work from home,” Shen says, which opened up the possibility of remote work and geoarbitrage to even more people pursuing the retire early movement.

Can a recession alter someone’s FIRE savings plan?

Saving, investing, and traveling your way to financial independence sounds nice in theory. However, a recession can throw a wrench into your FIRE savings plan.

“If you retire into a down market, you can deplete your portfolio very quickly,” Shen says. Keeping costs down can help, but there are other strategies that can help protect you from a market downturn.

Allen thinks the best approach is to have a healthy store of cash saved up in case a recession hits while in early retirement. She is still working toward her goal of saving $50,000 in an emergency savings account—in addition to her investments—before she’ll feel ready to quit her day job.

Allen notes that many people in the FIRE community don’t like to hold a lot of cash. This is because it could be growing faster if it were invested in the stock market.

“I’m a little bit different on that,” she says. “You never know when the market is going to crash, so you want to have that financial buffer to be sure that you’re safe.”

Is FIRE right for you?

Achieving financial independence early in life clearly has its benefits. You no longer have to work a job if you don’t enjoy it, and you can spend more time doing what you’re passionate about. For Shen and Leung, that’s traveling, and for Allen, it’s writing. For you, it could be anything.

But FIRE can have its drawbacks, and sometimes the benefits of the retire early movement can be achieved in other ways.

The FIRE retirement plan can give you major FOMO

Kali Roberge, now creative director at a financial planning firm, found the retire early movement in her early 20s as she struggled to find a promising career path. Roberge graduated into the Great Recession and—like many recent grads at that time—was frustrated by the lack of prospects.

She found FIRE to be a way to sidestep the traditional rat race. “I felt like if I couldn’t figure out how to make it in the corporate world with a high-earning job, I needed to make just enough to get out completely.”

Roberge believes that achieving financial independence is a worthwhile goal. However, she found that her intense focus on the early retirement portion of FIRE resulted in missed experiences and opportunities. She’d regularly skip movies and other events with friends to save for the goal of retiring in her early 30s.

“I really missed a lot of time that I could have been spending with other people because I was literally sitting at home to avoid spending money,” she says.

Roberge feels that her commitment to FIRE blinded her to paths that would have enriched her life. “I eventually realized that I could have more freedom and power by exploring ways to earn more rather than just scrimping as much as possible,” she says.

While Roberge realized that retiring in her 30s wasn’t for her, she now has her sights set on retiring at the age of 45.

You can be financially independent without retiring early

Shen and Leung have been able to use the FIRE retirement plan to quit their jobs and follow their passions. But they emphasize that the “FI” part of FIRE (financial independence) can serve anyone who wants to take more control over their life.

“You don’t actually have to do the retire early part,” Leung says. “If you love your job, you can stay there. But financial independence is all about getting more power back for yourself. Not being beholden to your boss, not being beholden to debt, not being beholden to your mortgage.”

Allen echoes this sentiment. “I feel like FIRE should be for everyone,” she says. She also notes that even if you love your job now, that might not always be the case. She believes learning budgeting basics, how to budget your money and investing best practices can help anyone get their financial life in order, while the ethos of following your passions instead of doing what’s expected of you is important for living a fulfilled life.

Whatever you decide, do it with intention, Roberge recommends. “Make sure you’re committing to this because it’s the right move for you and your life,” she says. “Money is a valuable resource, but so is time. We need to make sure we’re leveraging both wisely.”

If retiring early is your goal, consider the money moves you need to make to get there, starting with why you need to make a retirement budget before you actually retire.

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