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Fat FIRE: Living Large in Retirement

Fat FIRE: Living Large in Retirement
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The idea of financial independence retire early (FIRE) has gained tremendous steam over the past few years. FIRE is a movement where people seek to save money, invest, and grow their wealth so that they can retire much earlier than is typical. Pursuers of FIRE also tend to spend less than most, focusing on increasing their income, reducing expenses, and investing the difference whether it be in real estate, stocks, bonds, etc.

But, while many people dream of early retirement, some dream even bigger with Fat FIRE.

Fat FIRE Chart

Fat FIRE allows you to live large in retirement and requires more money invested than regular FIRE.

FatFIRE will require you to accumulate millions and may not be achievable for the average person, but it is only one of the types of FIRE one can pursue to make early retirement a reality.

If you’re a high-income earner or seek a higher standard of living in your golden years, read on to explore the benefits of Fat FIRE and see if this lifestyle is right for you.

What Is Fat FIRE? 

Fat FIRE turns the concept of financial independence retire early up a few extra notches. Those pursuing Fat FIRE strive to not only reach financial independence but to retire early with enough wealth to support a higher standard of living and more discretionary spending in retirement.

In general, Fat FIRE is defined as having enough money to spend at least $100,000 a year in retirement comfortably. Using the standard 4% rule, this level of annual spending would require a Fat FIRE number of around $2.5 million in investments.

Although Fat FIRE requires significantly more money invested and is harder to achieve, it appeals to many because it allows you to enjoy your retirement lifestyle without sacrificing luxuries. You will also have more wiggle room for unforeseen events.

Types of FIRE 

Fat FIRE allows you to sustain an upper-middle-class lifestyle in early retirement, but it isn’t the only path to retiring early. The FIRE movement covers a spectrum of options, and the amount of money you’ll need to achieve financial independence varies with each.

Let’s take a look at the most common types of FIRE.

Traditional FIRE

The FIRE movement began with the idea that if you have 25 times your anticipated annual expenses in investments, you could utilize a safe withdrawal rate of 4% and have enough money to last at least 30 years.

For example, if you need $50,000 a year to live on in retirement, you would need $1,250,000 invested.

Lean FIRE

Lean FIRE is for those who are comfortable living a frugal lifestyle. Generally, those pursuing Lean FIRE live on $40,000 a year or less with a safe withdrawal rate of 4%.

Using the 25x rule, someone pursuing Lean FIRE living on $30,000 a year would only need to save $750,000 to retire early.

Barista FIRE

Barista FIRE is a bit different in that you don’t need more money saved to achieve it. With Barista FIRE, all you can work part-time to cover your expenses. The name came from the idea of working part-time at a coffee shop, but others may choose to work gig economy jobs or freelance. Many choose a part-time job that grants access to healthcare, saving thousands in out-of-pocket costs.

Coast FIRE

Coast FIRE is when you’ve saved and invested enough money to have enough to retire at the traditional retirement age even if you never contribute a penny again. These individuals usually start investing early and have a higher annual income. Their savings rate is also typically high. As a result, they have built a large nest egg and a healthy net worth at a younger age.

The difference with this version of FIRE is that the individual still plans to work until the traditional retirement age to let their investments compound. Rather than retire early, they choose to stop investing and enjoy their life along the way, all while allowing what they have invested in to grow.

Fat FIRE

Then we have Fat FIRE, where an individual seeks to cover expenses of $100,000 or more a year in retirement. Again, typically someone pursuing Fat FIRE makes a healthy amount of money and likely has a high net worth. However, it is harder for the average individual to achieve Fat FIRE due to the higher Fat FIRE number one must attain, which must be at least $2,500,000 invested.

Fat FIRE Lifestyle

Pros and Cons of Fat FIRE

Like anything, there are pros and cons to pursuing FatFIRE.

Pros

  • Enjoy a more luxurious lifestyle in retirement
  • Have more ability to give
  • Have more of a buffer for setbacks or unforeseen events
  • Have financial flexibility

Cons

  • It may take longer to achieve
  • You’ll need to save much more money
  • It can lead to lifestyle inflation
  • It will be difficult for those without a high income

Calculating Your Fat FIRE Number 

Regular FIRE assumes you’ll need roughly 25x your anticipated annual spending invested in the stock market and/or other areas. You can use the same formula to calculate your Fat FIRE number – the trick will be to estimate how much you’ll be spending accurately.

One way to go about calculating your FIRE number is to estimate your spending in all areas in as much detail as you can, then multiply that number by 25. Since Fat FIRE will typically allow you more financial flexibility, another way to go about it is to pick an annual spending threshold and calculate your FIRE number based on that. The key will be to ensure you don’t exceed that threshold once you retire, or you may need to find a source of supplemental income.

