The Fat FIRE Approach to Financial Independence

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You may have seen these affluent, early retirees while traveling. They are the well-dressed professionals that you meet in the premium lounges in airports, relaxed and checking their investment portfolio while planning the next leg of their long-term travel. They may have sold their startup, or may be a former investment banker or a dentist who has retired early and is enjoying the fruits of the hard-charging working years. Their assets are allocated across a variety of traditional and alternative investments and they may also be savvy real estate investors. These are the Fat FIRE enthusiasts. 

You may be wondering how they do it, while you are stuck in your 9 to 5 job until your 60s. In this blog post, we break down the fundamentals of Fat FIRE and help you decide whether this is a good approach for you. 

Use our FIRE calculator to build your Financial Independence, Retire Early (FIRE) plan. 

What is FAT FIRE?

The Fat FIRE approach involves working very hard early in your career to save up a fat nest egg, retire early and enjoying a very affluent lifestyle in retirement. People who Fat FIRE typically have worked in lucrative careers such as investment banking, dentistry, law, or medicine. Fat FIRE enthusiasts can also be entrepreneurs. Many have invested in income producing assets such as real estate that fund a part of their retirement lifestyle.

Review our blog post on the top 5 books to help you achieve your Financial Independence, Retire Early (FIRE) milestone. 

How to Build Wealth for an Affluent Retirement Lifestyle

Earn a high income in the early career years

The first step to building wealth is to work in a high earning or wealth generating career. This could include high paying jobs such as investment banking, law or consulting, or being a corporate executive. Many Fat FIRE enthusiasts are entrepreneurs who have been able to build wealth through their businesses. These high earning professions help people get to a nice nest egg relatively early without waiting until one’s 60s.

High saving levels

A high income is just the starting point. It is crucial to have a high savings level as well. A danger that high earners face is that of being income rich but asset poor due to poor savings habits. When you earn a lot, like Fat FIRE practitioners, it is easy to have lifestyle creep and spend a lot of money to maintain a lavish lifestyle in one’s working years. Instead, if you want to Fat FIRE, you need to save a high proportion of your salary. 

Aggressive investing

Fat fire enthusiasts are savvy investors and invest in a variety of assets to maximize returns. These include both traditional stocks and equities and also real estate, angel investing, crypto and other types of alternative investments. Some of these investments, such as real estate, can also generate passive income in retirement, which can help sustain the Fafire lifestyle in retirement. 

How to calculate your Fat FIRE number

The methodology for Fat FIRE calculation is pretty similar to the FIRE calculation, except that you would allocate high expense levels in retirement. You can use our FIRE calculator and find out your Fat FIRE number by putting in a high expense replacement in retirement. 

The nest egg required to fund this high expense level will need to be higher than for regular FIRE.

Let us do a quick comparison.

Assume that you are 28 and want to retire at 45.

Standard FIRE: You can live a frugal but somewhat normal lifestyle. So let us say you want to live on $100,000 a year. Using the 4% SWR formula, you will need $2.5M to retire. 

FAT FIRE: You decide that you need $300,000 a year to retire. Using the 4% SWR formula, you will need $7.5M to retire. This will mean that you have to earn a lot more money in your career and invest in more aggressive savings options.    

Use our FIRE calculator to plan for Fat FIRE.

Benefits of Fat FIRE

Affluent lifestyle without penny pinching 

Who wouldn’t want to retire early and live a lavish lifestyle in retirement? The Fat FIRE lifestyle allows you to live an affluent life in retirement without pinching pennies. You can live in a nice home, or travel several times a year or pursue interesting hobbies.

High reward careers 

Aiming for Fat fire will also motivate you to invest in your career in your early years. This ensures that you will make a lot of career progress and create wealth for yourself and others. Fat FIRE is a great option for people who are driven and willing to put in the effort to create wealth

Risks and challenges of Fat FIRE

While it sounds great to retire early and enjoy a lavish lifestyle to boot, there are non-trivial risks one must consider and plan for.

Not everyone can have a high paying career – or wants to.

High paying jobs or entrepreneurial careers are challenging to get into and typically involve long hours and high stress environments. It may be hard to get these jobs in the first place or consistently sustain these careers. Many people may want to enjoy their working years with more enjoyable or low stress jobs.

