Fat FIRE: Retiring in Comfort
Fat FIRE means retiring early on a comfortable budget. It is the same idea as FIRE, with a larger version of the life you want. You are not cutting costs to the bone. You are keeping the home, the travel, the hobbies, and the meals out, and saving enough to pay for all of it without a paycheck. It takes more money and usually more time, but it leaves more room in the budget for the rest of your life.
What Fat FIRE means in numbers
Your FIRE number is your yearly spending times 25. Fat FIRE simply uses a larger yearly spending number. The table below uses round hypothetical numbers.
| Yearly spending in retirement | FIRE number (spending times 25) | Monthly spending |
|---|---|---|
| $60,000 | $1,500,000 | $5,000 |
| $80,000 | $2,000,000 | $6,667 |
| $100,000 | $2,500,000 | $8,333 |
| $120,000 | $3,000,000 | $10,000 |
Monthly spending is yearly spending divided by 12, rounded to the nearest dollar. The table uses the 4 percent rule. Bengen found in 1994 that about a 4.1 percent first year withdrawal lasted 30 years with 50 percent stocks and 50 percent intermediate term government bonds. The 1998 Trinity study tested withdrawal rates over 30 year periods. Both studies used past market data. A Fat FIRE retirement that starts at 50 may need to last 40 years, not 30, so a lower withdrawal rate may be safer.
Worked example: $80,000 of yearly spending
These are round hypothetical numbers. They are not a real household. The return used here is an assumption, not a forecast. This example uses a 7 percent annual return assumption.
- Step 1. Yearly spending is $80,000.
- Step 2. Multiply by 25. $80,000 times 25 equals $2,000,000. That is the Fat FIRE number.
- Step 3. Check the withdrawal. 4 percent of $2,000,000 equals $80,000 in the first year. Divide by 12 to get $6,667 per month.
- Step 4. Find the time. Saving $70,000 each year at an assumed 7 percent annual return reaches $2,000,000 in about 16 years. The growth factor needed is $2,000,000 divided by $70,000, which equals 28.57. At 7 percent, that factor is reached after about 16 years, when 1.07 to the power of 16 equals 2.95, close to 3.00.
Lean and Fat FIRE side by side
| Lean FIRE | Fat FIRE | |
|---|---|---|
| Yearly spending | $25,000 | $100,000 |
| Monthly spending | $2,083 | $8,333 |
| FIRE number at 25 times spending | $625,000 | $2,500,000 |
| First year withdrawal at 4 percent | $25,000 | $100,000 |
The Fat FIRE target in this example is $2,500,000. The Lean FIRE target is $625,000. The Fat FIRE target is four times as large, because $100,000 is four times $25,000. It is also more than three times the $625,000 Lean FIRE target, and it buys more room for error. A $10,000 surprise bill is 10 percent of a year of Fat FIRE spending at $100,000. It is 40 percent of a year of Lean FIRE spending at $25,000.
The lifestyle creep trap
Lifestyle creep is the slow rise in spending as income rises. A better car, a larger home, more travel, and more meals out all feel small on their own. Together they move the target a lot. Each extra $10,000 of yearly spending adds $250,000 to the target, because $10,000 times 25 equals $250,000. A $20,000 rise in spending adds $500,000 to the target. The target can rise faster than saving can catch up.
That is why a fat target is harder to hold. A lean budget has a clear limit. A fat budget has no clear limit. There is always a larger home, a longer trip, or a nicer car to buy. Each rise feels like a reward for hard work, and each rise pushes the date back. The way to hold the target is to set the spending level in writing, with a yearly cap, and to bank pay rises instead of spending them. Save the rise first, then live on what is left.
A fat plan also has larger fixed costs. A larger home costs more to heat, insure, and repair. More travel costs more each year. Those costs rise with prices, and they do not stop in a market fall. A fat budget needs a larger cash buffer for a bad year, not just a larger target. Hold at least one year of spending in cash or short term bonds, so a market fall does not force you to sell investments at a low price.
Coast FIRE: a middle path
Coast FIRE means saving enough early that growth alone reaches the target by retirement age, with no more saving after that point. It can make a Fat FIRE target feel less far away.
Worked example, using the same 7 percent annual return assumption. A $2,000,000 target in 30 years needs $2,000,000 divided by 1.07 to the power of 30. That factor is 7.61, and $2,000,000 divided by 7.61 equals $262,733, or about $263,000 today. The earlier draft said about $260,000. That was rounded too far. The checked figure is about $263,000. After that point, you still need to earn enough to cover your living costs, but you no longer need to save for retirement.
What to watch in a Fat FIRE plan
Tax is a larger cost in a Fat FIRE plan. Withdrawals from traditional retirement accounts are taxed as income. A $100,000 withdrawal is not $100,000 to spend. Plan the withdrawal mix in advance, using taxable accounts, Roth accounts, and traditional accounts in a tax wise order. Health cover before Medicare at age 65 is also a real cost, and it lasts 15 years if you retire at 50. Price it and add it to spending before you multiply by 25.
Education, not advice. This post explains an idea. It is not personal financial advice. Your income, taxes, health, and family needs are your own. Check the rules that apply to you before you act.
Sources
- Bengen, William P. “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning, October 1994. Financial Planning Association
- Cooley, Philip L., Carl M. Hubbard, and Daniel T. Walz. “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable.” American Association of Individual Investors, February 1998. AAII Journal
- Investopedia. “Financial Independence, Retire Early (FIRE) Explained.” Investopedia
- Investopedia. “Lifestyle Creep: Definition and How to Avoid It.” Investopedia
