Retiring early is an ever-growing dream for a number of young professionals in India and around the world, as the ‘Financial Independence, Retire Early’ or method has evolved from a niche movement to more mainstream mass appeal.
The recent Bharosa Talks: India Retirement Index Study 6.0 (IRIS 6.0) report noted that as many as 7 in 10 urban Indians said they would exit the early if money were no concern. However, only 11% of those surveyed were confident their retirement savings would actually last them a lifetime.
What is the FIRE strategy? We explain…
A movement among , Gen Z, and younger workforce, FIRE is a financial movement that calls for reducing expenditure in order to enable extreme savings (up to 75% of income) and investments with the goal of building enough corpus to retire at a younger age.
The most basic FIRE calculation is where you multiply the current annual expense by 25 and assume that number as the goal needed to comfortably. Once retired, most withdraw 3-4% of their savings annually to cover expenses.
However, there are other iterations of the FIRE philosophy that have been developed as people look to tailor their savings to fit their goals. Here’s a look at the other paths apart from the traditional FIRE strategy:
- Fat FIRE: Aimed at those seeking continued standard of living after retirement, this calls for saving up to 70% of income and investing aggressively to gain high returns. Further, it also calls for annual pay increase to draw a high salary.
- Lean FIRE: Aimed at the minimalist, this looks at the minimum required to life a modest and restricted .
- Barista FIRE: Aimed at those wanting to quit their 9-to-5 jobs, it encourages a combination of part-time work and early to ensure better than minimalist lifestyle, but continued income for medical and other emergencies.
- Coast FIRE: This calls for saving aggressively early and then letting your investments grow while reducing future savings to maintain lifestyle.
How to calculate your FIRE score, explained…
Using the common ‘25× rule’, here’s how much you will need to accumulate to retire comfortably, at below illustrated income and lifestyle levels:
- Current annual of ₹2 lakh will require ₹50 lakh corpus for 25 years post-retirement (at 4% p.a. withdrawal)
- Current annual expense of ₹5 lakh will require ₹1.25 crore corpus for 25 years post-retirement (at 4% p.a. withdrawal)
- Current annual expense of ₹10 lakh will require ₹2.5 crore for 25 years post-retirement (at 4% p.a. withdrawal)
- Current annual expense of ₹15 lakh will require ₹3.75 crore corpus for 25 years post-retirement (at 4% p.a. withdrawal)
- Current annual expense of ₹20 lakh will require ₹5 crore corpus for 25 years post-retirement (at 4% p.a. ).
No one size fits all — Mix, match, personalise
Depending on your financial needs and goals, you can focus more on cutting spend or maximising income. This can be done through bank , equity investments, SIPs, mutual funds, government savings schemes and other assets. With FIRE, while the guidelines exist, there is no rigid, ‘one size fits all’ — each person will have to mix, match and personalise their investment bucket to map out their own financial strategy.
Overall, in order to achieving your will require a high savings rate, consistent investing over many years, increasing earning power, disciplined spending, and a long-term mindset. You must also take into account factors such as inflation, unexpected obligations, medical expenses, taxes, healthcare and insurance costs — especially if relying on a single source of income.
FIRE should not only help build financial independence but also enough wealth to give people greater freedom over when, how, and whether they work.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.