Legal Disclaimer:This post is not financial advice. It is intended for educational purposes only. Consult with your financial advisor or a certified financial professional for guidance on investment choices.

Is early retirement really worth it if your quality of life when you retire sucks? 🤔

For many, the answer is no. And that’s where Fat FIRE comes in.

Fat FIRE is an interpretation of the Financial Independence, Retire Early (FIRE) movement that expects higher expenses in retirement, sometimes defined as needing an annual budget of $100,000 per year or more.

Whether it be the cost of children, elder care, urban living or just more traveling after you leave the workforce, there are plenty of reasons why you might need a bigger budget. Fat FIRE focuses on generating and saving a lot of money to turn the dream of becoming work-optional into a reality.

Key Takeaways

  • Fat FIRE is typically defined as expecting $100,000 in annual expenses or more in retirement.
  • If using the 4% rule, this means you need at least $2.5 million in invested assets.
  • Many people would rather continue to work longer in order to generate sufficient funds once they leave the workforce.
  • Because Fat FIRE requires so much money, it attracts people who prioritize hustle over those who might retire sooner by settling on a frugal lifestyle post-career.

What Is Fat FIRE?

Fat FIRE stands for Financial Independence, Retire Early, but with a twist. Unlike the conventional FIRE strategy, which emphasizes frugality, Fat FIRE is often about living a more lavish lifestyle post-retirement.

Achieving this often requires an accumulation of substantial assets, such as:

  • Profits from a successful business venture.
  • A large investment portfolio.
  • Real estate holdings.
  • Other passive income streams.

Fat FIRE gives you more disposable income, which lets you remain work-optional even if you have the expenses of caring for loved ones or want access to more amenities without depleting your wealth. The juice is worth the squeeze. 🍋

Common Motivations for Fat FIRE

Fat FIRE is most associated with living a luxurious lifestyle in retirement. Perhaps you want to see the world, live in a nicer home, or just order whatever you want on the menu when you go out to eat and no longer have a job.

However, what's considered a big budget for some might be the bare minimum for others. Take, for example, childcare: The cost of raising a child in America is now over $21,000 per year, according to a 2021 report from LendingTree. If you want to become work-optional, but will still be raising two or three kids, that probably already tips you into the Fat FIRE bracket.

Elder care, philanthropy, or having a vacation home could also be factors. Fat FIRE isn't always about luxury, but sometimes gets painted that way because of the bigger budgets involved.

The Philosophy Behind Fat FIRE

Fat FIRE believers support the foundations of the FIRE movement, but are willing to wait longer to retire (or work harder) in order to build up more initial assets.

To yield $100,000 in passive income a year, you’d need $2.5 million in investments returning an average of at least 4% per year. The stock market has performed well above 4% per year; the S&P 500 returned an average of 10.26% between 1957 and 2023.

But averages aren’t a great indicator in these types of projections. For example, in 2022, the S&P 500 fell a whopping 19.4%. If you left the workforce with $2.5 million at the end of 2021 and followed the 4% rule logic above, you lost almost $500,000 from your principal, in addition to the 4% ($100,000) you withdrew to fund 2022. Now, with just $1.9 million left, your 4% draw to fund 2023 will only yield $76,000, well short of your budget. Your plan has already begun to unravel after just one year.

It’s good to remember that the 4% rule is flawed in practice. Fat FIRE enthusiasts generally err on the side of hustling harder in their working years to generate a lot of money and cushion.

How to Calculate Your Fat FIRE Number

calculator for fat fire sitting on a desk with money and a laptop

In FIRE culture, your FIRE number is your finish line. This is a wealth benchmark for invested assets at which the annual interest gains are enough to live on.

The FIRE number is different from typical retirement. By budgeting and living on annual interest gains alone, you’ll theoretically never cut into your principal, which means you’ll never run out of money, a true definition of financial independence.

To calculate a ballpark FIRE number, multiply annual expenses by 25. This is known as the 4% rule. Some FIRE enthusiasts prefer to be more conservative and do initial planning off of a 3% rule, which you could calculate by multiplying expected annual expenses by 33.

