Which FIRE Strategy is Best for You? (Lean to Fat FIRE)

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2:37Mindy Jensen:Not everyone needs$2 million to retire early and not everyone can live on$30 ,000 a year. That's why the FIRE movement has evolved into multiple paths. Today, we're exploring every type of FIRE, from traditional, to coast, to lean, to fat, and helping you discover which one fits your personality, your needs, and your sanity.

3:06Mindy Jensen:Hello, hello, hello, and welcome to the BiggerPocketsMoney podcast. My name is Mindy Jensen, and with me as always is my Fired Up co-host, Scott Trench. Thanks, Mindy. Great to be here, as always, and to blaze into new opportunities for financial finance. We have put together a visual breakdown of all of the fire types that we're going to cover today. So I'm going to share my screen and let's go ahead and jump right in. Okay, Scott, how many types of fire are we going to be talking about today? We're going to be talking about six. There's no official beginning or end to the types of fire, and a new acronym is invented by the hour in the fire community.

3:42But we'll talk about the six most common of these types here today. So do you want to kick things off, Mindy, with the first one?

3:48Mindy Jensen:Yep. Up first, we have traditional FIRE. This is the kind of numbers that we originally started talking about in the FIRE community 10, 15 years ago. $1 to$2.5 million in net worth, which implies a middle-class lifestyle. We are spending between$40 ,000 and$120 ,000 a year in retirement. The timeline for this is between seven and 20 years for somebody who's earning a good upper middle class income. The biggest lever that you have to pull for your traditional fire journey is your savings rate. We talked last week with Mr. Money Mustache about his shockingly simple math to early retirement and the savings rate, the more you can save of your income, the faster you will get to traditional FIRE.

4:42Mindy Jensen:The pros of this are pretty easy. You can get to a comfortable and traditional retirement in a fairly short amount of time. It's seven to 20 years, depending on how much you're making. And it can be achieved with a typical career. You don't have to be some super high earning wage earner in order for you to be able to attain this level of FI. The cons are few. The numbers can seem so large that it takes decades to get to where you need to go. With the people that we have been talking to in the past here, Scott, it takes about 10 years. I think seven is a very aggressive goal and implies a very high savings rate.

5:27Mindy Jensen:Most people are in the 10, 12, 15-year range. The numbers can seem a little small for a higher end lifestyle. This is not for somebody who wants to be able to spend as much money as they possibly can in retirement. Yeah, I think this is the bread and butter of what the folks in the fire community are generally looking for. You're going to see the majority of people in this community looking for an outcome in this range, one to two and a half million. You're going to find a lot of commonalities among the people that are looking for this, a prioritization of freedom over work, a prioritization of efficient living.

6:05These are not folks that are trying to live a luxurious lifestyle. They're trying to live probably what most people would equate with a typical middle-class lifestyle in this. And there's a concept of enough. The goal of having enough in life to enjoy their time, their day-to-day doing simple, reasonably priced activities is going to be a higher priority than a long and very successful career climbing the corporate ladder, building a business, or otherwise accumulating that next level of wealth. And I think this is what the FIRE community is started at and will remain grounded in adjusting for inflation, of course, over the coming years and decades.

6:47I think this will be the typical goal for many people. And I would even go so far as to say, I think this is taking the place of the old American dream for an increasingly large percentage of society.

6:59Mindy Jensen:And Scott, you just called it the bread and butter. Let's call this bread and butter fi. Yeah. Okay. What do we have next? Next up, we have just the bread, just the bread, no butter, that component of fire. So that one's probably barista fi or lean fi. But we have coast fi here. Coast fi is really just a milestone on the FIRE journey. This is not a state of financial independence. What it is describing is a position where you have enough saved in your retirement accounts, where if you take any reasonable approximation of historical average returns for typical investment portfolios and extrapolate them to the future, your retirement wealth will be fully funded.

7:42So for example, if someone who is 25, is hoping to, at 65 in 40 years, have$2.5 million in inflation-adjusted wealth, so probably closer to$7 or$8 million at that point in time, then if they have$167 ,000 in their retirement accounts or in their portfolio that they do not plan to spend, that number will likely, again, if we extrapolate historical returns, compound and double every 7.2 years and fully fund that level of well by that point. So they don't have to save any more money for retirement. For example, if you're 25 and have$167 ,000 saved. If you're 35, that number comes to about 328 grand, 45, 646, and 55, 1.3 million.

8:30And if you've got that much accumulated, you're done saving for retirement. And that can be a very freeing feeling because a lot of people feel pressure to accumulate, accumulate, accumulate, accumulate, but if you can calculate that you're coast fire, then you can ease off the gas. You can take part-time work. You can explore things like barista fire, or you can continue grinding it out to the other forms of fire, but know that you are well ahead of the game and the pressure is off. You're not behind by any sense in terms of the financial goals that most Americans seek to achieve. And this is a much more approachable timeline for many, especially if you're younger.

9:06I think that many people in the fire community will find that they're able to actually hit this goal in the three to five year time range between salary increases that seem to accompany the start of many fire journeys, hardcore saving, and then the investment approaches and the compounding of initial dollars. I think that you'll find many people who are able to achieve this in three to five years. Of course, it can take much longer or even lifetimes for many people, but inside the fire community, you'll find a lot of people achieving it in a pretty short amount of time. However, if you're older, you need way more in order to achieve closed fire because you have less time for that doubling.

9:38And I think you got to be a little bit more conservative in the assumptions you have around growth rates, because timing, you know, the returns in the next decade matter so greatly for you actually achieving this. So you can compute this and see how long that will take you with the Fine Years calculator, which we talk about at length in episode 664, and actually bring them on to discuss in episode 665 here at the BiggerPocketsMoney podcast. We are going to take a quick mini retirement from this conversation, and then we'll be right back.

10:10Mindy Jensen:Let's jump back in. The pros of this is that you know that you are set for traditional retirement, and then you can kind of ease off the gas. You don't have to have this frantic, I have to save every dollar I can mentality. So it does allow for a little bit more spending throughout the rest of your life. It relieves a lot of pressure because saving up$1 million or$2.5 million, that's a big number. But if you're 25 and you have$167 ,000, you're like, oh, okay, the math, math's out. If you're 24 and you see that you have$50 ,000, you're like, okay, I need to save a little bit more. It gives you a great place to just check in where you're at.

11:02Mindy Jensen:I love the COSFI calculator from the pioneers. It's so much fun to play with and just throw in different scenarios and say, oh, okay, if I have this much money, I'll have that much at retirement. And if I need this much, I'll have to have this much by this date. So you can really play around and check it out. Like I said, there's a lot less pressure in your later years because not so much pressure to just save, save, save all the time. And you can pivot in your career without worrying about your retirement savings. You can take that job that's a little more risk, more reward, or less stress if you're just kind of burnt out.

11:41Mindy Jensen:Less stress, less pay. The cons are that it still requires working until traditional retirement age. So it's not really the RE part of FIRE. It assumes consistent market returns for 20, 30, 40 years. And past performance is not indicative of future gains, as they say in every single ad for any sort of investment property. It could lead to lifestyle inflation once you have pulled your foot off the gas pedal with regards to saving. And it doesn't provide the ultimate freedom to completely leave your job that other levels of FI does. Tell us about that. One of the next types of FIRE, Mindy. So we ordered these in the amount of money you would have to save up.

12:29Mindy Jensen:So the next up is barista FIRE. And this is when your traditional retirement is fully funded, like in Coast FI, and you can distribute income from your asset base to partially cover your expenses, but you wouldn't have enough money saved to be able to live off of it fully. So it's like five with a job, but a job that is traditionally less stressful, like a barista, when they go into the coffee shop, they are making coffee. And then when it is done with the, when they're done with their day, they just walk away. They're not worried about what's going on at work. And if you've ever had a very stressful job that you bring home, either like to do work or to X actually just sitting on your shoulders, worrying about it, this can be a really desirable opportunity.

13:19Mindy Jensen:So your FI number in Barista FI is between 250 and$750 ,000. We're not even hitting the million dollar mark right now. You have partial financial independence with 15 to 20 times your annual expenses instead of the traditional 25. Your timeline can be three to seven years. So it's a much shorter timeline. And you typically reach this five to 10 years sooner than traditional FIRE. The pros are the flexibility and the lower savings amounts that are required for it. The cons are that many people in the middle or upper middle class will have a difficult time stepping back from this, you know, more prestigious job.

14:03Mindy Jensen:And I say that in air quotes because I think that baristas are awesome. They make me my fabulous coffee drinks all the time. Having a less stressful job is a really great tradeoff. Let me tell you, as somebody who had a stressful job and now no longer has a stressful job, it's a great tradeoff. But you do really need to have part-time work for a considerable portion of the year. And part-time work might be harder to find. This really, I think, it takes a different kind of mindset than one that I'm frankly wired with, where you're comfortable with living at a very low cost, actually beginning to distribute partially from a portfolio.

14:41Imagine, you know, we talk about the 4 % rule. So if you have a million bucks, that allow you to distribute about$40 ,000 a year. A$500 ,000 portfolio would then allow you to distribute$20 ,000 a year. And if you needed$40 ,000 a year to live, generating$20 ,000 in income part-time is not something that many people find to be too challenging, especially if they're willing to be reasonably flexible with those hours. Like, for example, tending bar at the busy time during the weekend. and having off much of the rest of the week. So this is a kind of niche or niche, depending on where you're from, approach to living.

15:18Again, I think few in our community are truly pursuing or in the bigger pockets money community, more precisely, are pursuing. But I think these folks may actually get the maximum amount of life force out of their time on this planet by approaching something like this. It just takes a little bit of a different brain wiring to really wrap your head around this and go and live out your life as a barista fire.

