Pros and Cons of 5 Popular Early Retirement Strategies

We've probably all daydreamed about not having to work. Why wouldn't we? According to recent data, 83% of Americans experience work-related stress, with 25% revealing that work is the top stressor in their lives.¹

More than likely, you've come across stories of people who have gone to extremes to save the bulk of their income in their 20s, lived on as little as possible and retired in their 30s or 40s. These folks are part of the FIRE movement. FIRE—which stands for Financial Independence, Retire Early—is a lifestyle movement where you reach financial independence before the standard age. In turn, you don't have to work for money, and you have a complete say over how you spend your days.

It might seem like a pipe dream to reach FIRE. But when it comes to financial independence, there's a spectrum of early retirement options. By learning the differences, you can decide which path might be most feasible and appealing.

What Is FIRE?

FIRE stands for Financial Independence, Retire Early. The idea is to retire as early as possible to spend time doing what you love, on your terms.

How FIRE works

While there are different routes to early retirement, the main principles of the FIRE movement are usually getting a high-paying job in your 20s and saving anywhere from 50% to 75%—sometimes more—of your annual income. That way, you can rack up enough money to retire early.

How to achieve FIRE

To pull this off, FIRE folks might go to extreme measures to cut costs, such as rarely dining out, living with roommates and living without a car. Then, they sink money into different retirement accounts, investments and savings vehicles, such as high yield savings accounts, certificates of deposit (CDs) and money market accounts. You can read more in this article about how to retire early with FIRE.

Pros and cons of FIRE

There's an obvious appeal to FIRE: living a life free of financial stress and making choices that are in step with one's greater purpose and values. On the flip side, prevailing criticism of the FIRE movement is that it's not realistic for many people. Plus, FIRE folks may sacrifice quality and joy of life at all costs in order to reach their FIRE number.

What Is Semi-retirement?

You've likely heard of semi-retirement for folks in their 60s and older, but it applies to those pursuing early retirement, too. You can think of it as a mix between full retirement and working.

How semi-retirement works

You might scale back on your hours on the job or land a part-time job that's more fulfilling or less overwhelming. Or, you might transition to working as a consultant or launch your own small business. You'll work part-time until you can transition and hit full FIRE.

How to achieve semi-retirement

To hit semi-retirement, you'll need to figure out a number where you can comfortably live on half your earnings. Another consideration: when you want to transition into full retirement and how much you'll need stashed away.

Pros and Cons of Semi-retirement

An advantage of semi-retirement is that it's more doable than other types of early retirement. You won't have to be as aggressive in your savings goals, and you also might feel free to choose more fulfilling work.

A disadvantage of semi-retirement is that, well, you'll still need to work. Plus, it might be harder to transition to full retirement because your needs and retirement savings goals might shift.

What Is Coast FIRE?

Coast FIRE works like this: In your 20s or early 30s, you squirrel as much as possible into your retirement savings. You front-load your savings and investments. Then, once your savings reach a certain point, you stop and let your money grow until you have enough to fully retire at around age 65.

Coast FIRE is made possible by the power of compound interest, which rewards those who get a jump start on investing and saving for retirement with greater earnings.

How to achieve Coast FIRE

To reach Coast FIRE, you'll need to be gung ho with an aggressive savings plan in your early working years. That way, you can amass funds in investments for retirement early enough to stop saving and let compound interest work its magic.

You'll need to know how much you need to save for retirement. For instance, let's say you want to have $600,000 in your retirement savings by age 45. You start tucking away funds when you're 25. At a 7% interest rate, you'll need to put away about $1,200 each month. You can use this compound interest calculator to plug in your own numbers.

Pros and cons of Coast FIRE

An advantage of Coast FIRE is that you won't have to worry about saving for retirement and juggling other financial goals once you hit your Coast FIRE number. In turn, that frees up funds to focus on your other financial priorities. Or, you might choose to work less, which can contribute to your overall happiness.

A disadvantage is that it involves extreme saving and investing in your 20s and 30s. In turn, this can lead to feelings of deprivation, stress and pressure to hit your Coast FIRE number.

What Is Barista FIRE?

Barista FIRE refers to achieving a level of financial independence that allows for a semi-retired lifestyle with a part-time or low-stress job, such as working as a barista, while maintaining financial sustainability. A common concern over retiring early is not having access to health insurance compared to those who retire at the standard age of 67. Barista FIRE provides a solution: By working part-time as, say, a barista at a coffee shop—or any part-time job that offers benefits—you can enjoy some of the perks of semi-retirement and have health benefits.

Barista FIRE versus semi-retirement

Barista FIRE and semi-retirement are quite similar. The main difference is that you can think of Barista FIRE as a subset that falls under semi-retirement. Often, those who pursue this path do it to get health insurance benefits and other workplace perks, or to cover part of their living expenses.