For example, you could choose $100,000 as your desired annual spending. With that in mind, your Fat FIRE number would be $100,000 x 25 = $2,500,000.

Alternatively, if you estimate that you’ll need to spend $125,000 a year, then your number would be $125,000 x 25 = $3,125,000.

One important thing to note is that achieving Fat FIRE isn’t just about how much you save, but how fast you can save it. Your savings rate (how much of your income you save) is the number one factor in FIREing more quickly. The more you save, the more time your money will have to grow.

You’ll also need to consider things like your current net worth, income, health, and inflation rate and how they will impact your future cost.

If you want to dive into calculating your FIRE number and how long it’ll take you to reach it based on your specific situation, check out our Ultimate FIRE Calculator.

4 Percent Withdraw Rate
4 Percent Withdraw Rate

How to Get to Fat FIRE

As mentioned, your savings rate will be the most significant factor in reaching FIRE and when. To be considered Fat FIRE, you’ll need to have saved and invested AT LEAST $2,500,000, which is a daunting amount. The key will be to make and invest as much cash as possible until you have reached that threshold.

While the numbers are pretty straightforward, the path you choose to get to Fat FIRE can look however you want. For example, you could live an extremely frugal life during the pursuit to save faster, or you could select more balance and have a slower journey.

Your ability to Fat FIRE will also depend on your choices once you’ve reached it. Those willing to live in a lower cost of living areas who have far fewer living expenses will be able to live a more luxurious life than those in more expensive places like San Francisco, Seattle, and New York. If you own your primary residence and have little or no debt, you’ll also be able to make your money go further.

While a lofty goal, usually Fat FIRE, takes more time and money to achieve, it simply won’t be realistic for everyone. However, there are many paths to early retirement, and it is possible to live a great life on much less than a six-figure investment income.

Who Is Fat FIREing?

Most who can achieve Fat FIRE are entrepreneurs and other high-income professionals, but that isn’t always the case. Given enough time and consistent investing and the average Joe could also achieve the net worth required to Fat FIRE.

If you’re interested in interacting with those pursuing Fat FIRE or those who have Fat FIREd, join the Fat FIRE Facebook group or sub reddit Fat FIRE.

Fat FIRE FAQ

What Is Meant by Fat FIRE?

Fat FIRE is someone who can retire early because they’ve been able to invest at least $2,500,000. This amount is enough to support annual spending of at least $100,000 with a 4% withdrawal rate.

How Do I Get to Fat FIRE?

Fat FIRE can be achieved by saving and investing a significant amount of money over time. You will need to have at least $2,500,000 invested in being considered Fat FIRE.

Can I Fat FIRE?

Your ability to Fat FIRE will depend on your current net worth, your income, the amount you save/invest, your age, and your desired lifestyle in retirement. The average person will need to save and invest longer to reach Fat FIRE than high-income earners.

Do You Have to Be Frugal to Achieve FIRE?

The level of frugality needed to reach FIRE will depend on your debt and your income. Those with many financial obligations and lower incomes will also need to lower expenses to become financially independent. While those with higher incomes will not need to practice frugality to the same extent, they will still need to save a significant portion of their income.

What Is the 4% Rule?

The 4% rule is the safe withdrawal rate for those hoping to support early retirement. The rule states that 25x your estimated annual expenses with an annual withdrawal rate of 4% will last at least 30 years.

Which FIRE Is Best?

Which FIRE method is best for you will depend on your age, income, debt, current savings, and other life circumstances (like family, kids, and health). Considering the average American household spends around $70,000 a year (including saving/investing) and the expenses you’ll have in retirement, you may not need to save as much as you think to FIRE.

Conclusion

Fat FIRE is the wealthier cousin to the FIRE movement. This version of FIRE is for those who wish to focus on maintaining a more luxurious lifestyle once they quit working and is typically benchmarked at $100,000 or more a year in spending.

While Fat FIRE is certainly lavish living, it isn’t the only way to FIRE. For the average person, taking a slightly more frugal approach and getting back years and even decades of their life on less will be far more rewarding than the opulence of a six-figure annual budget.

Where do you fall? Is living large what lights your FIRE?

steveark

Sunday 20th of March 2022

We are a fat FIRE couple retired for six years living on a six figure budget. The best part of fat FIRE is the safety cushion it provides that makes worrying about money ever again a non-factor. There are always problems in life related to health, family, etc. that are out of your control but money doesn't have to be one of them if you build a big enough portfolio.

John Hawrylack

Wednesday 20th of April 2022

Thanks for sharing your own insight Steve! This is exactly why we too are ultimately pursuing fat FIRE :)