Formula:FIRE number = Annual expenses x 25.

This is the number you’re aiming to reach to become fully work-optional and not depend on active sources of income.

High-Income Strategies Specific to Fat FIRE

For Fat FIRE to work, you need a lot of income.

This can come from high salary alone, but most people cobble together multiple sources of income instead through entrepreneurship, affiliate marketing, side hustles, retail arbitrage or other approaches. Not all side hustles are created equal; some require more time to maintain, whereas others are more passive but require either an upfront investment or slow growth over a number of years.

As you bring in more cash, invest it in a diversified portfolio that includes growth-oriented assets.

Savings Rate

Balancing a high savings rate with quality of life in the now is a challenging component of any FIRE journey. Like dieting, some discipline is needed, but too restrictive an approach can leave you burnt out and ready to give up.

A common target in FIRE is that you’re saving at least 50% of your income. It’s not uncommon for people to allocate 70% or even 80% of their income towards savings. Strategic choices like reducing frequent dining out and luxury travel expenses can help maintain your quality of life while building savings. (And, of course, making more money in the first place.)

Other common strategies include relocating to a lower-cost area or finding a part time job to decrease monthly expenses, which enables a greater savings rate without sacrificing current happiness significantly.

Geographic Location

Your Fat FIRE goals can be largely influenced by your geographic location.

Geographic arbitrage can significantly reduce living expenses by relocating from high-cost cities to more affordable regions or countries, thus enabling a Fat FIRE lifestyle even with a smaller portfolio. By moving to a lower-cost city within the same country, you can potentially reduce expenses by 25 to 40%.

Relocating to an area with a lower cost of living can help you reach your Fat FIRE goal more quickly.

Healthcare Expenses

When planning for Fat FIRE, it’s important to anticipate potential increases in living costs, which includes health expenses. Remember, your FIRE number is built on expected annual expenses in retirement, not your current annual expenses.

Also select a healthcare plan that offers comprehensive coverage to ensure high-quality care is maintained during retirement. You do not want to skimp on healthcare coverage and then have something disastrous happen when you’re relying on semi-passive income alone.

Investment Strategy

The aspiring Fat FIRE individual should have a strategic investment plan that includes three investment strategies:

  1. A cash reserve for immediate expenses.
  2. A medium-term fund with conservative investments.
  3. A long-term portfolio with aggressive growth strategies to combat inflation.

Planning and building safeguards against market corrections is essential to maintain wealth and continue a Fat FIRE lifestyle during retirement. As you get closer to your FIRE number, consider modeling multiple percentage returns scenarios to account for fluctuating investment growth rates.

Remember, you need your investment strategies to incorporate growth so you can outpace inflation, cover increasing living costs and prevent fund depletion.

Pump money into your growth investment accounts. If you have an income over $160,000 and aim to retire early, learn about strategies like the mega backdoor Roth IRA to sidestep tax penalties and keep more of the money you've worked hard to earn.

Estate Planning

Estate planning is crucial for Fat FIRE to ensure wealth is distributed according to their wishes after death. Without a proper estate plan, assets may be subject to state intestacy laws, which may not align with the asset owner’s intentions.

A clear estate plan includes designating beneficiaries, which is vital for those in Fat FIRE to prevent potential family disputes and ensure financial legacies are upheld.

I used Trust & Will (aff link) and recommend them if you don’t have a basic estate plan in place yet, it's an all-online service.

How to Withdraw Your Assets When Nearing Fat FIRE

two bearded grooms kissing at their wedding

As you near Fat FIRE, the emphasis transitions from wealth accumulation to preservation. If you've been using something like a 401(k) or other retirement account for your investments, remember that these accounts charge a 10% early withdrawal penalty if you withdraw before the age of 59.5.

One workaround FIRE strategy is to do a Roth conversion ladder, in which you move pre-tax assets into a Roth. Money can be withdrawn from a Roth IRA after being held for five years, so by periodically converting retirement assets you'll ensure your investments are available to use as income with penalty.

