How to retire early and achieve financial independence

Achieving financial independence and retiring early (FIRE) is a movement that has gained massive popularity in recent years among people who want to take control of their financial future. Whether your goal is to leave the 9-to-5 grind, pursue your passions or spend more time with your family, FIRE offers a structured framework to help you get there.

Let’s dive into what FIRE is all about and explore practical strategies to turn your financial goals into reality.

What is FIRE?

FIRE is a financial strategy and lifestyle movement that focuses on achieving financial independence through frugal living, aggressive saving and strategic investing. The ultimate goal is to build a portfolio large enough to support your lifestyle so that you no longer rely on traditional employment.

The FIRE movement has inspired a generation of ambitious individuals to rethink their relationship with money, prioritize what truly matters and live intentionally. Its roots trace back to books like Your Money or Your Life by Vicki Robin and Joe Dominguez, which introduced the concept of aligning expenses with values to achieve freedom.

Types of FIRE: Lean, Fat, and Barista

The FIRE movement isn’t one-size-fits-all. Depending on your financial goals and lifestyle preferences, you can choose from several variations:

Lean FIRE

• What It Is: Lean FIRE is for individuals willing to live a minimalist lifestyle, cutting back on non-essential expenses and embracing frugality.
• Example: Living on $25,000 annually while maximizing savings during working years.
• Learn More: Lean FIRE Guide

Fat FIRE

• What It Is: Fat FIRE focuses on achieving financial independence while maintaining a more comfortable or luxurious lifestyle.
• Example: Saving enough to retire on $100,000 annually, allowing for travel, dining, and hobbies.
• Learn More: Fat FIRE Guide

Barista FIRE

• What It Is: Barista FIRE combines part-time work with passive income to bridge the gap between full-time employment and total financial independence.
• Example: Earning enough from a side gig to cover essential expenses while using savings to supplement additional needs.
• Learn More: Barista FIRE Guide

Planwell’s FIRE Calculator

Not sure which FIRE path suits you? Try our free FIRE Calculator. Input your financial details—current age, income, savings, and goals—and we’ll help you determine your optimal FIRE strategy and timeline.

Tips to retire early and achieve FIRE (Financial Independence, Retire Early)

So you’d like to retire a bit early and maybe travel the world? Or pursue your hobbies or passions? But don’t quite know how to get there?

Don’t worry, we’ve got you covered.

First of all, try out our free FIRE Early Retirement calculator.

Input your current age, desired age of retirement and some basic financial facts like income, savings and goals. We instantly generate your results and tell you the earliest you can retire and how much to save every year in order to hit your target retirement age.

Here are the most important factors that impact how early you can retire.

Your savings rate

The most important factor that impacts how early you can retire is how much you are currently saving. This savings rate is determined by your current expenses and lifestyle.  

 Now, not everyone wants to live super frugally and survive on a diet of ramen. The trick is to make sure you spend money thoughtfully on the things that matter, while being extremely frugal about the non-essential stuff. And who decides what is important and what is non-essential? You do, of course.

 For some people, travel might be an important aspect of their lifestyle, in which case they may want to think about areas they can cut back on. Do you really need to buy the biggest house you can afford or spend a bunch on shopping? For others, it may be important to spend money on their kids and family, but cut back on most other expenses. It is important to think it through and plan for the type of lifestyle you want. Another option may be to consider living in a lower cost of living (LCOL) area – if that is possible.

On the savings front, it is wise to max out one’s 401K, IRA or Roth IRAs as much as possible. Starting age 50, you can make catch-up contributions and contribute an additional $7,500 in a 401(k) and $1,000 in an IRA.

Boost your income

If you were able to boost your income even a little, it would enable better savings and earlier retirement. In the current economy it may seem like a challenge to earn a higher income, but it is a good goal to work towards. Some people try to find a side hustle that can boost their income either before or after retirement.

Kids’ college considerations

People with kids who wish to fund their kids college expenses have to make sure that they have enough money set aside before they decide to retire. Alternatively, they may have to make tradeoffs between funding college or early retirement.

 You can use our college savings calculator to determine how much you should be saving for kids’ college expenses.

Post-retirement lifestyle

It is important to consider the type of lifestyle you’d want at retirement. Will you move to a LCOL location and cut expenses significantly? If you anticipate that your mortgage will be paid off and housing costs will be cut down drastically in retirement, then factor in a lower expense level.

Alternatively, if you plan to travel, or pursue any expensive hobbies, you may have to delay your retirement until you’ve saved enough.

Rate of return

The returns you earn on your investments or your retirement accounts play an important role in determining how early you can retire. However, it is important to remember to think about risk while considering rate of returns.

Inflation

This is one factor beyond anyone’s control. But the difference between a 3% inflation and a 7% inflation can mean several years of delayed retirement. So what can you do about inflation? One option, though not palatable, may be to delay retirement. The other may be to reduce expenses and be more frugal, at least until the economy improves.

Health insurance and medical needs

It is super important to consider health insurance and possible long term care needs during retirement.  

401K Early withdrawal penalty

Withdrawals before age 59 1/2 can entail a 10% penalty. So it is important to make sure that there are enough assets in non—retirement accounts or in cash to tide one over until this time, in order to avoid paying penalty.

Investment Strategies for FIRE

Reaching FIRE requires more than just saving aggressively—investing strategically is key. Below are proven investment strategies to accelerate your journey:

1. Low-Cost Index Funds

• Why It Works: Index funds offer broad market exposure with minimal fees, making them a reliable choice for long-term growth.
• How to Start: Invest in funds like the S&P 500 or total market index funds through your retirement accounts (401(k), IRA) or brokerage accounts.
• Pro Tip: Automate contributions to stay consistent.

2. Dividend Growth Investing

• Why It Works: Dividend-paying stocks provide passive income while allowing for reinvestment to grow your portfolio.
• How to Start: Look for companies with a history of increasing dividends annually (e.g., Dividend Aristocrats).
• Pro Tip: Use dividend reinvestment plans (DRIPs) to compound returns.

3. Tax-Efficient Investing

• Why It Works: Maximizing tax-advantaged accounts reduces your tax burden and grows your savings faster.
• How to Start: Contribute to Roth IRAs, HSAs, and 401(k) accounts. For early retirees, consider a Roth conversion ladder to access funds penalty-free.
• Pro Tip: Consult a financial advisor to optimize your tax strategy.

4. Real Estate Investing

• Why It Works: Real estate can provide steady cash flow through rental income and potential appreciation.
• How to Start: Begin with single-family rentals or explore Real Estate Investment Trusts (REITs) for lower barriers to entry.
• Pro Tip: Focus on properties in lower-cost-of-living areas to maximize returns.

5. Diversified Portfolios

• Why It Works: Spreading investments across asset classes (stocks, bonds, real estate) mitigates risk.
• How to Start: Use target-date funds or robo-advisors to create a balanced portfolio.
• Pro Tip: Reassess your allocation annually to stay aligned with your goals.

Conclusion: Start Your FIRE Journey with Planwell

FIRE is a rewarding but deliberate journey. Whether you’re aiming for Lean, Fat, or Barista FIRE, the key is to align your lifestyle with your financial goals and invest strategically. Planwell is here to help every step of the way with resources like our FIRE Calculator and in-depth guides.

For more inspiration and actionable tips, explore our other blog posts:

• The Boglehead Investment Approach
• What Is Lean FIRE? A Guide To The Ultimate Minimalist FIRE Lifestyle
• Top FIRE Books: Financial Independence Retire Early Resources
• The Complete Guide to House Hacking

Take the first step today and turn your FIRE dreams into reality!

Learn how you can benefit from Planwell today.