For software engineers, coders, hackers and developers working at successful tech firms, the prospect of early retirement may be appealing, but for many, the lifestyle choices required of the FIRE movement are not worth it.
For many high-earning tech workers, retiring before the traditional mid-60s retirement age is the plan, but with an elevated standard of living. Welcome to Fat FIRE.
What is FIRE?
FIRE is a movement predicated on valuing freedom and flexibility over material possessions. It is an acronym for “Financial Independence, Retire Early.”
The movement can trace its roots back to the book Your Money or Your Life by Joe Dominguez and Vicki Robin. First published 1992.
But the movement really started after the Great Recession of 2008 (or 2007-2009) when bloggers like Mr. Money Mustache and others picked up the mantle.
Let me offer a few definitions in relation to the FIRE movement:
Financial Independence (FI): generating enough “income” from your savings/investments to cover all your living expenses.
Retire Early (RE): Leaving the conventional workforce prior to traditional retirement age.
It should be noted that the two parts of FIRE, 1) Financial Independence and 2) Retire Early, are not synonymous. Many people who become Financially Independent choose to keep working, and unfortunately, many people are forced to Retire Early who would not generally be considered monetarily well off.
It should also be noted that many people in the FIRE movement don’t necessarily stop earning money after they “retire.” They may keep a side hustle or other part-time revenue generating activity, but they gain flexibility over their time by retiring from a conventional 9-to-5 job.
Check out the prior post on Living the FIRE Movement for more details.
FIRE Principles
One can achieve Financial Independence in different ways. Some people are born into it or gain it via inheritance. Others achieve Financial Independence on a more conventional timeline at retirement age in their mid-60s.
But the FIRE movement, in its pure form, is really a philosophy on how to live one’s life. It’s a declaration of what you believe is important. Your Money or Your Life. Do you want to accumulate wealth and assets, or do you want to live frugally in order to have the freedom and flexibility to do what you want with your time.
Basic FIRE principles come down to a few steps:
- Reduce expenses dramatically
- Save aggressively and funnel your savings into investments
- Accumulate enough investments/savings to fund your lifestyle
You have far more control over how much you spend than how much money you earn, especially in the short term.
The FIRE movement goes beyond just how to save a lot of money quickly. It recognizes that most people need a higher goal if they are going to achieve the dramatic reduction in expenses required to save a significant portion of their income each year.
If you want to be “on FIRE,” you need to:
- Desire frugality, simplicity, and self-sufficiency
- Know why you want to be financially independent (i.e., what comes next?)
- Strive for a life with the flexibility to do what you want
When Will I Be Financially Independent?
The benchmark often used to determine when you have reached Financial Independence is when you have saved at least 25 times your annual spending. Hence allowing for a 4% spending rate.
The more you can cut spending, the faster you achieve Financial Independence.
If you spend $50,000 per year, you need to have saved $1.25 million to reach Financial Independence. But if you can cut expenses to $40K per year by being frugal, then you only need to have saved $1 million, and can potentially retire many years earlier.
And for bread-and-butter FIRE adherents, these are the spending levels people talk about. Families spending less than $50K per year. Some would even say that level of spending is too much. Mr. Money Mustaches budgets seem to constantly run under $30,000 annually.
The more you can reduce your “burn rate,” the faster you can retire. It is much easier to support a $25,000 annual budget from investment income than a $50K budget.
What is Fat FIRE?
Here is where it gets interesting. For high-income tech workers, the idea of 40+ year retirement of frugality and simplicity might not sound ideal. You may want to Retire Early, but you are not willing to dramatically reduce spending.
Enter Fat FIRE. The same objective—Financial Independence, Retire Early—but on a larger budget.
Although I believe the principles of frugality and simplicity are inextricably associated with FIRE, there are no hard rules as too how much you can spend and still be considered part of the movement.
Fat FIRE is just a recognition that if you earn a high salary, you can save an amount of money large enough to support a higher level of spending…and still Retire Early.
Do I Look Fat with this Bank Account?
As with all things made up by the blogosphere, there is no definitive definition of when you have crossed over into Fat FIRE.
If a FIRE adherent aims to spend under $50,000 per year, most articles seem to peg Fat FIRE at a $100,000 or more annual budget.
Beyond the dollar amount, what I believe should differentiate classic FIRE from Fat FIRE is the degree of frugality and budget reductions used to achieve Financial Independence.
I look at Fat FIRE as a philosophy for people who make a high-income and want to maintain their current spending (or only curtail it a bit). A Fat FIREer can save aggressively to reach Financial Independence without too much sacrifice. They get to remain fat.
Achieving Fat FIRE
Sticking with the goal of saving 25 times your annual spending to achieve Financial Independence, the ability to spend $100,000 a year requires retirement savings of $2.5 million.
