What is FIRE retirement and is it right for you?

Estimated reading time
 5 min

In this article

• What FIRE retirement is and the different types
• Tips to help you work towards retiring early
• How hyperbolic discounting can impact your FIRE strategy

Retiring in your 30s or 40s sounds like an absolute dream. And for some people, this is their reality.

Following the hot new Financial Independence, Retire Early (FIRE) strategy can allow you to leave the workforce younger and live comfortably with the wealth you’ve worked hard to build. The FIRE early retirement strategy might seem like it’s too good to be true, but with managed expectations, diligent saving and smart investing, you might be able to achieve early retirement too.

So, if you’re wondering how to retire early with the FIRE strategy, dive right in to find out.

What is FIRE retirement?

In a nutshell, the FIRE strategy is a radical style of saving and investing that starts early on in your working life so you can retire younger and be financially independent.

There are two different variations of the FIRE strategy, which are generally based on how much you earn and your lifestyle. Remember, it’s always smart to talk to a financial advisor first!

Fat FIRE

If you’re earning a high income and don’t want to cut back on the luxuries in life, then the fat FIRE strategy might be for you. This strategy requires you to save and invest so you can have a robust passive income to help sustain your lifestyle now and when you retire. For example, you might focus on creating a diverse portfolio with investments that are more likely to grow in value, such as a combination of property and shares.

The fat FIRE strategy can be slightly difficult to achieve as it requires lots of planning, investment know-how, and work to make it happen. You might also need to work a little longer than expected to ensure you’ve got enough money to be financially independent while maintaining your lifestyle.

Lean FIRE

The lean FIRE strategy is when you live frugally to save as much money as you can for your retirement. For instance, you might live off a small percentage of your wage and dedicate the bulk of your yearly income to your super, a savings account, or in a high value investment – whatever aligns with your future goals. When this intense type of savings is paired with a solid investment choice, you can grow your wealth while living frugally to allow future-you to be financially comfy.

The lean FIRE strategy can be harder to adjust to as you might have to rethink your spending habits and really keep your spending to the essentials on top of creating and following a detailed budget.

What about no FIRE?

FIRE strategies aren’t for everyone – and that’s okay! You can still apply some of these FIRE fundamentals to your finances. For example, you might cut back on certain expenses and invest that extra cash into your savings or super. Or you might identify opportunities to invest so you can earn a passive income on top of your regular income.

At the end of the day, it’s important to do what works best for you, your finances and your retirement goals.

What can you do to retire early?

If you want to retire early – with or without FIRE – then here are some things you can think about to get the ball rolling:

• Make a financial plan that maps out how much you’ll need to live comfortably and how you’ll achieve that amount. Need a hand setting a savings goal for retirement? The ANZ savings goal planner can help outline how much you’ll need to retire.
• Work out how to increase your income, whether through investing or by starting a side hustle. This can help you earn a passive income and give you extra cash to save for later.
• Pay off any debt you might have, like a home loan or credit card, so you won’t have to worry about paying it off when you retire.
• Boost your super amount and make the most of compound interest so you can make money on your money, and future-you can thrive.
• Reduce unnecessary expenses to help you achieve your savings goal and get savvy with your spending, like cooking a cheap (and tasty) family dinner instead of getting takeaway or watching online yoga classes instead of paying for a membership

How does ‘hyperbolic discounting’ affect FIRE?

Hyperbolic discounting is when you focus on immediate rewards rather than the ones that come later in life. When beginning your FIRE early retirement strategy, you might be tempted to spend your money on things that give you instant gratification instead of stashing it in your super or savings for future happiness.

To mitigate the effects of hyperbolic discounting, consider how a purchase that gives you instant satisfaction will affect your FIRE strategy. Do you really need to buy something and treat yourself right now? Or can you put that money towards your retirement goals instead? Answering these questions can help you stay on track with your retirement goals and be clever with your finances.

Read more about designing your dream retirement