If you’re planning to retire early, you’ll need to implement a strong savings and investing plan. Following the rules of F.I.R.E (Financial Independence, Retire Early) can help. Canstar explains.

What is FIRE?

The F.I.R.E (Financial Independence, Retire Early) movement is a community of individuals dedicated to a strategy of intense saving and investing. The goal is to achieve financial independence, enabling them to retire much earlier than conventional financial plans and retirement timelines would typically allow.

To achieve F.I.R.E, save aggressively, cut expenses and simplify your lifestyle. This leaves extra money for investments. Over time, you can reach financial independence, possibly in your 40s or 50s. Once financially independent, your investments generate income, reducing the need for work to cover expenses. This allows for early retirement, well before the typical retirement age of 65.

→Related article: How Much KiwiSaver Do You Need for Retirement?

What are the F.I.R.E methods?

There are four variations of the traditional F.I.R.E movement:

  1. Fat F.I.R.E
  2. Lean F.I.R.E
  3. Barista F.I.R.E
  4. Coast F.I.R.E

1. Fat F.I.R.E

A Fat F.I.R.E is best for people with a traditional lifestyle who aim to save significantly more than the average worker but don’t want to significantly change their current lifestyle. It generally takes a high salary and aggressive savings, plus investment strategies for it to work.

Following a Fat F.I.R.E method allows you to engage in activities that individuals following Lean F.I.R.E or traditional F.I.R.E plans might find challenging, like taking frequent holidays or buying new cars.

2. Lean F.I.R.E

Individuals following a Lean F.I.R.E method adopt a minimalist and “lean” lifestyle, spending less than the average person. Typically they aim to save up to 25 times their annual expenses, following a strict budget with the goal of achieving financial freedom ahead of the traditional timeline. For example, living in an affordable area, only eating-in and saving on transport can all contribute to a Lean F.I.R.E method.

3. Barista F.I.R.E

The Barista F.I.R.E method combines aspects of both Lean and Fat F.I.R.E. People following this lifestyle work part-time after retiring early to cover extra expenses.

Instead of not working at all, individuals can use their financial independence to engage in part-time work or pursue a less lucrative job that aligns with their interests. This provides the flexibility to choose between working for enjoyment and working for sustenance.

4. Coast F.I.R.E

Those following the Coast F.I.R.E method get a part-time job after retirement, just like Barista F.I.R.E. The key difference is that they don’t have enough money saved up for post-retirement.

Achieving F.I.R.E, especially for young people in New Zealand facing high living costs, can be tough due to the need for significant upfront savings. Even Lean F.I.R.E might take over 10-15 years for many. However, unlike traditional F.I.R.E, where no income is needed for retirement, with Coast F.I.R.E, you still need income for expenses, but you don’t have to actively save for retirement. The idea is that your current funds can grow over time until they reach about 25 times your yearly expenses by the time you retire.

Which method is best for me?

Figuring out the best F.I.R.E method for you an come down to several factors, including:

  • Financial goals: assess how much money you need for your desired lifestyle during retirement
  • Risk tolerance: evaluate your comfort level with financial risk. Some methods may involve more aggressive investment strategies, while others prioritise stability
  • Lifestyle preferences: consider your preferred lifestyle. Are you willing to live frugally (Lean F.I.R.E) or do you prefer a more indulgent lifestyle (Fat F.I.R.E)?
  • Current financial situation: assess your current financial status, including income, expenses, and existing savings. Determine how much you can realistically save and invest towards early retirement
  • Time horizon: consider your timeline for early retirement. Some methods may require a longer period of aggressive saving and investing

How to follow a F.I.R.E method

1. Choose the right method for you

All F.I.R.E methods have the same basic principles: save, invest and minimise expenses. But it’s important to select a method that you can realistically follow.

2. Create a budget

After identifying your ideal F.I.R.E method, seek advice from a financial advisor and develop a budget. It’s recommended to create two budgets:

  1. Pre-retirement budget: develop a budget that allows for aggressive saving and investing while managing current expenses with a future-oriented perspective
  2. Post-retirement budget: this is the ultimate goal. Invest in options aligned with your desired lifestyle to fund your estimated post-retirement expenses.

→Related article: How to Write a Budget

3. Live within your means

Cutting your expenses (whether it be to the bare minimum or giving up the odd perk) can make a huge difference when it comes to providing for retirement. Saving a little each each payday can help you add to your F.I.R.E vision.

4. Earn more to boost your income

Look into options to increase your current income, such as taking on a side job, freelancing, or initiating your own small business.

Compare KiwiSaver Providers with Canstar

If you’re comparing KiwiSaver funds, the comparison table below displays some of the products currently available on Canstar’s database for a KiwiSaver member with a balance of $20,000 in a Growth fund, sorted by Star Rating (highest to lowest), followed by company name (alphabetical) some may have links to providers’ websites. Use Canstar’s KiwiSaver comparison selector to view a wider range of retirement funds. Canstar may earn a fee for referrals.

To read more about our latest KiwiSaver Awards click this link or to compare KiwiSaver providers, click on the button below.

Compare KiwiSaver funds with Canstar

5. Invest early and often

It’s essential to save your money, and once you’ve accomplished that, consider putting your money to work for F.I.R.E. How? Through investing!

Keep in mind that F.I.R.E entails investing a significant portion, typically 50-70%, of your income. Opting for suitable aggressive investments with a long-term perspective can move you closer to F.I.R.E.

How early will I be able to retire?

How early you’re able to retire depends on several factors, including which F.I.R.E method you implement, your expenses and investment returns.

For example, someone following the Lean F.I.R.E method may be able to retire by age 40 if they have a high income, save every penny and have a high return on their investments. While it may not be realistic for everyone to retire before they’re 40, everyone can benefit from making and sticking to a budget while doing all they can to earn as much money as possible, whether it’s by getting a better job, adding a second one, or creating additional revenue streams.

About the author of this page

This report was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.

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