By TJ Porter, WCI ContributorMost people look forward to the idea of retiring one day. Whether you plan to be sitting on the beach sipping on a drink with an umbrella in it or traveling the world, retirement is the time of your life when you can focus on the things you want to do. Most people don’t expect to retire until late in life, but that's not necessarily true if they're planning to Fat FIRE.
The average American doesn’t retire until they turn 62, which leaves precious little time to enjoy the wealth they’ve earned. On the other hand, the common image of an early retiree is a person who cuts expenses to a bare minimum, living on a diet of instant noodles. While the reality for many early retirees is not one of such intense asceticism, it’s far from a life of luxury.
Fat FIRE is a concept that combines early retirement with luxury. People pursuing fat FIRE aim to amass a large amount of wealth—well more than the minimum they could feasibly survive with—allowing them to spend more freely in retirement.
What Is FIRE?
For a quick refresher, FIRE stands for Financial Independence, Retire Early. The idea behind FIRE is that people spend far too much of their lives working and wasting the money they earn on things they don’t need. FIRE adherents instead focus on saving and investing, which allows them to buy freedom from the need to work.
A key concept of the FIRE movement is the 4% rule. This rule states that you can withdraw 4% of your portfolio’s starting value each year without running out of money. The study that led to this rule only looked at a 30-year time horizon, which isn’t enough for most early retirees. But most samples found that retirees actually ended the 30-year period with more than they started with, so it’s a solid rule to use even for long retirements.
Put another way, for each $1 million you have saved, you can spend $40,000 per year and (most likely) never run out. FIRE adherents aim to reach a savings number that will allow them to cover their expenses within this 4% rule.
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The Definition of Fat FIRE
Many of the people planning to FIRE place a strong emphasis on frugality, which is understandable. The less you spend, the less you need to save to be able to retire, letting you get to your number more quickly and giving you more time in retirement. Fat FIRE takes a different approach. Instead of focusing on reducing expenses as much as possible, those pursuing fat FIRE aim to boost their portfolio as much as possible, giving them a much larger amount to spend in retirement.
A typical FIRE-ee might live in a suburb or less expensive city, drive an older car, take the occasional vacation, and live a relatively normal life financially. By comparison, fat FIRE-ees plan to live in more expensive cities; drive newer, more expensive vehicles; take regular vacations domestically and internationally; and spend money on expensive hobbies.
As with the rest of the FIRE movement, the true definition of fat FIRE is murky and comes down to your personal ideas about money. What seems like fat FIRE to one person may seem like normal FIRE to another. There isn’t a magic number at which your portfolio turns from a normal FIRE portfolio to a fat FIRE portfolio. Think about how much money you’d need to spend each year to live a life you consider luxurious. That’s the number you need to plan to spend each year if you hope to fat FIRE.
How Much Do You Need to Fat FIRE?
So, how much money do you need to fat FIRE? It depends on what you want to spend.
Remember the 4% rule, which says you can spend 4% of your portfolio’s initial value each year without running out. That means that you need 25x the amount you plan to spend each year before you can retire. What constitutes a luxurious level of spending will vary depending on where you live—$100,000 goes a lot farther in Omaha than in Los Angeles. It also varies from person to person based on their individual tastes.
Many FIRE adherents place the cutoff for fat FIRE at a portfolio somewhere between $3 million-$5 million. Using the 4% rule, that would allow for $120,000-$200,000 in spending each year, far more than the average American. According to the Bureau of Labor Statistics, the average American consumer unit spent $77,280 in 2023. Replacing that level of spending would require a portfolio of just under $2 million. That means a portfolio of $4 million would allow for spending that doubles the average consumer unit, a spending level that seems reasonable to call luxurious.
In short, while there isn’t a magic number at which normal FIRE becomes fat FIRE, plan to save $3 million or more if you want to consider yourself a fat FIRE-ee.
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Fat FIRE vs. FIRE vs. Lean FIRE
Fat FIRE is just one mode of FIRE, and it’s far from the default. Traditional FIRE tends to be more popular, largely because it feels more achievable to most people. Saving up $5 million can sound like a daunting task. If your family only spends $60,000 per year, saving $1.5 million sounds much more reasonable and lets you retire sooner.
Other people interested in early retirement go to the other extreme, aiming for lean FIRE. Lean FIRE focuses on cutting expenses to the absolute minimum, often as little as $25,000 a year for a single person. That level of spending allows you to retire with just $625,000 saved.
The level of saving required and the lifestyle afforded by that savings varies depending on the type of FIRE you want. Which you choose to pursue, should you decide that FIRE is right for you, will depend on the goals you have for retirement.
How to Fat FIRE
If you’re interested in fat FIRE, the good news is that physicians generally have an easier path to it because of their high incomes.
In 2023, the average physician income was $363,000 per year. Imagine that you manage to save one-third of that amount, $121,000, each year and invest it. If you earn a post-inflation return of 5% annually, you’ll have more than $4.3 million after 20 years, which is a reasonable amount to consider yourself fat FIREd. Boost your savings rate a bit, and you can reach fat FIRE even more quickly.
This example also assumes that you have no college debt, which isn’t true for 75% of doctors. If you have college debt, you’ll need a higher savings rate or be willing to work a bit longer before reaching fat FIRE.
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Is Fat FIRE Right for You?
Is fat FIRE right for you? The answer to that question depends on where you find fulfillment in life.
One is why you decided to become a doctor. If you’re committed to helping people, FIRE probably isn’t the path you want to take. While you can pursue financial independence, you’ll likely want to keep working so you can keep making a difference in the world. Following FIRE principles, however, may give you the freedom to take lower-paying jobs that you find more personally fulfilling or allow you to work fewer hours and find a rewarding work-life balance.
On the other hand, if the high levels of compensation drew you to medicine, pursuing FIRE—and particularly fat FIRE—is likely to be right up your alley. Pursuing fat FIRE does mean dedicating a large portion of your income to saving, but in the long run, you’ll reap the reward of freedom without having to sacrifice your quality of life.
Ultimately, how much to save and whether to pursue FIRE, fat FIRE, or a normal retirement is up to you.
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