Retire At 40? It May Be Possible With The 'FIRE' Method

Retire At 40? It May Be Possible With The 'FIRE' Method

Updated May 10, 2022
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Retire At 40? It May Be Possible With The 'FIRE' Method

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Retiring at 40 years of age is possible – and many people do it using the FIRE method.

How does early retirement sound? Most people would say it sounds like a dream, but did you know that many people also make it a reality? The FIRE movement (Financial Independence, Retire Early) has taken off in recent years, allowing more people to retire long before the typical retirement age.

How Does FIRE Enable Early Retirement?

Tremendous sacrifice and self-control are required to retire early. The crux of this approach involves trimming your budget to the bone and funneling as much money as possible into your aggressively invested brokerage and retirement accounts while you're young.

Is it difficult? Yes. But how does retiring by age 40 sound?

When you apply the FIRE standards to your life you:

  • Cut your expenses as much as humanly possible
  • Raise your income as much as you can
  • Invest in low fee investments, for example, index funds and real estate investments

People using FIRE often retire once they have at least 30 times their annual expenses saved, which usually equals around $1 million or more. At this point, you can retire (quit your job) and decide how to proceed. Some people stop working altogether while others find a job they do for 'fun.'

Covering Daily Expenses Once you Retire

Covering your day-to-day living expenses once you no longer have a job is an essential part of this approach. Early retirees try to keep their withdrawals at no more than 4% of their savings (they call it the 4% rule). Sticking to this rule means enormous sacrifices, even during your retirement years. You must monitor your expenses and actively manage your investments to ensure growth to make up for the withdrawals you make annually. Since the market is volatile, this can be risky for many.

Who Qualifies for FIRE?

Anyone can try the FIRE method, but those that succeed the most at early retirement are:

  • Those that have 'bigger' plans for their life that working full-time doesn't allow
  • Those that want financial freedom to work at a job that they love rather than have to work
  • Those that can continually earn more money year after year, making it possible to invest aggressively

How to Retire Early with FIRE

Are you ready to start the FIRE method? Do the following:

  • Make sure you understand the short-term sacrifices you'll have to make. Are you prepared to commit yourself to tighten your financial belt?
  • Check out your spending. Is there room to cut back drastically and free up a meaningful amount of income to invest?
  • Are you carrying significant amounts of debt? Monthly debt payments and interest are significant headwinds.
  • If you are a homeowner, have you paid off your mortgage?
  • Have you saved for your child's college education?

Consider all of these factors before starting the FIRE method and trying to achieve early retirement. Even if you don't go all-in on FIRE, the exercise of trimming your budget and saving more money is one that can help you build your emergency fund and increase your wealth in general.