FIRE - Financial Independence Retire Early

Financial Independence Retire Early (FIRE) is a movement that aims to achieve financial freedom and retire early from traditional work. The goal of the FIRE movement is to accumulate enough wealth through a combination of saving, investing, and living frugally to support one's living expenses without relying on a traditional job.

Let's break down some of the terminology associated with FIRE:

Financial Independence : Financial independence refers to having enough savings and investments to support one's lifestyle without the need for traditional employment income. This can be achieved through a variety of means, including passive income streams from investments and rental properties.

For example, let's say someone has a net worth of $1 million and they live off a 4% withdrawal rate, or $40,000 per year. If they have no debt and low living expenses, they may consider themselves financially independent.

Retire Early : Retiring early refers to leaving traditional employment before the traditional retirement age of 65. This can mean retiring completely or pursuing other work that is more fulfilling or enjoyable.

For example, someone who retires early may choose to work part-time, start their own business, or pursue hobbies or travel that were previously not feasible while working a full-time job.

Savings Rate : The savings rate is the percentage of income that is saved each year. FIRE proponents often aim for a high savings rate of 50% or more in order to accumulate wealth quickly.

For example, if someone makes $100,000 per year and saves $50,000 per year, their savings rate is 50%.

Passive Income : Passive income refers to income generated without actively working for it. This can include rental income, dividends from stocks, or interest from savings accounts.

For example, if someone owns a rental property and collects $1,000 per month in rent, that would be considered passive income.

Safe Withdrawal Rate : The safe withdrawal rate is the percentage of savings that can be withdrawn each year without running out of money. The common rule of thumb is the 4% rule, which suggests that one can safely withdraw 4% of their portfolio each year in retirement without depleting their savings.

For example, if someone has a portfolio worth $1 million, they can withdraw $40,000 per year using the 4% rule.

Overall, the FIRE movement aims to achieve financial independence and retire early through a combination of aggressive savings rates and investment strategies. While it requires discipline and sacrifice in the short-term, the benefits of financial freedom and early retirement can be well worth the effort.