Will money last in retirement with FAT FIRE?

Fat FIRE is predicated upon living a lavish retirement lifestyle. However, lower returns than expected on investments may mean less money available in retirement to fund a lavish lifestyle. So you could end up with a more frugal retirement lifestyle, or have to even go back to work.

Investment risk

Since you tend to invest more aggressively to have enough of a nest egg at the early retirement age, there are more risks, especially with alternative investments or angel investing or crypto. It is easy to get carried away with expectations of higher returns and overlook the risks.

Boredom in retirement

Fat FIRE enthusiasts are typically high achieving professionals or entrepreneurs. So while you may yearn for early retirement, you might find that you get bored and feel unfulfilled. A way around this may be to leave the door open to work part time or provide consulting or use your expertise in some way.

Health insurance in retirement

As with any type of early retirement make sure that you have health insurance to cover yourself during the years before 65, when you can rely on medicare. You need to do your research on insurance and coverage options, how you can buy them, cost of premiums, etc, much before you get to the retirement stage.

How does Fat FIRE compare to other types of FIRE approaches?

We have blog posts about several FIRE options, Coast FIRE, Lean FIRE, Barista FIRE and now, Fat FIRE. There is of course the original FIRE approach as well. How do you decide which FIRE option is right for you? Let us compare each of these options with Fat FIRE. 

Fat FIRE vs Coast FIRE

Both Fat FIRE and Coast FIRE involve working in high earning jobs and saving aggressively in the early career years. But with Fat FIRE you retire early and live affluently on your nest egg. 

With Coast FIRE, you’d work in high earning careers and save aggressively in the early stage of your career. But once you achieve your Coast FIRE number, you still keep working. You would just reduce the career pace and work a more leisurely job until a regular retirement age, typically in the 60s.

Fat FIRE vs Barista FIRE

Barista FIRE refers to retiring early but working part-time in retirement to supplement one’s income. While it allows for a comfortable retirement, it does not provide an affluent lifestyle like what Fat FIRE does. 

Fat FIRE vs Lean FIRE

Lean FIRE is the exact opposite of Fat FIRE. With the Lean FIRE approach, people live frugally before and after retirement. This approach is good for people who are frugal by nature. Lean FIRE does not require one to build a lot of wealth and therefore is open to most people as an early retirement path.

Fat FIRE, on the other hand, allows for an affluent lifestyle in retirement. This requires a much larger nest egg, and therefore is usually possible only for people in high income or entrepreneurial careers. It may therefore not be an option available to everyone.

Fat FIRE: Conclusion

Fat FIRE is the fun Financial Independence, Retire Early option that enables people to live an affluent retirement lifestyle. Fat FIRE requires people to save and invest aggressively early in their careers. Fat FIRE enthusiasts usually earn their wealth through entrepreneurship or in high income professions such as medicine, banking or law.    

Using Planwell to help with Fat FIRE

Planwell’s FIRE calculator can help you determine your Fat FIRE net worth and age. Make sure to plug in a high income replacement amount in retirement to model an affluent lifestyle. 

You can also use the FIRE calculator to compare the fat FIRE with other FIRE approaches by modeling different income replacement amounts in retirement for frugal and affluent retirement lifestyle. You could also test different rates of return and inflation rates to make sure that your retirement plans will work in various macro-economic conditions.

Planwell is also building our fully personalized financial planning app to help you plan your finances comprehensively, including financial independence, retirement/ early retirement and a host of other financial goals such as home buying, kids college and real estate. 

We will be launching the product very soon. Stay tuned for an update. In the meantime, check out our blog posts to help you plan your finances.

• What is Coast FIRE? Find out how to Coast Your Way to Financial Independence.
• What is barista FIRE? Retire early and work part-time.
• Lean FIRE: The frugal way to achieve financial independence and retire early. 
• How to retire early and achieve financial independence: Tips to retire early and achieve FIRE (Financial Independence, Retire Early)
• How to build a personal financial plan: Before you make a home purchase, make sure to build your personalized financial plan with our 10 step guide. 
• How to Use AI Budget Calculators and Tools to Plan Your Finances: Take advantage of our free FIRE calculator  to plan your finances more effectively.
• 5 Common Money Mistakes to Avoid: Learn about the pitfalls that could derail your early retirement plans.