“Deciding what not to do is as important as deciding what to do.” – Steve Jobs
The FIRE movement (not to be confused with the controversial Fyre Festival) stands for Financial Independence Retire Early. It’s become a magnetic idea for people who want to escape the 9-to-5 grind years (or even decades) before typical retirement age. And it’s especially popular right now with Gen Z on social media platforms like Reddit and TikTok.
And while the idea of kicking your feet up before your peers do sounds pretty appealing, there are some big potential drawbacks to this approach.
For context, the roots of this movement stretch back to the early ’90s, inspired by Vicki Robin and Joe Dominguez’s best-selling book Your Money or Your Life. Although nobody can pin down exactly when the FIRE acronym took off, the flame (pun fully intended) has been spreading ever since.
So today, I want to introduce you to the basics of the FIRE movement – and flag a few critical points to think about before you overhaul your retirement strategy.
Here is the How. The How is 20%. 80% of everything, especially finance, is psychology. Unless you have a compelling reason “Why?”, the work to do this will not sustain you, and the leisure will not fulfill you. I’ve heard Tony Robbins say more than once, talking of entrepreneurs he’s worked with who have sold their businesses, for example, that there are only so many months in which you can drink pina coladas at a tropical resorts before you start to go stir crazy.
How does FIRE work?
You save aggressively (sometimes up to 50–75 percent of your income) and invest it wisely until you hit a “Retirement Number.” That number is typically calculated as 25 times your annual expenses. It’s derived from the 4 percent rule, which says you can safely withdraw about 4 percent of your portfolio annually (adjusted for inflation) without running out of money.
(Note: That rule was developed for traditional retirees in their 60s — not 40-year-olds planning on a 50+ year retirement horizon. Most planners recommend a 3–3.5 percent withdrawal rate to hedge against longevity risk and sequence of returns risk.)
What’s in it for you?
The obvious draw of the FIRE movement is freedom. It’s about having options — not necessarily quitting your job the moment you hit your magic number, but having the freedom to decide if, when, and how you want to work.
You might keep working part-time, launch a passion project, volunteer, or travel the world — and YOU get to make that call without money being the boss of you.
Also, FIRE makes compounding work in your favor. Because the earlier you start saving and investing aggressively, the more you benefit from compound growth. And FIRE forces you to leverage your time advantage. Even small gains, multiplied over decades, become a serious wealth engine.
From a tax perspective, there are also specific planning opportunities. Retiring early can drop you into a lower tax bracket, opening doors for tax-efficient Roth conversions, capital gains harvesting, or ACA health insurance subsidies. (The Inflation Reduction Act extended expanded ACA subsidies through 2025, making it easier for early retirees to qualify for healthcare subsidies even at incomes above 400 percent of the federal poverty level.)
What are the tradeoffs?
The FIRE lifestyle requires extreme sacrifice. Saving 50–75 percent of your income doesn’t happen by skipping a latte or two. You’ll have to cut housing costs, drive used cars, say no to expensive vacations, and skip things like entertainment and dining out. (Which can take a real toll on your social connections and, on a deeper level, your mental well being).
Retiring early can become a tax penalty trap. Most traditional retirement accounts hit you with a 10 percent early withdrawal penalty if you access the funds before age 59½. So, if your FIRE date is age 45, you’ve got a 14+ year gap where many of your retirement dollars are off-limits (unless you plan carefully).
Yes, exceptions exist (like Roth IRA contribution withdrawals, SEPPs, or using the Rule of 55 if you leave your employer after age 55), but they’re not easy to navigate. Another popular workaround is the Roth conversion ladder — a strategy where you gradually convert traditional retirement funds to Roth IRAs, wait five years, and then tap those dollars penalty-free.
Staying tax-savvy with your investment withdrawals can get complicated. Most people working toward FIRE accumulate assets across taxable brokerage accounts, tax-deferred accounts (like a 401(k)), and Roth accounts. Making sure you don’t trip into higher marginal brackets or lose tax credits and subsidies requires surgical precision. I’m talking regular multi-year tax forecasting, strategic Roth conversions, capital gains harvesting, and Social Security timing decisions.
You can limit your Social Security benefits by retiring early. If you stop working in your 40s or 50s, you might not reach 35 full years of earnings. And since those benefits are calculated based on your 35 highest-earning years (indexed for inflation), missing a decade or two of high-income years can make a real dent.
Is FIRE right for YOU?
If you retire early – THEN What? – what will you do that will fulfill you for the rest of your life?
Yes, the Financial Independence Retire Early approach can work. But it’s not a shortcut – it’s a (demanding) strategy. (One that you’ll definitely need a tax expert in your corner to help you pull off.)
There’s no pension waiting for you. No Medicare until 65. No room for expensive mistakes. You’ve got to be intentional about investment strategy, tax planning, cash flow management, and risk mitigation every. single. year. For decades!
What would you do if you had all the money you could want to have, and no job to demand your time? What would you want to create with the rest of your life?
(Some more recent approaches focus on dynamic withdrawal strategies (adjusting spending based on market conditions) or Monte Carlo simulations to stress-test your plan and reduce the risk of running out of money.)
But if it’s a lifestyle choice you’re considering, you need to be able to answer these questions:
- How sustainable is my plan if inflation spikes?
- What if my family gets hit with a major health event?
- What’s my strategy for bridging the gap between early retirement and penalty-free withdrawals?
- How will I keep taxable income low enough to qualify for subsidies — but high enough to cover my lifestyle?
And again, this is the “How”. What is your “Why?”
Let’s find a time to chat soon – because if the Financial Independence Retire Early possibility appeals to you, it is important to know what you want to do with your life, and plan for that. If you had all the wherewithal you could possibly imagine having, what would you create with the rest of your life that would fulfill you?
We create “Life Plans” with our financial planning to help you plan for that, and to build the right investment and tax strategies to make it more feasible.
Or, if it doesn’t, we can make sure your current retirement strategy is totally tax-optimized. Our goal in this isn’t to squash your zeal, but rather to help you finance it, whatever that may be, as well as to keep you tax-savvy in the retirement strategy that makes most sense for YOU: