1.2.
What’s the Difference Between Fire, Lean Fire, and Fat Fire?
Goal of this lesson:
People use the terms “fire”, “lean fire” and “fat fire” all the time – but what do they mean? In this data-driven post, we look into the numbers behind these pursuits and what you could do to hit your numbers.
There is a lot of research out there showing that ( for many or most people) the happiness increases with the income up to around 70-80k a year and then decreases after that, once you start making more than 80k/year.
From what I’ve seen happiness doesn’t decrease after 80k, but the increase in money after that starts to flatline. Hunk that’s what you meant, but just to clarify!
I am in the plain old FIRE camp. I am shooting for $2,000,000. Almost halfway there, Yay! Thanks for the great article comparing all the different variations of FIRE.
I have a question ?
Everybody always talks about a 4% withdrawal rate .If you are a dividend investor
and make 5% in dividends do you still withdraw 4% from your million or do you do both and end up with 90.000$ ?
One more question ?
you have a million and withdraw 4% that leaves you with 960000$ .Now the following
year the market looses 20% .How much do you withdraw ? 40000$ or 960000-182000=772000…….4%=30880$
The “theory” ( the old simulations) say you withdraw how much you took out the previous year times the inflation. So you take out 40k*2%inflation REGARDLESS of how much the market drops. The old simulations account for the market to drop a lot one year , go up a lot other years.
The “new FIRE” simulations they prove though that if the market drops in the first 10 years of retirement and you keep taking out the 4% you will have much fewer chances to have money for the rest of your life.
That is why they advocate 3% or 3.3% in the first 10years and 4-5% afterwards
Bogie covered it! On the dividends question – what is considered “taken out” for the 4% rule would be dividends that you convert to cash + selling stocks. If your dividends are returning 5%, then you could live off 4% (+inflation) and reinvest the rest back in.
I’m aiming for FAT FIRE and plan to retire in 15 years. According to the calculations I have received (from Personal Capital), that should be easy to accomplish with my current plans/goals. I want lots of wiggle room when I finally discontinue bringing in other income. You never know what tomorrow will bring in terms of future expenses (thinking health insurance today).
Nice! If you’re thinking you’d be Fat Fire in 15 years, that probably means you’ll be solidly in FIRE territory in maybe… 10? If you can keep your spending under control in that time (something I’ve struggled with) then sounds like you’ll be in good shape!
Wonderful article, i have recently started my own FIRE journey and i am documenting it on my blog as well, I have adapted this to my target audience. Feel free to check out.
Love the data driven approach to this! I’m glad I came across your blog. FIRED two years ago with close to 700k NW. Doubled it since and created some passive income streams. I tend to agree with you that a lot of things will change so am now working towards FatFire but on my own time and speed.
Could be investing to double their money (which would be crazy lucky). Could also mean net worth doubled rather than investment amount. That’d be realistically possible if the original number was cash and the net worth one included leveraged real estate with unrealized gains.
Sorry for some reason I didn’t get a notification about a reply. Not too crazy but fairly lucky timing. I did forget to add my equities (>110k) in the the NW sum. I keep forgetting it as it’s not accessible till official retirement age, so I see it more as a bonus for if and when I get there, rather than I can count on today.
1) exchanged dollars to Zlotys at a high (21% currency gain).
2) Invested in Polish Real Estate for cash. Right before it took off again and in the place that had the highest increase out of all of Poland – Katowice. I knew this place was undervalued observing it for years. (+40% gain).
3) Paid myself the rental return – 12% net (2 years of 6.5%)
4. Held a little money in stocks. And hold cash in high interest saving account. Just a little more to outperform real inflation.
5. Dividends and stock option pay outs from my old work did the rest.
So yeah I took a calculated risk. And it turned out much better than expected. That part is lucky. For the exchange rate I bought another place, and the unrealised property gains are not important to me. Most importantly I have a stable investment that runs a net positive cash flow for me.
Yes, they do! To me, this is anything that’s a liquid investment – things that could be sold for money immediately. This wouldn’t include home, car or other physical assets, but would include cash, investments and bonds in any account.
For all of these numbers there’ll be a bunch of tax consequences for sure. $1 million for one person might be free and clear, while for someone else that $1m might have 20% taxes (or more if they withdraw early!).
Great article. What confuses me is the impact of income tax.
You can’t directly compare your NW figure with 25 X expenses if your NW figure includes your pension pot, because pensions are subject to income tax. So is it reasonable to take 20% off your pension pot as an estimate of income tax and use that lower pension figure when calculating your NW?
So is it reasonable to take 20% off your pension pot as an estimate of income tax and use that lower pension figure when calculating your NW?
Yeah, that’s what I’d do. What you want is 25x to 33x after taxes. For people with a pension that’ll get hit with 20% in taxes, then they might want 30x-40x saved up.
If some income was taxed a lower rate that could be a good reason to lower the max amount – for instance, if they had some saved up in a brokerage account or a Roth IRA.
If you’re in a state with an income tax that’s another one to take into account. That could make enough difference to want to pack away a little more.
Half Life Theory
May 14, 2018
FAT Fire or morbidly obese fire sounds like the ideal lifestyle for me lol 😉
Adam
May 15, 2018
Morbidly obese fire sounds like something you should get checked out. 😉
Bogie
September 17, 2018
There is a lot of research out there showing that ( for many or most people) the happiness increases with the income up to around 70-80k a year and then decreases after that, once you start making more than 80k/year.
