Are you on track to retire early? Find your FIRE number
What if retirement wasn’t the finish line at the end of a long career, but a goal you started chasing in your 20s? That’s the reality for followers of the FIRE movement, who go to great lengths to try to achieve Financial Independence and Retire Early.
Like many 20-somethings, Jane Tsang didn’t love her job on the lowest rung of the corporate ladder. “Maybe mine was more soul-sucking than average,” she concedes. For Markham, Ontario-based Tsang, waking up early and facing a time-guzzling commute into the city wasn’t just unpleasant, it was a dealbreaker. “I became very motivated to retire early,” she says.
But Tsang isn’t just daydreaming of retirement. At 26, she has a methodical plan to retire in her early 30s. After a little digging on Reddit, she found the FIRE community, where disciples typically pinch pennies to retire years or even decades earlier than the average Canadian.
For Tsang, retiring early means she needs to save between $1.5 million and $2.7 million by her early 30s. If she hits the former (called a “lean FIRE” number; see "What's your FIRE type" below to understand the many kinds of FIRE), she’d have to live frugally to make it last the rest of her life, she says. If she reaches the latter (a “coast FIRE” number), she can buy a house and live a little more freely. “I’m also very willing to be flexible and adapt as I go,” she says.
The FIRE lifestyle is not for most people, especially given the fact that more than half of working Canadians say they’re unprepared for retirement. But it’s rooted in the same retirement thinking: build up enough of a nest egg to gain the financial freedom to do whatever it is you want.
To retire by her early 30s, Jane Tsang works long hours and aims to save about 92% of her income.
What is the FIRE movement?
With the FIRE movement, the point is to reach freedom much earlier than is typical, after which you might travel, start a business, try a new hobby or volunteer. There are a growing number of people who find the FIRE lifestyle appealing. To make it work, however, you’ll need to dramatically cut back on your expenses, save most of your paycheque and find your “FIRE number,” the amount you must save before you can retire. Here are some ideas on how you might determine that figure.
How does FIRE work?
There are plenty of ways to estimate how much money you’ll need in retirement. One of the more popular calculations within the FIRE movement is the “Rule of 251,” where you multiply your annual spending by 25. That’s how much the rule says you should have invested in order to sustain your living expenses over 25 to 30 years.
It’s essentially an inverse version of the popular 4% rule1, a calculation that some savers use to get a ballpark idea of how much money they will theoretically need in retirement. The strategy posits that if you can live off 4% of your portfolio each year, there’s a good chance your money can last for 25 to 30 years.
Both methods are broad rules of thumb and should be taken with a grain of salt.
Aaron Ayers, an advisor at Tangerine Investments, says that getting to a final number requires reverse engineering.
“Look at the lifestyle you want and what level of income you might need,” he explains. First, he says, estimate your annual retirement expenses, including housing, groceries and transportation, then subtract any predictable sources of income. The remaining amount is what your investments must generate each year for you to maintain your lifestyle. Multiply that number by 25 to get an idea of how large your retirement portfolio should be.
Note that your calculations are in today’s dollars — with inflation, the actual numbers, including the amount you withdraw every year, will be higher.
Of course, “it’s more complex than that,” says Ayers, adding that your portfolio will require ongoing monitoring to safeguard against any shortfalls.
One risk is if the market falls in the year you retire, it might force you to draw income from a portfolio that has suddenly dropped in value. Other factors that can potentially deplete your retirement portfolio, and that aren’t accounted for by the 4% rule, include changes in interest rates, long-term market downturns, and emergencies or major life events that require dipping into your savings.
Importantly, the rule was created based on a retirement that starts at age 65, whereas FIRE funds might have to last decades longer.
To account for these potential issues, and for those who retire early and have a longer-than-usual retirement, Ayers says that some people should consider assuming a 5% or 6% withdrawal rate instead of just 4%. Which would make it more of a 6% rule.
“If you’re retiring at 35, use a more conservative projection to ensure the plan lasts longer,” he says. FIRE enthusiasts might keep their expenses to a tight budget, or keep earning a small income from side hustles to help stretch out their savings. (See "What's your FIRE type" to learn more about the many different approaches to FIRE.)
How much should you save* for an early retirement?
Vancouver-based Bryce Leung and his wife, Kristy Shen, both former computer engineers, adopted FIRE after saving $500,000 over six years for a home. In 2012, they decided to forgo home ownership, realizing they wanted to travel the world instead.
The couple, who were spending about $40,000 a year at the time, applied the Rule of 25 to their situation, arriving at a FIRE number of $1 million. Between 2012 and 2014, they saved about 75% of their paycheques to reach their target.
