What is FIRE? A guide to gaining Financial Independence and Retiring Early

Feb. 14, 2024
4 min read

What we'll cover

What it means to pursue early retirement
How to set a realistic savings goal
Ways to focus on saving and investing

If you're dreaming of an early retirement, now's the time to make a plan and prepare your finances. Let's walk through some key considerations to ensure you have the funds you need to get a head start on your retirement.

What is early retirement age?

You may imagine a particular age when you dream of early retirement, but early also has a specific definition: retiring before benefits kick in. Eligibility for Social Security starts at age 62, and Medicare at 65. It's also worth considering that 59 ½ is the age at which you can withdraw money from your IRAs or 401(k)s without tax penalties. If you're aiming to retire earlier than that, welcome to the FIRE movement , made up of people striving for financial independence to retire early (FIRE).

How to retire early

A key element of early retirement is saving: early, often and strategically. But first, you have to do the math.

Plan your annual retirement spending

General guidelines for retirement savings still apply if you retire early, but because you will likely be retired for longer, you'll need additional savings for those extra years. A common rule is to save enough to spend between 60% and 100% of your pre-retirement salary each year in retirement. For early retirees, it might be more realistic to keep your retirement spending at the lower end of that range. Some factors to consider when estimating your retirement spending are:

Will you pursue expensive hobbies, such as travel?
Do you currently have any recurring or long-term healthcare expenses?
Are you willing to live more frugally?
Do you have predictable, affordable housing?

Calculate your total savings needed

Now that you know how much you might be spending in retirement, you can approximate how much you'll need to save. Just multiply your annual spending by the number of years you plan to enjoy your retirement (or use our free retirement calculator ).

This estimate might not account for everything — unexpected expenses pop up even in retirement — but planning for a financial buffer can set you up for success.

A key element of early retirement is saving: early, often and strategically.

Make adjustments to your current budget

If you're planning to allocate more money toward retirement, that likely means you'll need to either start building a budget or adjust your current spending. Embracing frugality in other areas of your life can help increase the amount you have to save or invest. This budget-minded lifestyle can help you in your retirement, too — if you carry responsible spending habits into your golden years, your retirement funds can last much longer.

Max out your retirement accounts

A popular starting point toward a FIRE lifestyle is to max out your 401(k) contributions — which can be an ambitious goal. For 2024, your maximum contribution is $23,000, which doesn't include any amount contributed by your employer. Hitting that number may be challenging depending on your other financial goals and expenses. If meeting your max contribution isn't feasible, there are other ways to work toward your goal.

Invest early and often

You've probably heard it before, but it bears repeating: The earlier you start investing , the more time you have in the market. A good place to begin is understanding what's out there beyond a 401(k) . And if you need advice on how best to move forward, consider working with a financial or wealth advisor .

Consider an HSA

Participating in a high-deductible health plan and contributing to a Health Savings Account (HSA) can help reduce your health-related costs. Similar to a 401(k), an HSA is a tax-advantaged account: Contributions, earnings and distributions put toward qualified expenses are not taxed with an HSA. These funds can also be invested, meaning your HSA is another opportunity to prepare for retirement. Health expenses in older age can easily derail your retirement plans, but a well-funded HSA could help keep you prepared. And if you're over 65, you can withdraw your money for any purpose — you'll just have to pay income tax.

Keep the FIRE alive

Financial independence is a big accomplishment — and challenge. But by understanding the details of your plan and sticking to them, you can work toward enjoying your dream retirement.