Adam
September 17, 2018
From what I’ve seen happiness doesn’t decrease after 80k, but the increase in money after that starts to flatline. Hunk that’s what you meant, but just to clarify!
Xyz from Our Financial Path
May 22, 2018
We are aiming for the million, it’s a nice round number and it is pretty accessible.
Adam
May 31, 2018
Nice! Yeah there’s something satisfying about hitting a nice round number like that beyond the exact calculations.
The Smart FI
May 22, 2018
I am in the plain old FIRE camp. I am shooting for $2,000,000. Almost halfway there, Yay! Thanks for the great article comparing all the different variations of FIRE.
Adam
May 31, 2018
Thanks! $2m is right around my goal too, based on forecasted spending. Do you have any concerns with that not being enough?
pete
September 17, 2018
I have a question ?
Everybody always talks about a 4% withdrawal rate .If you are a dividend investor
and make 5% in dividends do you still withdraw 4% from your million or do you do both and end up with 90.000$ ?
One more question ?
you have a million and withdraw 4% that leaves you with 960000$ .Now the following
year the market looses 20% .How much do you withdraw ? 40000$ or 960000-182000=772000…….4%=30880$
Bogie
September 17, 2018
The “theory” ( the old simulations) say you withdraw how much you took out the previous year times the inflation. So you take out 40k*2%inflation REGARDLESS of how much the market drops. The old simulations account for the market to drop a lot one year , go up a lot other years.
The “new FIRE” simulations they prove though that if the market drops in the first 10 years of retirement and you keep taking out the 4% you will have much fewer chances to have money for the rest of your life.
That is why they advocate 3% or 3.3% in the first 10years and 4-5% afterwards
Adam
September 17, 2018
Bogie covered it! On the dividends question – what is considered “taken out” for the 4% rule would be dividends that you convert to cash + selling stocks. If your dividends are returning 5%, then you could live off 4% (+inflation) and reinvest the rest back in.
Tanya
September 17, 2018
I’m aiming for FAT FIRE and plan to retire in 15 years. According to the calculations I have received (from Personal Capital), that should be easy to accomplish with my current plans/goals. I want lots of wiggle room when I finally discontinue bringing in other income. You never know what tomorrow will bring in terms of future expenses (thinking health insurance today).
Adam
September 18, 2018
Nice! If you’re thinking you’d be Fat Fire in 15 years, that probably means you’ll be solidly in FIRE territory in maybe… 10? If you can keep your spending under control in that time (something I’ve struggled with) then sounds like you’ll be in good shape!
MyFatFIRE
November 12, 2018
Wonderful article, i have recently started my own FIRE journey and i am documenting it on my blog as well, I have adapted this to my target audience. Feel free to check out.
Financial Gladiator
January 28, 2019
Love the data driven approach to this! I’m glad I came across your blog. FIRED two years ago with close to 700k NW. Doubled it since and created some passive income streams. I tend to agree with you that a lot of things will change so am now working towards FatFire but on my own time and speed.
Get Real
January 28, 2019
Sounds like bullshit. Fire and make $350k/year? Get real. Or did people die and give you money?
Adam
February 6, 2019
Could be investing to double their money (which would be crazy lucky). Could also mean net worth doubled rather than investment amount. That’d be realistically possible if the original number was cash and the net worth one included leveraged real estate with unrealized gains.
Financial Gladiator
February 7, 2019
Sorry for some reason I didn’t get a notification about a reply. Not too crazy but fairly lucky timing. I did forget to add my equities (>110k) in the the NW sum. I keep forgetting it as it’s not accessible till official retirement age, so I see it more as a bonus for if and when I get there, rather than I can count on today.
1) exchanged dollars to Zlotys at a high (21% currency gain).
2) Invested in Polish Real Estate for cash. Right before it took off again and in the place that had the highest increase out of all of Poland – Katowice. I knew this place was undervalued observing it for years. (+40% gain).
3) Paid myself the rental return – 12% net (2 years of 6.5%)
4. Held a little money in stocks. And hold cash in high interest saving account. Just a little more to outperform real inflation.
5. Dividends and stock option pay outs from my old work did the rest.
So yeah I took a calculated risk. And it turned out much better than expected. That part is lucky. For the exchange rate I bought another place, and the unrealised property gains are not important to me. Most importantly I have a stable investment that runs a net positive cash flow for me.
Stephen
July 31, 2019
Do folks include 401k assets when
In these investment amounts ?
Adam
August 4, 2019
Yes, they do! To me, this is anything that’s a liquid investment – things that could be sold for money immediately. This wouldn’t include home, car or other physical assets, but would include cash, investments and bonds in any account.
For all of these numbers there’ll be a bunch of tax consequences for sure. $1 million for one person might be free and clear, while for someone else that $1m might have 20% taxes (or more if they withdraw early!).
David
August 22, 2020
Great article. What confuses me is the impact of income tax.
You can’t directly compare your NW figure with 25 X expenses if your NW figure includes your pension pot, because pensions are subject to income tax. So is it reasonable to take 20% off your pension pot as an estimate of income tax and use that lower pension figure when calculating your NW?
Adam
August 25, 2020
Yeah, that’s what I’d do. What you want is 25x to 33x after taxes. For people with a pension that’ll get hit with 20% in taxes, then they might want 30x-40x saved up.
If some income was taxed a lower rate that could be a good reason to lower the max amount – for instance, if they had some saved up in a brokerage account or a Roth IRA.
If you’re in a state with an income tax that’s another one to take into account. That could make enough difference to want to pack away a little more.