Tax Tip:You'll pay taxes on retirement investments when you convert them to a Roth. If you expect your tax bracket to change wildly in coming years, it might be worth waiting to do a Roth conversion.

It can be challenging to navigate social dynamics in the Fat FIRE realm. This includes understanding the challenges of relating to non-FIRE peers and building a support network within the FIRE community.

Fat FIRE individuals may have difficulty relating to peers who do not follow the same financial independence and early retirement philosophy.

The Challenge of Relating to Non-FIRE Peers

Relating to non-FIRE peers can be a unique challenge for those pursuing Fat FIRE. The lifestyle choices and financial strategies that make sense to those on the Fat FIRE path may seem radical or even irresponsible to others. This can create social distance and misunderstandings.

Build a FIRE Community

Building a support network within the FIRE community can be a valuable asset on your Fat FIRE journey. This community consists of like-minded individuals who share similar financial goals and lifestyle aspirations, all following the FIRE movement. Being part of this community can provide valuable advice, moral support, and a sense of belonging.

It can also offer opportunities to learn from others’ experiences, gain fresh perspectives and find innovative ways to overcome challenges on your path to Fat FIRE.

Alternatives to Fat FIRE

After reading about Fat FIRE, you might decide it’s not quite right for you, but another version of FIRE is. Here are some other variations on financial independence, all of which have a lower target FIRE number.

Fat FIRE Vs. Coast FIRE

In Coast FIRE, more accurately known as Coast FI, you’re not actually retiring. Instead, your FIRE number is the number at which you could stop contributing to your retirement accounts, but still make your nest egg goal through compounding returns alone.

Coast FI is all about frontloading your retirement accounts. It’s for people who want to push early on in their careers in order to have more flexibility later. To be clear, you’ll need to keep working after you’ve hit your Coast FI number.

Fat FIRE Vs. Barista FIRE

Barista FIRE is a hat-tip to Starbucks, which gives workers health insurance if they average a 20-hour work week with the company.

In Barista FIRE, you’re partially retired. You’ve done the work to build up your investments, and now want to downshift to part-time or less stressful work that is more meaningful and flexible for you. Many early retirees choose to keep working so that they can get health insurance coverage through an employer, which in the United States will decompress your budget substantially.

I would argue there are a lot of people who don’t actually want to fully retire, but rather move into doing more fulfilling work. Whether they realize it or not, these people are aspiring to Barista FIRE.

Fat FIRE Vs. Lean FIRE

Lean FIRE goes small where Fat FIRE goes big. Lean FIRE also gets you to the point of becoming work-optional, but with a much lower FIRE number that is easier to reach. The catch: You’ll need to live your life on a much lower budget.

Lean FIRE is typically defined as requiring less than $40,000 a year in annual expenses, which would mean a FIRE number of $1 million according to the 4% rule. But this benchmark has been floated in online forums since the 2000s, and cost of living has inflated quite a bit since then.

You might get shunned online if your FIRE number is over $1 million and you say you’re pursuing Lean FIRE. Don’t worry about it; the approach simply means you’re prioritizing frugality in order to become work-optional sooner.

infographic of types of fire financial independence retire early

Frequently Asked Questions

What Is Considered Fat FIRE?

FatFIRE is when you achieve financial independence and retire early with more passive income because you have more assets to begin with. A common Fat FIRE benchmark is to have at least $2.5 million in invested assets.

What Is the Difference Between Fat FIRE and Lean FIRE?

Fat FIRE is for those who want to retire early and have more disposable income, while Lean FIRE is for those who retire early but maintain a simple lifestyle. Coast FIRE is when you have savings for retirement but still need to work to cover living expenses.

How Do I Calculate My Fat FIRE Number?

Calculate an approximate Fat FIRE number by multiplying your annual expected expenses in retirement by 25. This is called the 4% rule, but know that this calculation is a ballpark estimate.

The Takeaway

Fat FIRE is not just about achieving financial independence and retiring early, but also doing so without compromising your lifestyle. With the right approach, though, financial freedom on your terms can be within your grasp. ◆

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