Lean FIRE (Financial Independence Retire Early) is being able to retire before the conventional age of 60+ with a very lean budget and simple lifestyle. For background, I helped kickstart the modern-day FIRE movement in 2009 when I started Financial Samurai.
Lean FIRE means your investments can only cover your basic necessities like food, transportation and rent. You don't have much wiggle room for luxuries. Further, it's much harder to have children or live in a major city if you are Lean FIRE.
People who are Lean FIRE often have to supplement their retirement with extra active income sources. This active income sources could be consulting, working a part-time job, selling stuff online, blogging, free-lance writing, and more.
Lean FIRE is at the opposite end of the FIRE spectrum as Fat FIRE. Fat FIRE is when you can truly live it up in retirement because you have enough passive income to cover a rich lifestyle. Meanwhile, somewhere between is Barista FIRE and Coast FIRE. Barista FIRE is where you're working a low-paying job for supplemental income and health care benefits. Coast FIRE is really no different from a working person who is regularly saving for retirement.
To put some numbers into Lean FIRE, I say that you are Lean FIRE when your investments can generate at least $20,000 per person in your household. In other words, a family of three is Lean FIRE if it can generate $60,000 a year in investment income. $20,000 is almost one-third the median household income in America.
Sacrifices People Who Are Lean FIRE Or Want To Lean FIRE Make
Lean FIRE often requires sacrifice. Here are some typical sacrifices being made by those who follow the Lean FIRE lifestyle:
- Living in a cramped studio, van, or trailer
- Living with your parents
- Having to take subsidized healthcare
- Deciding never to have kids because it makes retiring early too difficult
- Living in a very low cost area of the country, which may not 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
- Might have to live in a simple home, like retiring in a cabin in the woods
- 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
Let me be clear. There's NOTHING wrong with Lean FIRE. Minimalism and early retirement go together like peanut butter and jelly. Having a minimalist lifestyle while doing what you want is great!
However, most people aspire to go beyond Lean FIRE. Spending years living very frugally to only live very frugally in retirement is not something most people want to do. For those who want a family, Lean FIRE is limiting.
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. And why not? Once you are FIRE, it's easier to move around the country or the world.
You can make your Lean FIRE lifestyle go even farther in Mexico or Southeast Asia. I used to live in Kuala Lumpur, Malaysia and could lead a regular FIRE lifestyle off $40,000 a year there.
Lean FIRE Investment Chart Guide
Below is a after-tax investment amounts by age chart to allow you to live the Lean FIRE lifestyle.
If you want to achieve Lean FIRE, 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.
If accumulating $1 million in taxable investments and waiting until age 45 to Lean FIRE is too difficult, then you can always shoot for less. A $500,000 taxable investment portfolio can generate $20,000 a year comfortably with higher interest rates today.
A Potential Lean FIRE Budget
If I were to Lean FIRE with my wife and son, I would base it on 200% of the Federal Poverty Limit for a household of three. That annual gross income number is $41,560, which tends to rise each year with inflation.
Using a 3% safe withdrawal rate or 3% rate of return, I would therefore need a portfolio of $1,385,333 to Lean FIRE with my household. Admittedly, 3% is conservative now that the 10-year bond yield is over 4%. If I use 4%, then all I would need is taxable investment portfolio worth $1,039,000.
I've thought long and hard about Lean FIRE and it's simply not for me. The budget above makes me a little angry and sad because I want more for my wife and children. Even if we were to move to the Sunbelt, where costs are much lower than in San Francisco, the budget would be too tight.
Do you really want to live so frugally to then live near poverty in retirement? I don't. I'd rather live a much richer life and work longer.
That's what happens when you become a parent. You want to give your children the world. Living the Lean FIRE lifestyle is great if you don't have kids. But once you have kids, you shoot for regular FIRE or Fat FIRE.
Minimum Income Needed To Raise A Family Of Four
I’ve concluded that my family of four would need to earn at least 300% of FPL (~$75,000) in early retirement to feel reasonably comfortable. At a 3% safe withdrawal rate, we’d, therefore, need a portfolio of at least $2,500,000. At a 4% withdrawal rate, we'd need a taxable investment portfolio of at least $1,875,000 and pray another bear market doesn't hit.
Luckily, when I retired in 2012, I had a net worth of $3 million and generated roughly $80,000 in passive income. Therefore, I was Lean FIRE when I was 34. As the bull market continued, so did my net worth and passive income naturally.
Today, I'm striving for a consistent $350,000 passive income figure given I have two kids and live in an expensive city. It's not so much lifestyle creep, but elevated inflation that keeps pushing my passive income target upward.
You can read my FIRE Confessionals Part I and FIRE Confessionals Part II posts to get more Lean FIRE perspectives.
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. Heck, I'm considering giving up on early retirement and going back to work to help pay for college 15 years down the road.
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. It's extremely difficult to retire early with kids.
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.
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About the Author:
Sam worked in investing banking 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 Lean FIRE at the age of 34 largely due to his investments and a severance package.
He's currently most interest in real estate crowdfunding to take advantage of lower valuations 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.
FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.Â
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What Is Lean FIRE is a FS original post. Please focus on always building passive income if you want to retire early. Your tax-advantaged accounts are not enough.