Fat FIRE (Financial Independence Retire Early) is being able to live it up in retirement without having to sacrifice your spending. You can easily survive without a job because your investment income more than covers your best life’s living expenses.
Fat FIRE allows you to:
* Live in the most expensive cities in the world which all have wonderful culture, food, nightlife, entertainment, schools, and arts
* Live in a comfortable house with at least three bedrooms, two bathrooms, and a yard if you have one or more kids, or a luxury two bedroom or greater condo if you are a childless couple or individual
* Save or have enough to pay for all your children’s college education
* Travel for 8 or more weeks a year while living in 4 or 5 star hotels
* Drive a safe and reliable car that’s not older than five years
* Eat and drink the finest foods
* Afford excellent healthcare
* Take care of all your parents financial needs since they sacrificed so much to raise you
* Have no need for either partner or spouse to work every again
Fat FIRE is at the opposite end from Lean FIRE, where individuals cut their expenses to the bare bones in order to survive.
Lean FIRE examples include:
* A couple living in a cramped studio, van, or air stream
* A couple deciding never to have kids due to costs
* Being unable to afford living in the world’s greatest cities due to costs
* Not saving up enough to pay for private grade school or public or private university
* Living in a low cost area of the country where it’s pretty homogenous
* Living abroad to lower costs
There’s nothing wrong with Lean FIRE. Having a minimalist lifestyle while doing what you want is great. Fat FIRE and Lean FIRE are simply two ends of the early retirement spectrum.
In between is Barista FIRE, where an early retiree works a part-time job or forces their partner or spouse to work a part-time or full-time job for extra income and benefits.
How Much You Need To Fat FIRE
Based on my after-tax investment amounts by age, if you want to live the Fat FIRE lifestyle in places like San Francisco, New York, Los Angeles, Washington DC, Boston, San Diego, Seattle, Miami, or now Denver, you need to accumulate the following amount of wealth by age.
The chart highlights a realistic amount of money the most aggressive saver, investor, hustler, and calculated risk-taker can take in order to achieve the Fat FIRE lifestyle sooner, rather than later. Some of you will be able to accumulate much more, and some of you might be able to get by with a little less.
If you want to live the Fat FIRE lifestyle, I would NOT retire before the age of 40 with less than $3 million in the bank. Even with $2,500,000 in after-tax investments, you’ll only be able to generate $100,000 a year in gross income or $75,000 in after-tax income based on a 4% rate of return. This is great if you are single or are a childless couple.
But if you want to live the Fat FIRE life raising a family, you need at LEAST $5 million generating $200,000 a year or more. In other words, you probably need to work until close to 50 instead. But that’s still much younger than the average retiree who retires after 61.
Example of a Fat FIRE Lifestyle
To give you an idea of what $200,000 a year in passive income can cover, let’s profile Jerry, a Financial Samurai reader’s budget. Jerry is 45 years old, has a 8-month-old daughter and a non-working spouse named Linda, 38. They’ve lived in Los Angeles for the past 20 years.
Both have decided to retire early in order to spend as much time as possible with their daughter. After both negotiated severance packages equal to $100,000 for Jerry and $60,000 for Linda, they have a combined net worth of roughly $6,300,000 if you include the $600,000 in equity they have in their primary residence, and $700,000 in their combined pre-tax retirement accounts.
Their goal is to never go back to full-time work again and perhaps do some part-time consulting once their daughter goes to kindergarten in five years. Neither parent is doing any sort of side hustling at the moment, contrary to most early retirees I know, including myself.
Please review J&L’s expenses below.
As you can see from this chart, Jerry & Linda check off all the Fat FIRE boxes:
* They live in a world class city
* They have a daughter
* They own a 3 bedroom, 2 bathroom house
* They are saving for their daughter’s education
* They get to go out and eat great food
* They have a Range Rover they paid in cash
* They have great healthcare
* Neither of them work
Budget Adjustments If Necessary
If times ever get rough, J&L could cut their expenses by contributing less to their daughter’s 529 plan, ordering less food delivery, and spending less money on childcare to free up an extra $5,000 – $10,000 a year.
They could also move to a lower cost area of the country, but they’d rather stay warm all year round, rather than face brutal Midwest winters. Further, as a Latino (Jerry) and Asian (Linda) family with a mixed-race daughter, they prefer the diversity of LA that can only be matched by even more expensive places like New York City or San Francisco. This feeling of comfort is underestimated by the majority.
Instead, it seems better earn supplemental income if they need more money or want to spend more money.
Jerry worked in managing consulting for 23 years and Linda worked in digital marketing for 15 years. Prior to retiring, Jerry was earning a base salary of $300,000 + $100,000 – $200,000 in bonus. Linda was earning a $180,000 base salary + $50,000 in stock compensation.
Every $10,000 of supplemental income earned equals $250,000 in after-tax capital earning a 4% rate of return. J&L could easily consult part-time for a combined 10 hours a week at $100/hour and earn $52,000 a year if one of the following concerns comes true.
Fat FIRE Is The Best, But Hardest Way To Retire Early
When you are no longer working for money, it’s best to have as much money as possible. There’s no point retiring early if you’re going to constantly stress about whether you have enough money to pay the bills.
With Fat FIRE, you are truly free to live like a boss and do whatever you want, wherever you want in the world. And if you choose to earn supplemental income because it makes you happy, by all means do so and pad your net worth even more.
Financial Samurai is focused on Fat FIRE. We want to help readers build great wealth through not only aggressive savings, but smart investing.
Once you accumulate your first million, it’s much easier to accumulate millions more. At the same time, it’s much easier to lose a large absolute dollar amount of money, which is why proper diversification and asset allocation is a must.
You’ve got one life to live. Get smart. Make money. And live the life of your dreams. Once you’ve accumulated enough wealth, you’ve got to focus on protecting your wealth.
I’m Going For Fat FIRE
With two kids and a non-working spouse, my goal is to achieve Fat FIRE. We’ve currently got roughly $300,000 in passive to semi-passive investment income to provide for a Fat FIRE lifestyle. However, with inflation, I’m shooting to generate $350,000 in passive income.
I really want to retire now. However, with so many fun things closed due to the global pandemic, I figure I might as well focus on making more money online. Once herd immunity is achieve and shelter-in-place is lifted, then we plan to live the Fat Fire lifestyle to the fullest!
Recommendation To Achieve Fat Fire
Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
About the Author: Sam worked in investing banking at Goldman Sachs and Credit Suisse for 13 years. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. His favorite invest at the moment is real estate crowdfunding to take advantage of lower valuations and higher rental yields in the heartland of America. He spends time playing tennis, taking care of his family, and writing online to help others achieve financial freedom too.
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