What Is FatFIRE? Understand the principles of building an ample nest egg and pursuing a six-figure income in retirement.

Highlights Oct.19,2022 23:00

The Financial Independence, Retire Early (FIRE) movement is followed by those who want to quit working before reaching traditional Rather than stepping away from a career in their mid-60s and starting to receive Social Security benefits, they look for ways to gather enough savings to retire earlier and then live off the earnings of their investments.

FatFIRE is a version of the It involves higher levels of savings and income in retirement than FIRE. To understand how FatFIRE works, it can be helpful to know:

How much money is enough to do FatFIRE.
Pros of FatFIRE.
Cons of FatFIRE.
What to consider before starting FatFIRE.

What Is FatFIRE?

While the FIRE concept typically focuses on thrift, FatFIRE promotes abundance. “FatFIRE is early retirement for high-earning professionals and entrepreneurs who do not fully embrace frugality or forgo the creature pleasures that have come to be expected,” says Levon Galstyan, a certified public accountant at Oak View Law Group in Glendale, California. The goal is to have enough funds to enjoy freedom and flexibility when you retire early.

To follow the FatFIRE plan,is the first step. “Calculate how much money you require,” Galstyan says. Then set up a plan to reduce spending now and start investing. Many people follow a strategy that involves creating multiple sources of income during retirement.

How Much Money Is Enough for FatFIRE?

The exact amount you build into a nest egg and use for your lifestyle will depend on your income and preferences. “Once you know your number, you can start to create a timeline for making FatFIRE happen,” says Samantha Hawrylack, co-owner of the blog How to FIRE in Glenmoore, Pennsylvania. “A common rule of thumb is that you should aim to save at least 50% of your income if you want to achieve FatFIRE.”

Many people set the figure of for FatFIRE, and then withdraw 3% or 4% from their investments each year. If you have $2.5 million in savings and take out 4% each year, you’ll have $100,000 of annual income. Some FatFIRE followers decide that they would like to live on more income and have higher levels of savings. “You should save at least $5 million in order to live off the interest while living a comfortable life,” says David Hampshere, founder of Purple Egg Real Estate in Niceville, Florida. Hampshere belongs to a FatFIRE social community.

Pros of FatFIRE

Perhaps the biggest advantage of FatFIRE is the financial freedom to not have to work. “Your standard of living may be higher than it is right now,” Galstyan says. This is especially true if you live on less while working to set aside as much as possible. When you retire, you might be able to eat out more often or pursue new hobbies. You’ll also have the benefit of time and can plan out your days as you wish. You might opt to spend more days with family and friends or volunteer at a local charity.

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There are additional perks that draw workers to the FatFIRE movement. Some people might want a way to support a or help cover child-raising expenses. Other people may be interested in purchasing luxury goods, owning a large home or several residences in retirement or living in a city that has a high cost of living. If there are loved ones to support, such as an aging relative that lives with the family, the FatFIRE concept could be appealing as well.

Cons of FatFIRE

While the future advantages can add up, it may be difficult to save the needed amount. In addition to setting aside millions, there is the time factor. “FatFIRE can easily take 20 years or longer,” Galstyan says. If unexpected events occur, you may have to change your plans and use the savings to cover short-term expenses.

After retiring, you might realize it costs more than you expected to maintain your lifestyle. You could find yourself in tricky situations, especially if family members or friends request financial help. Some people miss the social connections that come with work, and it can be difficult to find a new role and pursue

What to Consider Before Starting FatFIRE

Thinking about your long-term goals and plans for retirement may help you decide whether FatFIRE is right for you. If you enjoy being around co-workers and having a routine, it might be difficult to face days with no commitments after It could be hard to relate to peers who are still working or schedule events with co-workers who are still regularly on the job.

If you decide that financial freedom is important to you, it can motivate you to look at your current earnings and savings. “You’ll need to make sure you’re maximizing your income potential,” Hawrylack says. “This means working to increase your skills and earning potential and making smart financial decisions that will help you save as much money as possible.” You can then set up a plan to follow and evaluate your FatFIRE strategy each year to ensure it still meets your goals.