15:43Mindy Jensen:Yep, and honestly, those cons really aren't that bad. I think that part-time work would be fairly easy to find, especially if you're just needing to cover your expenses. You're not needing to cover your expenses plus save for retirement. All right, Scott, what's next? Next up, we got LeanFi. So I'm gonna call this in that 600 to 1 million, maybe even, there's no hard lines here. So you can even go up to like 1.25 potentially in some places and call this 1.5 and call that lean FI if you're on like the West Coast, for example. But this is going to be that lower end of FI. This is where you're living a lower middle class is how I'll describe it type of lifestyle off of one's portfolio.

16:26And the advantage here, of course, is that it's an even more achievable target than traditional FI. It can be achieved faster or on a lower income level. And it can be done with basically no deviation whatsoever from the traditional FIRE formula. You don't have to earn a super high income. You don't have to do real estate if you don't want to. You don't have to have a business or side hustles or alternative investments. You can just take a normal job, even like a government type job or something that is relatively attainable from a career perspective. grind it out for maybe 10 or so years, and likely be at or close to this objective if you keep your expenses low and embrace the frugality component of the fire journey.

17:12And so I think that's the key advantage. I think the disadvantage is that a very large portion of the fire community seems not to be content with the relative frugality required to live this lifestyle for the duration of one's life. And it's not really a desirable lifestyle in particular. I think in the higher cost of living areas, which is, you know, I think a growing portion of the United States. And then you really have very little room for emergencies, lifestyle, inflation, giving, or, you know, maybe being more of a leader in your social circle or your family setting with this level of wealth, although it's still substantial.

17:51But I think those are the pros and cons of this. And again, I would say, you know, about about a 15 percent or so of the bigger pockets money community is looking for this outcome as a stated goal.

18:03Mindy Jensen:Yeah. You said something, Scott. I thought it was very, very perfect for this. You have to embrace the frugal lifestyle. If frugality is not your natural setting, lean fi might be more difficult for you. But I think that you can always combine these with barista fi and get a job for a few years or get a less stressed job for a few months out of the year. You said you don't have to do real estate if you don't want to. You never have to do real estate if you don't want to. But renting out a room while you're traveling or otherwise covering some expenses so that you can have a more robust yet still lean fi lifestyle.

18:45Mindy Jensen:I think it comes down to creativity. But yeah, this is the frugal FI. Yeah. And I also think that there's a little bit of a timeline or sliding scale here. And I think many whose goal starts out as lean FI, like for example, myself, maybe Mindy, you're in this camp as well. I don't know. But you start out with this goal. This is the goal. And you achieve it. And it is freeing. You now really do have all these options in life. And you can live this lifestyle. and you can choose to work on one of the larger fire numbers under much more agreeable circumstances, either with a job with much more pay or something with much more flexibility or you can begin a business.

19:27This is when you really get to have that control over your life. If you're able to keep your expenses low enough during the journey to fire where you can live on a lean-fi item, it's fine to get here, declare and have that freedom and then continue building on top of that to layer in the lifestyle that you really want, which may be at the upper ends there. So I wonder if that's where some of the folks who say, I want lean fire, maybe what they mean is they want that freedom and that's my goal. But I am also going to continue to apply myself after that because that's not really the total end destination.

20:00It's just the beginning of the end where I will begin to exert my freedom and say no to work that I don't like. And yes to the things that I do like, even if that comes at the expense of base salary, for example.

20:11Mindy Jensen:Yeah, I think lean fi can open up the doors to sabbaticals and new work opportunities that are potentially high risk, high reward with like a startup or even just leaving that job that you hate that got you typing onto Google anyway. How do I quit my job early? So LeanFi gives you, it opens up a lot of options. Okay, this will be our final ad break and we'll be right back after this. If you've been putting off life insurance, I get it. The old process was miserable. Phone calls with an agent, a nurse coming to your house for a blood draw, then waiting weeks to find out what you'd pay for. That friction is exactly why so many people who should have coverage don't.

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22:14Mindy Jensen:Up next, Scott, because we're doing this in order of like how much money you need, we've got traditional fire in the order, but we've already discussed that because I think it's a great to, I thought it was great to give a baseline for where we were starting. So again, this is a $1 to$2 million net worth spending between$40 ,000 and$120 ,000. So let's move on to the next one, Chubby Fire. I don't know why this makes me laugh so much, but it does. The portfolio that you have is$2.5 to$6 million. I think$6 million might be squeaking into fat fi territory. Yeah, I had a really hard time picking that number, right?

22:57There's no like, oh, there's a clear cutoff here. It's just that some people say that fat fire begins at seven and a half million. And some people say it begins at five. So I called it six to be in the middle there. So if you have a problem with that, you can email. Mindy has the email address, actually. It's called idontcare at gobothersomebodyelse.com. And you can quibble with the exact cutoff for chubby and fat fire chubby the answer is chubby fire generates an upper middle class lifestyle this is somebody who can live in a nice home in a nice for in a nice part of town that way that has really good schools maybe even send a kid to private school this is somebody who can afford to take pretty reasonable upscale vacations maybe even travel the occasional trip first class um and and and has no trouble funding kids' college accounts, those types of things.