What is F.I.R.E.

Updated: Feb 2, 2021

Financial Independence, Retire Early (FIRE). FIRE is a 2 part movement to help individuals, (1) gain financial independence, and (2) allow individuals to retire early if they choose. The framework behind the FIRE movement revolves around individuals being able to create income streams from their investments so that they are not dependent on a job(s). There are many versions of FIRE, but this blog will revolve around how I plan to achieve FIRE.

I do not think that I am the type of person that can live not working. I love my job and I love constantly working towards a common goal with a motivated team, but I do not want to be financially dependent on my job to survive. My reason for taking part in the FIRE movement is so that I can be financially free and work on what I want to... maybe even start my own company one day.

There are many forms of investments that help your money work for you like a 401(k), Traditional IRA, Roth IRA, individual investments in the stock market, bonds, and many more. I do have a 401(k) through my work, but the growth is very small and barely keeps up with the S&P 500. I have a Roth IRA, but I am limited to contributing $6,000 a year. The main vehicle that I am using to help me achieve FIRE is being an individual investor in the stock market.

How much do you need to retire? Every investor should first figure out their FIRE number, which is the amount you're investments need to be at in order to be financially independent. Please note that I said investments, not savings. The reason this movement revolves around investments is because the FIRE framework assumes that your investments will constantly grow in value. To figure out your FIRE number, first, figure out how much income you will require a year in order for you to survive. Second, take that number and multiply it by 25 and that will be the FIRE number you need to achieve to retire.

For example, if you require $40,000 every year to be financially independent or retire, you will take 40,000 and multiply it by 25 to get your FIRE number


 

$40,000 annual income needed to retire

FIRE Number = 40,000 x 25 = 1,000,000


 

The reason we multiply the annual income needed by 25 is due to the 4% rule. The 4% Rule is a rule based on the Trinity Study that found that in order to be able to retire successfully off your investments, you should only draw 4% from your investments a year. The S&P 500 returns an average of 10% a year and the average inflation rate is around 2% a year. So withdrawing around 4% from your investments should allow you to enjoy retirement without running the risk of burning all your investments. There are a lot of factors to consider. I just gave a brief summary. The Trinity Study also mentioned that you will have a better success rate if the majority of your investments are in stocks vs. bonds. To find out a little more on how much you will need to retire, check out the blog "How much do you need to retire". Again, WE ARE NOT FINANCIAL ADVISORS. This site is to share ideas about finance and investments so that we can achieve FIRE. Cheers!

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