All about FIRE (Financial Independence, Retire Early)
Many people ask, how do I retire early? FIRE, or Financial Independence, Retire Early, may be the answer.
On this page, you’ll learn more about the FIRE movement in the UK, what it involves and how to calculate your FIRE target. We also explore some of the other ways you can achieve your retirement goals, including investing and opening a high-interest savings account.
- FIRE definition: FIRE is a movement in which people restrict their spending and increase their earnings to achieve financial freedom at an early age
- Early retirement: Followers of FIRE usually set a goal of retiring decades before the traditional pension age, often as early as their 30s or 40s.
- Spending restrictions: FIRE usually involves adopting a frugal lifestyle and typically devoting 50-60% of post-tax income to savings.
What’s on this page
What is the FIRE movement?
FIRE stands for Financial Independence, Retire Early and its followers are focussed on two things: cutting costs and earning more. However, they don’t want to wait until the traditional retirement age to do it.
There is a growing trend in the UK of savers who are committed to financial independence and retiring much earlier than the state pension age of 66. Instead, those who subscribe to FIRE, are aiming to retire and follow their dreams, passions and interests when they are still in their 30s or early 40s.
By dedicating up to 70% of income to savings, followers of the FIRE movement may eventually be able to quit their jobs and live solely off small withdrawals from their portfolios, decades before the conventional UK retirement age.
What are the other different types of FIRE?
While traditional FIRE involves accumulating 25 times one’s annual expenses and retiring early, leveraging the 4% rule, there are a few different variants of the FIRE movement that followers can also choose depending on their lifestyle and goals
Fat FIRE – This is the most luxurious version of FIRE, whereby a person doesn’t just live on a portion of their pre-retirement income, but rather lives on their full pre-retirement income (or more!) This typically takes a high salary in the first place and an incredibly aggressive saving strategy pre-retirement.
Lean FIRE – This means retiring only with a very simple, or ‘lean’ lifestyle, where your money only covers your basic necessities such as food, housing and transport, and you wouldn’t have much wiggle room for luxuries. People who follow Lean FIRE often have to supplement their retirement with extra active income sources, like a part-time job.
Barista FIRE—This is for people who want the middle ground between the above two. They are able to retire, but use a combination of savings and a part-time work job to live a modest lifestyle in retirement.
A state pension provides you with regular payments from the government once you reach state pension age. Find out everything you need to know about the UK state pension, how it works, how you can claim and ways in which you may be able to increase your state pension.Read more
Knowing your retirement age is important, because you can use it as a target for when you can stop working. Find out the current retirement age in the UK, how to claim your state pension and ways you can save for your retirement.Read more
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How to calculate your FIRE target
There are no quick or easy ways to achieve this, and if you’re the average UK consumer who needs over £540,000 to hit your FIRE target, you’re going to need to work hard to achieve it. FIRE’s principles are based on setting a goal with the 4% rule. This rule is known as the ‘safe withdrawal rate’, or the number of yearly expenses you should be able to withdraw from your savings when you retire, without denting the principal amount.
This is worked out by finding out how much you spend annually (including all expenses) and then multiplying this figure by 25. This should give you enough expenses to withdraw 4% throughout your retirement. Many following the FIRE movement in the UK manage to save 50-60% of their post-tax income, and this is done by making frugal lifestyle choices, finding ways to make additional income and cutting down on overall expenditure. These examples include:
- Moving closer to work: This may help save on travel costs, especially if you are then able to walk to work or take the bus rather than the train, which often works out cheaper in many UK cities.
- Renting out your spare room: This could generate important additional income to help boost your FIRE target, plus the rent a room scheme allows you to earn up to £7,500 tax-free (as of 2023/24)
- Moving in with parents or a house share: If you’re prepared to sacrifice having your own space, you could save thousands of pounds in rent or mortgage payments
- Foregoing holidays for staycations: With 41% of 35-44 year-olds spending anywhere between £2,000 and £6,000 on holidays every year, opting for a staycation – or foregoing a holiday completely – could be a smart move.
- Reducing food waste: Over 65% of UK adults admit to buying too much food that ends up being thrown away, which means that the average family of four can save just over £60 per month by reducing their food waste.
FIRE requires big changes. It’s also important to remember that typically people try to aim for the same lifestyle that they want to maintain when retired, so if choices are too frugal, you may want to adjust and align your savings ratio.
Grow your money in top savings accounts
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We consider the meaning of frugal living and the benefits that come with a frugal lifestyle. We also outline our top 50 frugal money-saving tips to help you get started.Read more
What are some other options for achieving my FIRE goal?
Another smart way to achieve your FIRE goals is to earn more money. Easier said than done, especially if you can’t take on additional or alternate employment, or boost your income in other ways. However, by making your money work harder you can help to bridge the gap and increase the chances of achieving your early retirement dream.
One way you might be able to grow your wealth is by investing in the stock market. But while this can bring high rewards, it also comes with risks that can lead to losing some or all of your investment value. If you’d prefer to avoid risking your money, consider placing your hard-earned FIRE savings into an equally hard-working high-interest savings account.
One of the easiest ways to do this is to step- ladder your savings, building pots using high-interest easy access accounts to save money monthly, then once you have enough accrued, move these into a larger paying, long term, fixed rate term deposit and lock away your money until maturity.
There are many competitive rates being offered by banks that are fully FSCS protected, which may help savers secure their financial futures much quicker. In fact, at Raisin UK, we’ve already started to see an uplift in the average savings held by 40-50-year-olds in the last year, an interesting indication that some UK savers are starting to see the benefits of locking away their cash with our partner banks.
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