With semi-retirement, you typically pursue it to do meaningful work or to achieve greater work-life balance. It can also help cover expenses, but making a living takes a back seat to having a job filled with purpose and enjoyment.

How to achieve Barista FIRE

Barista FIRE involves a laser focus on savings, but it has greater flexibility than some of the other types of FIRE. To get on track with Barista FIRE, figure out your retirement number.

For instance, let's say you need $60,000 a year to retire. Multiply that number by 25, and get $1.5 million. Then, factor in how much you anticipate earning during your Barista FIRE years, and make tweaks to your savings goal.

Pros and cons of Barista FIRE

As for the pluses of Barista FIRE, you can reach your FIRE number earlier, and it can be more attainable than other forms of FIRE. Plus, you can have health insurance and the perks and benefits that come with being employed. And if you're nervous about having too much time on your hands in retirement, working a low-stress, part-time job can be fulfilling and add a sense of purpose.

Minuses include, well, still having to work. In other words, it might not feel like you're in FIRE mode because you still need to show up for your job. Plus, this strategy hinges on staying healthy enough to keep working.

What Is Fat FIRE?

You know the fantasy of retiring in the locale of your choice, perhaps hiring a live-in chef and having the choice to vacation several times a year at your whim? That's Fat FIRE, whereby you achieve financial independence and early retirement with a higher level of financial comfort, allowing for a more luxurious and expansive lifestyle than with traditional FIRE.

How to achieve Fat FIRE

Common strategies for achieving Fat FIRE are much like regular FIRE: Save at least 50% of your income and live frugally for some time.

However, this type of early retirement requires you to save more and earn more, perhaps by generating multiple income streams. The amount you need to hit Fat FIRE depends on your lifestyle preferences and where you would like to live in your golden years.

For instance, if your Fat FIRE retirement number is $2.5 million, and you take out 4% of your savings each year to live on during your retirement, you'll have $100,000 a year to live on. You can use a Monte Carlo simulator to see a long-term projection of whether your nest egg will last your lifetime.

Pros and cons of Fat FIRE

A plus of Fat FIRE is that you might enjoy a more cushy retirement than in your working years. Further, you'll likely have more funds to pursue a passion project or to do more traveling.

However, some cons of Fat FIRE are that you might have a hard time tucking away that ambitious amount to retire in comfort. It might also cost more than expected, so your target date and amount can feel like a moving mark.

Reviewing the Pros and Cons of FIRE

Now that we've gone over each of the different types of FIRE, here's an at-a-glance look at their pros and cons:

Type of FIRE	Pros	Cons
FIRE	• Freedom from working for more years than most   • The power to choose how you spend your days   • Don't have to work for money	• Requires high income in early working years and aggressive savings goals for decades   • Not realistic for many
Semi-retirement	• A more feasible type of early retirement for some people   • Won't have to be as aggressive in your savings goals   • Feel free to choose more fulfilling work	• Still need to be employed   • Harder to transition to full retirement, as needs and savings goals could shift
Coast FIRE	• Don't have to juggle other financial priorities with saving for retirement   • Frees up funds for other goals   • If not on schedule with Coast FIRE, you can make tweaks to your retirement plans until you hit Coast FIRE or standard FIRE	• Extreme saving and investing goals in your 20s and 30s   • Can lead to feelings of deprivation, stress and pressure to hit the Coast FIRE number
Barista FIRE	• Can reach FIRE number earlier   •Can be more attainable than other forms of FIRE   • Enjoy work-sponsored health insurance and perks and benefits   • Work a low-stress, part-time job that can be fulfilling	• Still need to work   • Requires staying healthy enough to be able to have a job
Fat FIRE	• Enjoy a more cushy retirement than in your working years   • More likely to have funds to pursue a passion project or travel more	• Challenging to save an ambitious amount to retire early in comfort   • Fat FIRE number might be higher than you expected, and the target date and amount can feel like a moving mark

 

The Bottom Line: Stay In Touch With Your Retirement Goals

As you can see, there's not just one path toward attaining FIRE. Leaving the workplace early can take different forms, running the gamut from part-time work to a retirement of great comfort and abundance.

Depending on where you're at financially and what your goals are, a road to FIRE might work well for you. Explore your financial goals to land on a path that's most in line with your situation, preferences and dreams.

Remember: Your retirement plan is ever-evolving. In turn, it's key to be flexible and adapt as needed. By staying nimble and reassessing your goals, you can create a retirement plan that's in step with your ultimate long-term vision, whatever that may be.

 

Jackie Lam is an award-winning, L.A.-based money writer whose work has appeared in Salon.com, Refinery29, Time, Forbes, CNET, Business Insider and BuzzFeed, among others.

 

READ MORE: What's the Median Retirement Savings By Age?

 

 

Sources/references

1. Mazur, C. 40+ Worrisome Workplace Stress Statistics [2023]: Facts, Causes, And Trends. Zippia. February 11, 2023.