What Is Financial Independence, Retire Early? Answers To FAQs About FIRE

What is financial independence, retire early? Have you heard of the FIRE movement and are wondering what it all means? Early retirement has been extremely popular over the past few years, and I’m sure you’ve heard of it, especially if you follow many personal finance blogs. I know there are a lot of people who…

Michelle Schroeder-Gardner

Last Updated: May 31, 2023

What Is Financial Independence, Retire Early?

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What is financial independence, retire early?

Have you heard of the FIRE movement and are wondering what it all means?

Early retirement has been extremely popular over the past few years, and I’m sure you’ve heard of it, especially if you follow many personal finance blogs.What Is Financial Independence, Retire Early?

I know there are a lot of people who are confused or even skeptical of what early retirement is and whether or not it is a real thing. 

Before I started my personal finance blog, I had never really heard of the term financial independence or early retirement.

I assumed early retirement was only for the super rich.

Now, it’s really all I ever hear about. Because I travel full-time, I have met many, many people who have been able to reach financial independence and/or early retirement.

Plus, being a financial blogger means that I’ve, of course, heard and read about it many times.

It is an amazing thing to read about, and I always get excited when I read stories about the financial independence, retire early movement. It’s really inspiring and motivating to read about how people have taken control of their financial lives, are living outside of the norm, and more.

If you’ve ever heard of financial independence, retire early and want to know what it’s all about, then this article is for you.

I’m going to explain some common questions about the financial independence early retirement movement, and maybe get you interested in starting on your path to early retirement.

For some, retirement is something that you do after working a full-time job for 40 to 50 years. However, there are many out there who sadly aren’t able to save enough money to prepare for the traditional retirement age of 65 to 67. And, as pensions have become a thing of the past, building your own retirement savings will become even more important.

Whether you want to travel, continue working (yes, you can continue working after you “retire” – there’s no rule that you have to quit when you retire early), have more fun time with family and friends, or whatever else, retiring early and reaching financial independence gives you the ability to decide on your own path and future.

Plus, early retirement can be at whatever age you want it to be, it doesn’t mean you have to retire when you’re 30. If you are able to retire at age 60, that’s awesome and still earlier than most! The point is to strive to become financially free, not stuck in debt, and/or living a paycheck-to-paycheck life.

And, even if you love your career, you can still think about early retirement.

I have saved enough to retire whenever I would like. Yes, I earn a high income, which is a huge help when thinking about early retirement. That’s what allows me to save the majority of my income.

Now, don’t get me wrong, I absolutely love my current life and my online business. However, knowing that I can retire early means I am prepared for whatever might happen in the future. There are so many what ifs, like there could be a medical emergency, I may change what I want, the world may change, and the list goes on.

The future is completely unknown.

To me, having the ability to reach financial independence and/or retiring early is all about having FREEDOM.

Financial independence, retire early isn’t for everyone.

There’s also a lot of privilege when it comes to the FIRE movement, and that’s important to acknowledge. 

Also, not all early retirement paths have to be extreme – some can actually be quite normal. Many people can still live a normal life, without really cutting too much out. Some of that depends on how much you make and how much you’re already used to saving.

There are many different paths that can be taken, because personal finance is personal.

Today, I am going to talk about some common questions when it comes to the financial independence early retirement movement. If you have other questions, please leave them as a comment below and I will answer them as well.

What is financial independence, retire early?


What is the FIRE movement?

FIRE stands for Financial Independence, Retire Early.

It can mean a lot of things to different people.

But, the basic idea is that you work towards financial independence – either having enough saved and/or enough passive income to cover your expenses.

You can then choose whether or not you want to work.

Related: 13 Best Early Retirement Books


What does financial independence mean?

The meaning of financial independence is different to everyone. Some people think it’s being debt free and others think it’s having a certain dollar amount saved in the bank, typically enough set aside to retire whenever you want.

My definition of financial independence is that you are making enough money to cover your monthly expenses, without a day job.

This income would come from investing, rental real estate, and so on.


What does early retirement mean?

Early retirement can have a few different meanings depending on the person.

It can mean never having a job again. It can mean having enough money and not having to work, but choosing to do so because you enjoy your line of work.

Think of it as no longer being tied to a job to make ends meet. You don’t have to work, but you can if you want.

Related content: 21 Best Early Retirement Tips To Help You Retire Early


Is it a good idea to retire early or reach financial independence?

Learning how to save for retirement is a great idea!

But, I don’t think early retirement is for everyone.

Achieving FIRE is difficult. Some people do extreme things to save money to retire early. Others work 100+ hours a week between their day job and their side job to retire early. Some do both. This can take a mental and emotional toll on many people.

Whether or not it’s right for you depends on what you want and what lengths you are willing to go to. It also depends on why you want to do it. 

Your reasons to retire early may include:

  • You want to pursue a passion that you can’t do while having a full-time job
  • To have more time to exercise and be healthy
  • To spend more time with family and friends
  • To have the freedom to choose what you want to do
  • To travel more
  • Because the future is unknown

And so much more!


How much do you need to retire early?

The amount of money needed to retire early or reach financial independence depends on the person.

Planning for early retirement means that you will have to carefully consider all of your different expenses, well into the future. For most early retirees, that starts by creating a budget that allows them to really know their expenses and save for them well into the future. You will most likely need to account for things like:

  • Housing
  • Food
  • Transportation
  • Health insurance
  • Medical bills
  • Travel
  • Passion projects
  • Children
  • Long-term care

And so on.

A person planning for early retirement is thinking about what-ifs and emergencies as well. No one is going to have their calculations correct down to the penny, but you can factor in many different kinds of future expenses.

You can also use a financial independence, retire early calculator, like the one below. It helps you see how your savings rate affects when you can retire.

Whenever I read an article about someone who retired early, I always scroll down to the comments because I find it interesting to see what people have to say about early retirement. After all, just a few years ago, I myself, didn't even know that retiring early was a thing. However, once I realized that people were doing it and living financially free lives - I knew I wanted it as well.
Retirement Calculator: https://networthify.com/calculator/earlyretirement

As you can see from the above:

  • With just a 1% savings rate, it would take you 98.9 working years until you reach retirement.
  • A 5% savings rate means that it would take you 66 working years to retire.
  • A 20% savings rate means that it would take you 37 working years to retire.
  • A 50% savings rate means that it would take you 17 working years to retire.
  • A 75% savings rate means that it would take you 7 working years to retire.

So, by saving more of your money, you are likely to retire sooner. 

Related content: Do You Know Your Net Worth?


How can $1,000,000 last 30 years or more in early retirement?

Many people don’t believe that early retirement is possible, and I think it’s often because they don’t understand how someone can live off of a certain amount of money for the rest of their lives. 

There are lots who think that $1,000,000 – $5,000,000 is not enough money to retire before the traditional age of 65 to 67.

The reason it definitely can be enough is because of how people save their money. 

Early retirees aren’t just saving $1,000,000 in cash. They have it invested in different ways so it continues to gain interest, dividends, etc. Plus, they diversify their investments to limit the risk of losing everything. 

An early retiree may also have other streams of passive income that bring in money each month. Some of these streams may be enough to cover their monthly expenses, like rental properties, a passive income blog, an ecommerce store, etc. It may be years before they actually have to tap into their early retirement savings.

For example, if you retired early with a nest egg of $1,000,000 but you had rental properties that covered your annual expenses, you could let that $1,000,000 stay invested and keep growing. 

Using an investment calculator, I took that $1,000,000 to see what it would grow to in just 5 years without any additional contributions. With a somewhat conservative return rate of 7%, that $1,000,000 would grow to $1,417,625.26!

The reason invested money grows so quickly is because of a few different factors, and one of the most powerful ones is compound interest. It’s one of the reasons you should learn how to save for retirement as soon as you can.

So, what is compound interest?

Compound interest is when your interest is earning interest. This can turn the amount of money you have saved into a much larger amount years later.

With compound interest, the interest you earn is added to your balance, and the bigger your balance, the more interest you earn. 

When you first start saving for retirement, it can take a while to see the power of compound interest, but as you start saving more, you will start to see exponential growth.

For example: If you put $1,000 into a retirement account with an annual 8% return, 40 years later you will have $21,724. If you started with that same $1,000 and put an extra $1,000 in it for the next 40 years at an annual 8% return, that would then turn into $301,505. If you started with $10,000 and put an extra $10,000 in it for the next 40 years at an annual 8% return, that would grow into $3,015,055.


What would I do with all of my free time if I retire early or hit financial independence?

There are many different things you can do when you have more free time when you reach financial independence, retire early.

I have heard so many people say they don’t want to retire early because they’ll be too bored.

I think that is crazy! 

If you are looking to retire early, you probably aren’t the type to just sit around all day. I mean, if that’s your plan for retirement, that’s totally fine because you get to choose. But for many, early retirement still means working to some extent, while also having the freedom to spend your time pursuing your passions, traveling, spending more time with friends and family, and more.

With all the extra time you have after retiring early, you could volunteer, travel more, find fun things to do, learn a new skill or hobby, and more.

Early retirees aren’t lazy and looking for a way to escape the work world. I believe they are very hard workers, who want to live life on their own terms.

They simply want the freedom of choice.

You could even continue to work like many early retirees do. Just because you retire early doesn’t mean that you can’t ever work again. Remember, early retirement has a different meaning for everyone. Knowing you can retire early gives you choices in case something changes in the future.

For me, if I chose to stop working one day, I could easily find time to fill my day. I could travel even more, help the community more, be more fit, read more, learn more (I’ve been wanting to learn a new language), find a passion project, spend more time with friends and family, etc. 

The list can go on and on forever.

The average early retiree, that I know, has a very active and meaningful life.


What is the 25x rule?

If you’ve read much about the financial independence, retire early movement, you may have heard of the 25x rule. The Rule of 25 is what some people aim for to hit FIRE. It’s when your net worth is 25 times your yearly expenses.

So, if you typically spend $50,000 a year, then you would want your net worth to be at least $1,250,000.

Not everyone follows this 25x rule. Some people go for 30x or more.


What is fat FIRE? What is lean FIRE?

There are different kinds of FIRE.

Fat FIRE is when you reach financial independence or early retirement with a higher budget and have a spending level of over $100,000 a year.

Lean FIRE is where you FIRE on a lower budget, such as with yearly spending of around $20,000.

There is also barista FIRE, which is when someone has a part-time job to cover benefits, such as health insurance.

There are many different kinds of FIRE as well. There’s no one solid choice that will work for everyone.


What is the best financial independence, retire early tool?

A free tool that I recommend using to monitor your retirement investments is Personal Capital.

You can see your investment portfolio all in one place so that you can easily track your performance, see your investment allocations, and easily analyze everything related to your personal finance situation.

The Personal Capital Retirement Planner will also tell you if you have saved enough for retirement, which is why it’s a great tool to track your FIRE goals.


What are the best early retirement books?

If you want to learn more about FIRE, I highly recommend reading some financial independence, retire early books.

They are my FAVORITE to read.

The books below can help you learn more about this topic, as well as dive deeper into the many different ways to become financially independent and retire early.

Here are some of the financial independence books that I recommend:

There are many more out there, but these are great books to start with.


Looking for early retirement stories to read?

If you’re looking for inspiration, I have some great interviews with early retirees and those that have reached financial independence. These are stories from some of the bloggers behind the best financial independence, retire early blogs too!

You can find them below:


What happens to your 401k or other retirement savings plans if you retire early?

Most retirement savings plans have penalties if you withdraw before the age of 59½.

So most early retirees leave their retirement savings alone until they are old enough to withdraw money without penalties. And that’s all factored into the amount they decide to save for early retirement.

Depending on the kind of retirement account you have, you can still make contributions to it even if you retire early. 


Can only high earners reach FIRE?

Earning a high income can certainly make it easier to retire early. When you make more money, you have more money to save.

However, people who don’t earn 6-figure incomes can still be financially independent and/or retire early.

There are many ways to increase your income, like with a side job you work outside of your normal work hours. You will also have to budget and watch what you spend.

It definitely takes more work and struggle for lower income earners to achieve FIRE, but it’s not out of the question.


Are there rules to financial independence, retire early?

For the most part, there aren’t any rules to FIRE. But, there are some rules that many people in the FIRE movement follow to help them save, such as:

  • Only buy used cars
  • Lower your housing costs, like downsizing to a smaller house
  • Use credit card rewards to pay for travel
  • Not pay for things like cable or expensive cell phone plans
  • Live minimally
  • Always spend less than you make
  • Focus on adding multiple streams of income
  • Lower your tax liability by investing in tax-deferred accounts like an IRA, HSA, 401k, etc.


How can I be financially independent and retire early?

There are many ways to become financially independent and retire early.

The first thing that you will want to do is realize why you want to reach FIRE. Achieving financial independence is not easy, so you’ll want to have a good reason to stay motivated when things get tough.

The main way many people reach FIRE is that they spend less than they earn and save like crazy. Remember, the less money you spend, the faster that you can save, the larger your savings rate is, and the quicker you can attain financial independence and early retirement.

Some of the ways include:

  • Earn passive income, increase your income, and so on
  • House hacking
  • Invest, max out retirement accounts, take advantage of employer benefits
  • Drive a less expensive vehicle, or get rid of one entirely
  • Cutting expenses as much as possible

Some helpful reading includes the below. I also recommend reading the books as well as the FIRE interviews in the previous sections.


In conclusion – What is financial independence, retire early? 

Knowing that I can retire whenever I want is one of the best feelings in the world. It’s all about freedom to me. 

Working towards FIRE takes hard work, and it’s meaning is very personal.

And even if you aren’t looking to retire early, you can still apply many of the principles to your own life, such as spend less than you earn, budget, and avoid debt. Those rules will help you live a more financially independent life, whatever that means to you.

Are you interested in the financial independence, retire early movement? Why or why not?

Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Great post, thanks Michelle. I totally agree that retire early isn’t for everyone and actually for a lot of people it’s just about having the freedom. Perhaps we could start a new movement: Retire Early Be Free?! don’t think “REBF” sounds as good tho…

  2. Nicely put Michelle. I was able to reach financial independence through much of the way you described, spend less than I earn, invest aggressively, and make passive income through dividends and rental income. One thing I would suggest is that people don’t have all their investments in one asset class. Diversification will help to preserve wealth.

    Aside from fat fire, lean fire, and barista fire, there are a dozen more flavors to choose from. This video goes in depth about each type if anyone’s interested. https://www.youtube.com/watch?v=5eRYQ9O8k7U

    At the end of the day I think it comes down to trading money for time. Reaching FIRE means you value your time more than money, and you’re willing to make some sacrifices in the short run to get what you want long term. 🙂