FIRE Movement

The FIRE movement (Financial Independence, Retire Early) is a lifestyle and financial concept that aims to achieve financial freedom well before the standard retirement age through extreme savings rates and disciplined investing. The saved capital is primarily invested in broadly diversified investment vehicles such as ETFs to benefit from the long-term compound interest effect.

A central pillar of this approach is the so-called 4 percent rule. According to this rule, one is financially independent as soon as the portfolio reaches 25 times the annual cost of living. In this way, one can withdraw this percentage annually without depleting the capital in the long term. It should be noted, however, that the 4 percent rule should be applied flexibly: The longer the future withdrawal period, the more important it is to assume a more conservative withdrawal rate due to sequence risk. Stocks can fluctuate significantly. A crash at the beginning of retirement can have more drastic consequences than one toward the end of the capital depletion phase.

There are various trends within the movement: While Lean FIRE pursues a minimalist lifestyle, Fat FIRE aims for an upscale standard of living in retirement. Barista FIRE describes a model in which one works only part-time to cover Social Security contributions. FIRE should therefore be understood less as a pure exit from the workforce and more as a gain in self-determination and time autonomy.