To put this in perspective, the median household net worth in the United States was just over $120,000 in 2019. Only about 5% of all U.S. households had a net worth greater than $2.5 million. (According to the most recent Federal Reserve Survey of Consumer Finances from 2019.)
For more details on the distribution of wealth in the United States, see FINANCIAL RUBBERNECKING – PART 2: NET WORTH.
So, although many highly paid tech workers—and especially those that live in high cost of living areas like San Francisco, New York, or Seattle—may not think that spending $100,000 a year is living high-on-the-hog, the ability to do so from savings certainly puts you in the upper echelon of households.
Furthermore, many FIRE adherents own their homes free-and-clear, so no mortgage payments. Combined this with no work-related expenses and $100,000 can fund a very nice lifestyle—especially for empty-nesters and/or those with limited medical expenses.
Fat FIRE it up!
When it comes to Financial Independence, the sky is the limit. You can certainly spend more than $100,000 a year if you can save the necessary dollars. Go ahead, let your portfolio get as fat as you want.
Of course, at some point, you are just plain rich. The idea of financial independence still applies, but you are not ever really worried about covering every day spending needs. At that point, I don’t think Fat FIRE really applies to you anymore. Just ask Jeeves to pass the Grey Poupon (if you understand this reference, you are of a certain age).
Fat FIREs for Coders (and coffees for closers)
Let’s face it, retiring early with a nearly a $3 million investment portfolio requires a high income. It would be nearly impossible with an average income to save enough to accumulate this amount of money and retire early.
Luckily, tech workers generally make above average salaries. As a high-income professional, you are well positioned to achieve the Fat FIRE dream. The higher your income, the less need for frugality to help fund an aggressive savings program. Fat FIRE allows you to maintain a comfortable level of spending without make the hard choices required for most families to achieve FIRE.
Of course, it is not just software engineers, coders, hackers, and developers working at successful tech firms that can set aside large amounts of cash each year. High income doctors, lawyers, small business owners, and successful entrepreneurs also represent in Fat FIRE.
Gotchas (with both FIRE and Fat FIRE)
Early retirement sounds great, but it’s not all roses and fine wine. Before quitting your high-paying job and enjoying early retirement, think through what your next 30+ years might look like.
Community – for many successful professionals, their identify and community is entwined with their career. If you want to Retire Early and be happy, you can’t be defined by your job. Make sure you are okay no longer being actively employed.
Health Care – medical insurance and other healthcare expenses can easily be your largest expense once you have paid off your mortgage. When you Retire Early, you not only walk away from your salary, but also from any employer benefits like health insurance.
Inflation – even a traditional retirement can extend 30 years. If you retire in your 40s or 50s, it can stretch upwards of 50 years. Even a low level of inflation across 50 years will have a dramatic impact on the value of a dollar. Your investments need to cover your expenses as well as grow enough to counter the inevitable increase in costs.
Peer Group – is your ego prepared to watch your peers (those who continue to work) accumulate assets and wealth at a faster pace? Will the freedom and flexibility provided by not working be enough for you?
Lost Human Capital – working for a paycheck is an exchange of your human capital (i.e., time and skills) for financial capital (i.e., money). By opting out of the traditional workforce, you are foregoing the ability to exchange your time for money. Again, FIRE is about making the decision to live a life more focused on doing what you want with your time instead of maximizing your material possessions.
Is Fat FIRE for you?
If you are already on the FIRE bandwagon, then achieving Fat FIRE may just be a question of working a few extra years. Is the ability to spend more money each year for the rest of your life worth the additional time working for the man? That is a personal trade-off that only you can make.
It can be tempting to continually say “just five more years” and then I will retire. And to keep saying that as ten or twenty years slip by. And along the way you become accustomed to a more and more expensive lifestyle. Maybe this leads you into Fat FIRE and maybe it just leads you to keep working, forever.
You need to decide is how much Financial Independence is worth to you.
Let Freedom Ring
Independence, what a great word. Freedom, autonomy, and liberty are just a few of the synonyms. In a nutshell, Financial Independence means you are free to do as you please with your time, without the need to work to pay the bills.
The rub. Often what you want to do with your time costs money. Hence, the more money you can accumulate, the more options on how to spend your time. But money and happiness are not the same thing. Many people live very fulfilling and happy lives while spending very little money. Some are FIRE adherents, and some are forced into that life by circumstances.
A Fat FIRE-esque portfolio, one with multiple millions in assets, not only allows you to spend more, but also provides a cushion for unexpected events. If investment returns are lower than expected, or surprise expenses come up, you will be better able to maintain a comfortable lifestyle without returning to work.
One Final Thought
There will always be someone with more money. You can envy their lifestyle and keep working to accumulate even more money in an attempt to “keep up,” or you can choose to live a simpler life with the freedom and flexibility to spend your time as you wish.
The FIRE movement is one way. For those with a high-income, Fat FIRE offers another—more luxurious—way to achieve Financial Independence.