“We could have spent 25 years paying a house off, or we could invest, hit a million dollars and retire,” says Leung, an early FIRE. “It seemed like a no-brainer.”
Leung and his wife did live more frugally than most people, though they describe their minimal spending as a “deliberate lifestyle design.” They never had a car, they rented their home, and while they would go out with friends occasionally for dinner, they never bought lunch at work or ordered in.
However, they always made sure to spend upwards of $10,000 on two trips per year. “That was OK, because it makes us happy,” says Leung. “It’s the other stuff, like spending money on a car, that didn’t make us happy.”
Vancouver-based Bryce Leung and Kristy Shen, both former computer engineers, saved about 75% of their paycheques from 2012 to 2014 to reach their target FIRE number of $1 million.
By contrast, Tsang’s plan is more aggressive given her short timeframe. She earns about $400,000 a year working about 16 hours a day. During the day she works as a marketing specialist, and after hours she’s a content creator on social media. Earning that much certainly helps, but to reach her lofty FIRE number by her early 30s, she needs to save about 92% of her income.
That means living at home with her parents and spending as little as she can, which, for her, comes naturally.
“I was raised with an extreme scarcity mindset and taught to be very frugal,” says Tsang, who doesn’t buy new clothes, takes transit rather than Uber and cooks her own meals.
Early pain for later gain
For many, achieving FIRE at an early age will require some extreme savings behaviour. Even if you reach your number, there’s no guarantee it’ll work out in the way you hoped.
For one, says Ayers, without a well-thought-out retirement plan, you could quickly become bored with all that time on your hands. Your needs could also change as you age. You might want a nicer car, a bigger house to fit a growing family and money to donate to charity, which could require an increase in annual spending. Returns are also never guaranteed, and a bad couple of years can impact your plans. Living a frugal life is tough, too.
“I imagine it probably takes an emotional toll,” says Ayers. “But some people can find enjoyment in finding deals.”
How to plan financially for FIRE
Many people end up making FIRE work by continuing to earn some income after they hit their number, a variant on the movement called “barista FIRE.”
Leung and Shen, who have had a child since adopting the FIRE lifestyle, recently published a book, Parent Like a Millionaire (Without Being One), which combines their experience with money and money-saving parenting tips. They also make income from writing and speaking about FIRE.
For her part, Tsang expects to continue creating content after she reaches her number.
The point for many, Leung says, isn’t to kick back and do nothing.
What’s your FIRE type?
There’s no one way to achieve FIRE. Here are some of the categories that make up this movement.
🔥 Lean FIRE: If you can live frugally and don’t mind operating on a low annual budget, then this could be for you. It requires a heavy focus on cutting expenses, strict discipline and minimalist living. With lean, you may be able to retire with a lower FIRE number or take out less than 4% per year, depending on how much you need to live on.
🔥 Fat FIRE: For those who want to retire early while still maintaining a high standard of living. If you don’t want to sacrifice, you’ll need to build up a much larger investment portfolio to hit that 4% number.
🔥 Barista FIRE: Those who like working but want to choose how they spend their days might adopt this approach. Here, your ideally low-stress and more enjoyable job will cover some of your daily expenses, while your investments will take care of the rest.
🔥 Coast FIRE: With this approach, you would save aggressively early on and then stop contributing to your retirement account once you reach your FIRE number. Ongoing work would cover your daily expenses, allowing you to take less stressful or part-time jobs. Then, you tap into your investments when you fully stop working.
🔥 Slow FIRE: This strategy most closely resembles the typical approach to retirement savings. Here, you’ll save and invest steadily – not aggressively – with the goal of retiring early, though more likely in your 50s than your 30s. You’re prioritizing quality of life now and in the future.
“If anything, we seem to be busier [with work] than we were before,” says Leung, who says that between his continued income and compound growth, his portfolio sits at about $2 million today. “It’s the financial independence part that we try to encourage.”
Bottom line
If you’re considering FIRE, Ayers recommends talking to an advisor who can help you determine your number and keep your portfolio growing.
“You’re going to have long-term, medium-term and short-term money to get the most out of what you’re saving,” says Ayers, adding that annual reviews of your plan are important. “This can’t be static. You’ll need a financial plan and one that can adapt to your needs.”
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1The Rule of 25 and the 4% rule are commonly referenced planning concepts, not guarantees. They are based on historical market data and assumptions that may not hold in future market environments, particularly for early retirees with longer time horizons. These rules of thumb do not account for variability in returns, inflation spikes, unexpected expenses or long retirement periods, and should not be used in isolation.
*These examples reflect individual circumstances and may not be realistic or appropriate for most people. Results vary widely based on income, savings capacity, market conditions and personal priorities.
