Why the Biggest Myths About Fat FIRE May Actually Be Right

Hungarian horntail dragon spitting fat fire

9-minute read.

Are you tired of the traditional 9-5 grind and dreaming of retiring early? If so, you're not alone! Many people are striving for Financial Independence Retire Early, or FIRE for short, but there is a growing community who are taking it a step further with Fat FIRE. So what exactly is Fat FIRE?

Fat FIRE is a term used to describe a subset of the FIRE community who are aiming for a higher level of financial freedom. While traditional FIRE focuses on living frugally and saving a large percentage of your income, Fat FIRE is all about being financially independent with a higher level of discretionary spending. Pursuing fatfire means that you can enjoy your best life without worrying about running out of money in retirement.

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To achieve Fat FIRE, you will need a much larger nest egg than regular FIRE. The exact amount will vary depending on your lifestyle and spending levels, but it generally falls in the range of $3-5 million dollars. This might seem like an unattainable goal to the average person, but by starting early with smart investing, it's possible to reach Fat FIRE in your 40s or 50s.

So why might Fat FIRE be the best way to retire early? The simple answer is flexibility. By building a larger investment portfolio and savings cushion, you have more freedom to make choices without worrying about the financial implications. You can take time off work to travel, pursue a passion project, or even start your own business without worrying about your living expenses.

In short, Fat FIRE gives you the financial independence to live life on your terms. Let's deep dive into this FIRE movement and work out your Fat FIRE number.

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What is Fat FIRE?

With Fat FIRE, a popular retirement strategy, the aim is to save aggressively to accumulate as much money as possible to maintain an extravagant lifestyle during retirement.

This can be achieved by saving and investing a significant percentage of your income, often more than 50%. Some proponents of this strategy even suggest that you should aim to save as much as 70% of your income.

Your investment portfolio should then generates supplemental income to cover your annual spending, with more money to finance your desired style of living.

This may sound like a daunting task, but the potential rewards are great. When you live frugally and start saving and investing wisely, you can reach financial independence and retire much earlier than you might have thought possible.

To get the latest insights on investing quickly and easily, check our investing articles.

Those pursuing Fat FIRE, sometimes called "luxury FIRE" or "high-end FIRE," have ambitious goals. They are not content with just a comfortable and traditional retirement; they want to live a truly lavish lifestyle and enjoy the results of years of sacrifices.

This might include traveling the world in first-class accommodations, buying expensive cars and homes, or indulging in other luxury goods and experiences. While this may seem excessive to some, those who have achieved Fat FIRE argue that it is well worth the effort.

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How much money do you need to Fat FIRE?

The amount of money you need to Fat FIRE varies depending on your planned annual spending and expected habits in early retirement. Generally, you need to have a net worth of at least $2.5 million to $5 million to achieve Fat FIRE.

This may seem like an insurmountable amount, but with the right investment strategy and savings rate, it is achievable.

To put this into perspective, someone who wants to retire at age 40 with a $250,000 annual income, would need to save and invest around $6 million to achieve Fat FIRE. This is assuming that they can generate an annual return of 5% on their investments, which is a reasonable assumption for a well-diversified portfolio.

What's your target age for early retirement? We explore options in Is it Really Possible to Retire at 30?

Fat FIRE is the best, but hardest way to retire early

Fat FIRE is often considered the best way to retire early because you have enough saving money and investment income to live and spend the way you want to, plus some wiggle room to pay for unexpected events.

However, it is also the most difficult strategy to achieve. It requires a high level of discipline, sacrifice, and a willingness to take risks. Your bank account would need a lot more money than you've ever had!

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To achieve Fat FIRE, you need to be able to save and invest a significant portion of your income. This means that you may need to live below your means, forgo expensive purchases, and make sacrifices in the short-medium term to achieve your long-term goals.

As we explain below, there are different ways to tackle FIRE, and Fat FIRE would be the strategy most affecting your current spending.

It is also worth considering how you would behave once you reach a certain age with the net worth you've been working towards for so long. Whilst it would be the result of tough commitments, would you be prepared to spend it all like there is no tomorrow? Only you can answer.

Learn more with 7 Simple Secrets for Cultivating an Investor's Mindset

Examples of a Fat FIRE lifestyle

Living your ''best life'' thanks to Fat FIRE typically involves expensive hobbies, a primary residence and multiple second homes or holiday villas, luxury travel, and any other ways to spend your earnings.

It's all about living life to the fullest and enjoying the fruits of your labor. Some examples of a Fat FIRE lifestyle might include:

●      Owning multiple properties, including vacation homes and investment properties

●      Travelling the world in luxury, staying in five-star hotels, and flying first class

●      Pursuing expensive hobbies such as yachting, golfing, or collecting fine art

●      Dining at the best restaurants and attending the most exclusive events

●      Enjoying a comfortable retirement without having to worry about money

While this may not be for everyone, for those who value luxury and extravagance, Fat FIRE may be the perfect path to the FIRE movement.

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Lean FIRE vs. Fat FIRE

While Fat FIRE is all about maintaining a luxurious lifestyle, Lean FIRE is focused on achieving financial independence with the bare minimum. It's about living frugally and saving as much as possible to get to early retirement.

