FAT Fire Movement
The premise of FIRE is simple: save as much money as possible so that you can live off your savings and investments instead of working for a paycheck.
Updated 
6 min. read
What is the FIRE movement?
FIRE stands for Financial Independence Retire Early. And the FIRE movement is a growing trend among some young adults who are willing to make harder tradeoffs earlier in life to achieve financial independence as soon as they can. The premise of FIRE is simple: save as much money as possible so that you can live off your savings and investments instead of working for a paycheck. Some might shoot for early retirement, full stop, but the idea of reaching a “work optional” state is probably more accurate, and achievable.
Instead of retiring at 65, someone in the FIRE movement might seek to make work optional in their 50s, 40s, or even their 30s in extreme examples.
The three main variables of FIRE are:
- Earning
- Spending
- Investing
The earning and savings variables are what lead to different versions of FIRE such as ‘Lean FIRE’ and ‘Fat FIRE’. (The third variable, investing, is always important and the goal here is to always to be a smart investor. To do that, make sure to check out the other articles on the BMO Investing Learning Centre.
The basics of the FIRE movement
The broader FIRE movement emphasizes reducing spending to levels well below what most people would consider normal for a given income level. While many rules of thumb suggest saving 10% to 15% of your income for the future, FIRE movement proponents would choose much higher savings rates. Aiming for a 50% savings rate would not be uncommon for someone in the FIRE community.
Investing these savings would allow a portfolio to potentially grow much faster, thus bringing forward the date of financial independence. Once the portfolio is large enough to sustain your annual expense level for the rest of your life you’ve achieved FIRE.
Lean FIRE versus FAT Fire
Lean FIRE focuses on reducing your spending levels as aggressively as possible both while working and in retirement. Lean FIRE proponents might sacrifice most individual comforts in life, such as live with their parents as long as possible, avoid having children, and make big sacrifices with their social lives. The singular goal is to get to point of being able to sustain the bare essentials of living as fast as possible. This is the version of FIRE that is perhaps the most off-putting to the broader public. The general consensus is that the tradeoffs are so severe that the average person might consider that standard of living to be too low to have an enjoyable life. Some suggest the target annual income number for Lean FIRE would be $20,000 per year per person in the household.
Traditional FIRE would still require making harder tradeoffs than the average household, but not as draconian as Lean FIRE. The retirement income target might be in the range of $40,000 to $50,000 per year per person.
Fat FIRE is a variation of the FIRE movement that might only be an option for high-income earners. We’re talking doctors, software engineers at tech companies, and other multi-six figure income earners. They are in the enviable position of being able to still spend more than the average household and still save thousands of dollars per month into their investments. They might target a portfolio large enough to support at least $100,000 per year in retirement as a household or as an individual.
How to calculate your FIRE number
How big does your portfolio have to be to achieve FIRE?
The FIRE community relies on a simple rule of thumb: the size of your portfolio should be 25 times the annual expense target. For example, if you’ve determined that $40,000 per year is what you need to live the lifestyle that would allow you to make work optional, then $40,000 times 25 equals $1,000,000. Your goal would be to save enough and invest smartly so that you reach this $1,000,000 mark as soon as possible. And once you do: FIRE!
When this rule of thumb was first created, it was based on a research paper that suggested the ‘safe’ portfolio withdrawal rate was 4% of a portfolio’s value, but the original paper was looking at the safe withdrawal rate based on the success rate of maintaining these withdrawals for the length of a traditional retirement, not someone retiring at 30. This 4% rule of thumb has been challenged over the years, but it’s where the 25x multiplier comes from because taking your annual expense target and dividing by 4% is the same as multiplying by 25. If you search around in the various FIRE communities online, you’ll find ample debate on whether to stick to that original rule of thumb or to modify it, but given how round a number 25 is, it’s still used extensively. (To be more conservative, you might want to use a multiplier of 30 or 35 if you plan on retiring well earlier than average.)
Using the 25 multiplier, if an individual was seeking Lean FIRE and a portfolio large enough to support $20,000 per year, they would need $20,000 times 25, or $500,000 in their investment portfolio.
Someone looking for FAT Fire of $100,000 in annual expenses would need to grow their investment portfolio to at least $2,500,000 ($100,000 x 25).
How to get FAT Fire
Going back to our three main variables of earning, spending, and investing, if you want to achieve Fat FIRE of $100,000 of annual expenses you would need somewhere between $2.5 million and $3.33 million (25 vs 35 multiplier) in your investment portfolio. This would require a high savings level and smart investing. The two ways to achieve a high savings level are to reduce your expenses as much as possible and to increase your income as high as possible.
If we use an example of a 30-year-old physician earning $250,000 per year, if they could save $5,000 per month and were able to achieve a long-term rate of return of 8% on their portfolio, they would need just under 20 years to grow their portfolio to $2.5 million. But as their income grew, if they managed to keep their expenses level, they might be able to aggressively increase their savings level over time. They might be able to take another 5 years off their timeline to achieve their desired portfolio balance.
Being disciplined with your savings ratio is one thing, but being an empowered investor is another. Make sure to check out our articles and videos about how to invest wisely. We can show you how to manage your own portfolio for all levels of skill and investment strategies. Some investors want a low-maintenance, hands-off portfolio and some prefer to roll-up their sleeves and enjoy researching different individual stocks and placing trades. We have resources for all types of investors whether they are on a FIRE journey or not.
Many people dream of retiring early, but few know how to make it a reality. The key is to save aggressively and invest wisely. By following these steps, you can set yourself up for a successful retirement, making work optional, and everything in between. The earlier you get started, the earlier you can achieve financial independence.
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