If you’re interested in one day gaining financial independence and being able to retire ahead of schedule, you’re probably at least somewhat familiar with the FIRE movement, which traditionally emphasizes frugality, high savings, and a modest retirement lifestyle.
But what if you want a more extravagant retirement—one that allows for travel, hobbies, and maybe a more luxurious lifestyle? That’s where Fat FIRE may come into play.
Here’s how it works.
What is FIRE?
Financial Independence, Retire Early—or FIRE—is a financial movement that offers strategies and inspiration to help people aim for financial independence, at which point they can live either partially or completely off of their savings and investments.
How does it work? For a quick estimate, to retire before age 62, Fidelity’s guideline suggests aiming to save 33 times (33x) your expenses, assuming an annual withdrawal rate of 3%. For example, Richard is 45 with annual expenses of $75,000. To retire early, he could aim to save 33 times $75,000, or around $2.5 million. That's in today’s dollars. But as inflation increases, the target number also goes up.
Fidelity estimates that saving 10 times your preretirement income by age 67 should help you maintain your current lifestyle through retirement.1 In addition to your expected age at retirement, your expected lifestyle is a second key assumption in our guideline.
In other words, do you expect your expenses to go down when you retire? We call that a below-average lifestyle. Or will you spend as much as you do now? That's average. If you expect your expenses to be more than they are now, that's above average. Someone planning for above-average expenses might want to aim to save 12 times their salary by age 67.
Retiring before or after age 67 affects the savings factor. Aiming to retire at age 62 and maintaining your current lifestyle could mean saving 14 times your preretirement income.
How you build your savings is ultimately up to you, but some popular strategies in the FIRE community include:
- An ultra-high savings rate: For most people planning to retire at 67, Fidelity suggests saving 15% of pre-tax income for retirement, including any employer match. To build up their savings and net worth quickly, some FIRE proponents save and invest half of their income or more.
- Frugal living: To hit their savings goals, FIRE practitioners often aim to cut their expenses as much as possible.
- A relatively simple retirement: Aiming for a low-expense lifestyle in retirement can make reaching financial independence and retiring early achievable for many people.
Fidelity’s retirement planning tool can help you understand how long your money could last and the income your retirement savings may provide. If you’re not yet a customer, you can build a build a free plan.2
What is Fat FIRE?
Fat FIRE is a variation in the FIRE movement that prioritizes saving a lot and living an above average lifestyle in retirement. A high income helps—but it’s not strictly necessary. A commitment to saving and investing are the defining features.
While someone working toward FIRE may aim to save 50% of their income each year, a Fat FIRE hopeful may aim to save closer to 70%. Investing for growth potential could help those savings grow and compound over time.
Saving such a significant amount of income is generally not possible for most people without making a lot of sacrifices in their lifestyle today. The potential upside can be greater flexibility and more options later in life.
How much money do you need for Fat FIRE?
The exact amount of money you need to save for retirement depends on your specific situation. For an estimate, you can use a multiple of your expenses.
For example, imagine that you want an income of $125,000 when you retire. Fidelity’s guideline suggests multiplying $125,000 by 33, which comes to $4,125,000.
The sustainable withdrawal rate suggested for a typical retirement is no more than 4% to 5% of your savings in the first year, adjusted for inflation every year after that. For retirement before age 62, Fidelity suggests aiming for a conservative withdrawal rate of 3% to help ensure that your money lasts throughout your retirement.
Read Fidelity Viewpoints: How to retire early in 8 steps
Fat FIRE vs. Lean FIRE … and Barista FIRE?
Aiming for an above-average lifestyle in early retirement with Fat FIRE isn’t the only way to get to get to financial independence or early retirement. You can adapt the energy of the FIRE movement to a strategy that works for the lifestyle you want in retirement—and today.
There are countless ways to live life in retirement, and there are flavors of FIRE to suit many of them.
Fat FIRE vs. Lean FIRE
If Fat FIRE is all about retiring early with a high income and an oversized amount of savings, Lean FIRE sits on the other end of the spectrum. Lean FIRE can include a modest lifestyle and a smaller amount of savings. Instead of a retirement filled with luxuries, proponents of Lean FIRE aim to reduce their expenses by as much as possible and tend to live frugally. Examples of Lean FIRE might include living in a mobile home or tiny house to drastically reduce housing costs, moving to a country with a lower cost of living, and even deciding to not have children in order to save more and reduce expenses further.
Fat FIRE vs. Barista FIRE
While followers of Fat FIRE typically aim to save enough money so they can retire early and never have to worry about work again, Barista FIRE is more like semi-retirement. The idea is to save enough money so that you can partially retire—working a part-time job (like being a barista at a coffee shop) to fill any gaps in your budget and possibly earn benefits like health care coverage.
How to do Fat FIRE
- Estimate how much you may need to save to retire early. For a quick estimate, Fidelity suggests multiplying annual expenses by 33, assuming an annual withdrawal rate of 3%. A withdrawal rate of 3% is very conservative, which could help ensure that your money lasts throughout your retirement.
- Decide how much money you can save each year. The amount of money saved annually is your savings rate.
- Save consistently using tax-advantaged accounts like health savings accounts (HSA)s, 401(k)s, and IRAs, and taxable accounts, like brokerage accounts too.
- Invest for growth potential with a diversified mix of investments.
- Consider what you’ll do for health care before you're eligible for Medicare and think about a strategy for claiming Social Security.
Read Fidelity Viewpoints: How to retire early in 8 steps
A key consideration for people interested in Fat FIRE can be the types of accounts to use for saving and investing.
While tax-advantaged accounts can be extremely helpful, they do have annual contribution limits and rules about the age or circumstances when the money can be withdrawn penalty-free.
If you don't have access to a workplace savings plan or you've already maxed out your tax-advantaged options, investing in a taxable brokerage account could help you save and invest more for the future. Using tax-efficient investment strategies and products can help keep taxable events in the account to a minimum. Plus, you do have access to the money when you need it. Read Fidelity Wealth Insights: 5 ways to be a tax-smart investor
It can make sense to work with a financial professional to create a plan that can help you reach your goal while balancing savings, taxes, and investment growth potential: How we can work together
Advantages and disadvantages of Fat FIRE
For those that can do it, the advantages of Fat FIRE include the option to retire early and the flexibility to choose how you live in retirement. Not to mention, the peace of mind that could come from knowing all your future expenses will be taken care of.
But it’s clearly not for everyone. Most people would need to drastically cut their spending which would likely involve making serious lifestyle changes to make it work; for instance, living with family or roommates or downsizing a home. That could be a serious disadvantage.
Even if it’s just an aspirational goal for you for now, you never know what could happen in the future. Just cultivating the necessary mindset and habits associated with Fat FIRE can lay the groundwork for a strong financial foundation. As your savings and earning potential grow over time, Fat FIRE may just become within reach.