The Lean FIRE approach requires a much lower net worth, often around $1 million or less. This is due to living a minimalist lifestyle, cutting back on expenses, and making frugal choices.

While Lean FIRE may not allow for a lavish lifestyle, it can still provide the freedom and flexibility to pursue other passions and interests, with sufficient funds in your retirement accounts.

The FIRE Movement levels also include Barista FIRE and Coast FIRE. Evaluate your spending then get A Look into the Future: How Do I Calculate my FIRE Number?

The FIRE Movement: looking at risks

The FIRE movement is not without risks. The biggest one is that you may not save enough money to maintain your lifestyle when retiring early.

Have a solid investing strategy, continually evaluate your progress, and get investment advice.

Another risk is that the market may not perform as expected. Even the best investment plan can be impacted by market fluctuations, so it's important to have a passive income backup in case things don't go as expected.

Finally, there's the risk of burnout. Pursuing FIRE requires a high level of discipline and sacrifice, and it's important to take care of your mental and physical health along the way.

By the way, Financial Freedom vs. Financial Independence: What's yours?

How to calculate your FIRE number

Your FIRE number is the amount of money you need to retire early. To calculate it, you need to determine your annual spending and multiply that by 25.

This assumes that you will withdraw 4% of your portfolio each year in retirement.

For example, if your yearly expenses are $60,000 ($5,000 a month), yours would be $1.5 million. This assumes that you will withdraw $60,000 from your portfolio each year, which represents 4% of $1.5 million.

We'd love to inspire new habits or develop skills for a brighter future; check out our 11 Real-Life Lessons to Invest in Yourself

What is the 4% Rule?

The 4% rule is a guideline for withdrawing money from your portfolio in retirement. This rule is based on the concept of sustainable withdrawal rates, which have been studied extensively by financial planners and researchers.

The rule states that you can safely withdraw 4% of your portfolio each year without running out of money over a 30-year retirement period. However, it should be noted that this guideline is not foolproof and should be used as a starting point rather than a hard and fast rule.

Let's take an example: if your portfolio is worth $2.5 million, you can withdraw $100,000 per year without depleting your savings, assuming that you follow a 4% withdrawal rate. However, it also assumes that you have a well-diversified portfolio, which can help you manage your risk and reduce the impact of market volatility on your savings.

Get there faster: Why We Love Living on One Income (And You Should, Too!)

Moreover, it is important to periodically review your portfolio and adjust your withdrawal rate if necessary. This could be due to various factors such as changes in your lifestyle, a rise in health insurance, unexpected expenses, or shifts in the market.

What is the rule of 25x FIRE?

The rule of 25x FIRE is a popular method used to determine the amount of money you need to retire. Simply multiply 25 times your annual expenses. This will give you an estimate of the amount of cash you need to ensure a comfortable retirement.

It is important to note that the Rule of 25x FIRE is not a one-size-fits-all approach. Many factors can affect your FIRE number, such as your lifestyle, health, and life expectancy. It is also important to consider inflation, as the cost of living can change over time.

Despite its limitations, this FIRE movement guideline can still be a useful tool for those who are planning their retirement spending and projected passive income.

Your actual expenses may be higher or lower than your estimated annual expenses, and you may have unexpected high cost you need to account for. Therefore, it is important to have a flexible retirement plan that can adapt to changes in your financial situation.

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FIRE - Financial Independence Retire Early: retiring early using investments

In the FIRE movement, investments are a crucial factor to reach financial independence and early retirement. It's important to have a well-diversified portfolio that includes stocks, bonds, and real estate for instance.

Stocks are often considered the best long-term investment, as they have historically provided high returns over time.*

Bonds are a more conservative option, providing stability and income.*

Real estate can provide both income and long-term appreciation.*

Have a balanced portfolio that takes into account your risk tolerance, investment goals, and time horizon. A financial advisor can help you develop a customized investment strategy that meets your needs.

One of our very first articles explained the Top 5 Reasons to Start Investing Today.

*Your capital is at risk. Other fees may apply. For more information, visit etoro.com/trading/fees.


Best books about the FIRE movement

Many great books can help you achieve FIRE. Some of the best include:

These books provide valuable insights into investing, saving, and achieving financial independence.

Financial Independence eBooks

Final thoughts on pursuing Fat FIRE

Fat FIRE is not for everyone, but for those who are willing to spend time planning and putting in the work, it can pay over time and be a rewarding way to retire early.

With the right investment strategy and lifestyle choices, you can achieve financial independence, retire, and live the life you've always dreamed of, without watching over your spending.

If you're considering pursuing Fat FIRE, it's important to do your research and develop a solid plan. Work with a financial advisor, read books about investing and retirement, and connect with others in the FIRE community.

With dedication, discipline, and a little bit of luck, you can achieve Financial Independence Retire Early, and live life on your terms.

How far are you with your saving and investment goals? We'd love to know in the comments below!

Contributor: Gabriel Pisasale

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No Investment Advice. This article does not provide financial advice and has been prepared without taking into account any person’s investment objectives, financial situation, or particular needs.

''Why the Biggest Myths About Fat FIRE May Actually Be Right'' is part of our financial independence series.

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