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The Five Different Types of FIRE Plans

We outline the different variations of FIRE that have become synonymous online - FIRE, leanFIRE, and fatFIRE, barristaFIRE and CoastFIRE.
Updated 27 August 2024
Just like there are many different ways to retire – there are many different types of FIRE. Some people decide to live the absolute minimum bare bones with no travel, no overly expensive trips or any additional budget for spending. Others like to splurge out and spend comfortably on anything they want (e.g. "keeping up with the Joneses"), and others sit somewhere in the middle.

This guide breaks down the different variations of FIRE that have become synonymous online. There are three main early retirement classifications: FIRE, leanFIRE, and fatFIRE. There are also some other less known variations - (barristaFIRE and CoastFIRE).

More information: Visit New Zealand's Financial Freedom Authority - The Happy Saver. Ruth is a proven expert and has helped hundreds of New Zealanders on their journey to financial independence. Ruth also offers a phone-a-friend service which we believe is a helpful starting point to mapping out the financial situation you want to achieve. MoneyHub has no financial relationship with The Happy Saver, and mention it given its popularity, relevance, usefulness and trust.

FIRE (Regular or Traditional)

The normal FIRE concept simply stands for Financial Independence, Retire Early. The lifestyle objective is to accumulate income-generating assets that reach a certain level where the income or capital gains earned from the initial invested amount covers your current living expenses (for either yourself individually or your family).

Typically, to achieve FIRE, you will start saving aggressively, cutting expenses and generally simplify your lifestyle. Doing this leaves a certain amount of money each year that can be invested. After enough time (depending on your target retirement amount or savings rate), you will have a large enough balance to cover your living expenses and achieve financial independence earlier than most people (this could be your 40s or 50s). 

Once you've reached financial independence, your asset base generates enough income (through dividends or capital gains on shares that you can draw down on) to pay for expenses – effectively reducing the need to work (but allows you to work because you want to – not because you need to pay bills). At this point, paid work becomes an option and allows retirement from traditional work to happen much faster than the typical retirement age of 65.

LeanFIRE

This sort of FIRE prioritises a minimalist and "lean" lifestyle in order to save enough money to retire as soon as possible. You would likely live on the minimal necessities and save the rest, and your retirement would be more frugal in nature. The trade-off for wanting to retire earlier than most (under this methodology, you could target retirement as early as your late 20s or early 30s) is that your asset base will be smaller given the shorter saving and investing time horizon, meaning the income generated from your asset base may not be enough to live a more lavish lifestyle that includes expensive holidays, new cars and other non-essential material or experiential desires. You're able to retire earlier but live a more frugal life in retirement.

The average New Zealand household spends roughly $1,600 weekly on living expenses. A common FIRE rule of thumb is to target a saving amount of 25 times their yearly expenses (note – this "rule of thumb" may no longer apply – but we will cover this in a future guide).
  • Someone is said to be LeanFIRE when they achieve this 25x annual expenses amount (e.g. $1,600 X 52 weeks X 25 amount = around $2.1 million) and spend less per year than the typical New Zealander.
  • In contrast, fatFIRE occurs when a person who has achieved financial independence spends more than the average (which we detail in the next section). LeanFIRE's core principle is to attempt to reduce the amount you spend each week, allowing you to reach your 25x number faster. For example – if you spent half as much as the typical New Zealand household (e.g. $800 a week) – you would need around $1m ($800 X 52 weeks X 25) to reach your FIRE number. This is a common strategy for people who are driven to retire earlier or who have lower expenses than most households (e.g. single people, nomads living in RVs, frugal couples, people without children or senior citizens).
  • LeanFIRE involves being willing to live a simple lifestyle in retirement. Individuals that follow the leanFIRE method typically strive to live on less than $50,000 per year (around 25% lower expenses than most households). This could involve moving to a lower cost of living area, spending less on travel or experiences, or minimising food and transportation costs.
  • Another example could be an elderly couple with no kids living in Hamilton that grows their own food – this couple will burn significantly less than a four-person family living in Auckland (where the two kids go to private schools), and so leanFIRE may make more sense for the couple in Hamilton.

FatFIRE

The term "fatFIRE" refers to the ability to retire while maintaining your current quality of living. This programme has the same goals as leanFIRE, but it takes a more relaxed and indulgent approach. People who use this strategy will not have to make as many sacrifices in their present spending or retirement. However, they will need to save more money to fund their lifestyle than those who use the leanFIRE method.

