Lean FIRE (Financial Independence Retire Early) is being able to retire before the conventional age of 60+, but significant sacrifices must be made in order to do so.
Unlike Fat FIRE, where you can truly live it up in retirement because you have so much more money producing a higher amount of passive income, Lean FIRE often requires one or more of the following:
* Living in a cramped studio, van, or trailer
* Deciding never to have kids
* Living in a very low cost area of the country which doesn’t have the same level of entertainment, culture, food, activities, and research centers as superstar cities
* Not being able to save up for the option of sending your kids to private grade school or college
* Pretending that you are retired to friends, family, and social media, while one partner is working a full-time job and/or you’re hustling your tail off to make supplemental income
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.
How Much You Need To Lean FIRE
Based on my after-tax investment amounts by age, if you want to live the Lean FIRE lifestyle, you don’t need to accumulate as much as those looking to live the Fat FIRE lifestyle.
You’re probably looking to live in the heartland of America, the MidWest, or the South instead of in the expensive coastal cities like San Francisco, LA, Boston, NYC, or DC.
Below is a after-tax investment amounts by age chart to allow you to live the Lean FIRE lifestyle.
My recommendation is to work until about 45 in order to have at least $1,000,000 in after tax investments producing $40,000 a year in gross passive income.
Without any debt, $40,000 is enough to provide a simple, carefree life for a family of up to four in a low cost area of the country. Of course, the kids must go to public school and there aren’t going to be as many fancy international trips. But that’s OK because you have all the freedom in the world.
A good idea in Lean FIRE is to take up some part-time work to supplement your income. Anybody who isn’t disabled should be able to generate an extra $10,000 or more a year in side income working 10 hours a week. If you’re living a lean lifestyle, a 25% boost to your passive income is huge.
Lean FIRE Is Great For Those Who Don’t Want Kids
It costs the average person roughly $250,000 to raise a child from 0 – 18. Add on $30,000 – $70,000 a year in college for four years, and kids really put a dent to the Lean FIRE person’s plans.
For those who plan to have kids, it’s best to accumulate at least 2X the amounts I’ve recommended in my chart above. Yes, it’s possible your kids will be brilliant and all get scholarships. But I wouldn’t count on it.
Worst case, you can always go back to work. But hopefully you won’t have to because you’ve got your budget down and you’re too busy living your best life.
Recommendation To Achieve Lean 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 began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $220,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.
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