Because of this, it normally takes much longer to reach your 25x number or FIRE goal – typically, this will require a higher income to reach in the same amount of time as other modes of FIRE. FatFIRE is a common early retirement option for entrepreneurs and high-income professionals (e.g. Lawyers, Doctors or Engineers) who may not want to fully embrace frugality or give up some current life luxuries. For example, if you spend $150,000 a year on your lifestyle, you would need $150,000 X 25 invested (a total of $3.75 million).

While traditional FIRE and leanFIRE may necessitate some choices or quasi-sacrifices, fatFIRE is different. fatFIRE allows people who have experienced some lifestyle inflation (and are typically used to spending more money on certain activities) to preserve that particular quality of living. With a fatFIRE portfolio, you can do things that people on leanFIRE or FIRE plans might not be able to afford to do, such as travel regularly during the peak holiday season or purchase new cars every few years.

BaristaFIRE

Between the two extremes, Barista FIRE exists. In this scenario, an early retiree intends to live more than a modest lifestyle in retirement, relying on a combination of savings and part-time or gig economy work (e.g. freelance writing, uber driver etc.) to make up the shortfall.

BaristaFIRE focuses on accumulating enough money to allow you to retire early from your primary employment. Rather than not working at all, people can use their financial independence to work part-time or pursue a less well-paid job that they are more interested in. It allows you to choose between working for pleasure and working to make a living.

CoastFIRE

FIRE, in general, can be tough for young people to save a large amount of money upfront – especially when the cost of living is so high in New Zealand. For many young people – even leanFIRE will take more than 10 – 15 years to achieve. Reaching CoastFIRE provides an alternative to the traditional FIRE metrics.

The difference between CoastFIRE and traditional FIRE is that with traditional FIRE, you do not need income to retire. With CoastFIRE, you continue to need income to cover expenses; however, you no longer need to worry about saving money for retirement. The underlying principle is that the amount you currently have can grow between now and the time you retire – and once you reach your retirement age, your savings will have grown to around 25x your expenses.

Examples:
1. If a 25-year-old New Zealander has saved $50,000 and intends to retire at 55, assuming their money grows at 10% per year (after tax), they will have around $900,000 at retirement age. If this person is targeting leanFIRE, they will already have achieved their CoastFIRE number at 25 years of age.

2. For those targeting 65 as a retirement age: if your goal is to retire at age 65 with $1 million, and you've got $200,000 saved at age 30, with an assumed annual growth of 5% on your savings, your $200,000 would grow to $1.1 million over 35 years without you adding another dollar. In this scenario, you would have reached CoastFIRE at age 30 and have enough money to retire on. You would still need to cover your annual expenses as $200,000 is not enough to retire today, but you are on target for retirement without adding any extra savings to the $200,000 (e.g. you'll "coast" into retirement). CoastFIRE is common with the younger generation, given it provides a useful roadmap to retirement and is relevant "now".

CoastFIRE has a number of benefits:
  1. CoastFIRE provides a high level of flexibility, allowing you to worry less about money. This might mean not maintaining a strict budget or not continuously seeking out additional income opportunities. Continuing to save and invest more, having the ability to retire with extra money or retire before the planned retirement date is that the biggest advantage of reaching CoastFIRE.
  2. Achieving CoastFIRE allows you to make fewer sacrifices. Most people pursuing FIRE make many sacrifices to reach their retirement number. Typically, you would take vacations, work longer hours and count every dollar to reach financial independence. CoastFIRE may be a lot easier to achieve – rather than wanting to save $1 million by age 30 to retire; you simply need to reach $200,000 to reach CoastFIRE.
  3. These numbers may change and adjust depending on age and retirement date, but generally, reaching CoastFIRE is usually easier and requires fewer sacrifices upfront.
  4. CoastFIRE provides an honest sense of security. If your income dips or you have unexpected expenses crop up, you do not need to worry about lowering your retirement contributions as you will technically not need to put in any more money to reach your retirement target. Any additional money saved will be aimed at reducing the time to reach your retirement target or give yourself more of a buffer.

What's right for me?

Ultimately, which path each individual will take depends on the type of lifestyle they want to live and each of their respective unique situations. There is no right or wrong way to live – but picking the best plan for you will lead to the best outcomes.
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