Plan your path to financial independence and early retirement. Covers calculating your FIRE number, savings rate optimization, investment strategies, healthcare before Medicare, withdrawal strategies, and common FIRE pitfalls.
Track your current spending for 3-6 months to establish a baseline. Then adjust for retirement: remove work-related expenses (commuting, work clothes, lunches) and add healthcare costs (500-1,500 USD per month before Medicare at 65). Most early retirees spend 30,000-80,000 USD per year depending on location and lifestyle. Be realistic, not aspirational. Underestimating expenses is the most common FIRE planning mistake.
Multiply your annual expenses by 25 to find your FIRE number
The 4% rule (based on the Trinity Study) suggests you can withdraw 4% of your portfolio annually with a high probability of the money lasting 30+ years. Your FIRE number = annual expenses x 25. If you spend 50,000 USD per year, you need 1,250,000 USD. For 40,000 USD per year: 1,000,000 USD. For 80,000 USD per year: 2,000,000 USD. This is a guideline, not a guarantee. Longer retirements (40+ years) may warrant a more conservative 3.5% rate (multiply by ~29).
Choose your FIRE approach: Lean, Regular, Fat, or Barista
Lean FIRE: extreme frugality, 25,000-40,000 USD per year spending, lower FIRE number. Regular FIRE: average spending, 40,000-80,000 USD per year. Fat FIRE: comfortable spending, 80,000-120,000+ USD per year, requires a larger portfolio. Barista FIRE: semi-retirement with part-time work covering some expenses, reducing the required portfolio size. Choose based on your desired lifestyle and willingness to work part-time.
Maximize Your Savings Rate
Calculate and track your savings rate
Savings rate = (annual savings / gross income) x 100. At a 50% savings rate, you can retire in approximately 17 years. At 60%, approximately 12.5 years. At 70%, approximately 8.5 years. The savings rate is the single most important variable in reaching FIRE. It simultaneously increases the amount you invest and decreases the amount you need in retirement (because you learn to live on less). Track it monthly.
Reduce your three biggest expenses: housing, transportation, and food
These three categories typically consume 60-70% of spending. Housing: consider house hacking (renting out rooms or units), downsizing, or moving to a lower-cost area. Transportation: drive a used car paid in cash (average savings over a new car payment: 400-700 USD per month), bike, or use transit. Food: cook at home (saves 200-500 USD per month over frequent dining out). Cutting 1,000 USD per month across these categories equals 12,000 USD more invested annually.
Increase your income through career advancement or side businesses
High income accelerates FIRE dramatically. A 20,000 USD raise with expenses held constant adds 20,000 USD per year to investments (potentially 160,000 USD over 5 years with 8% returns). Pursue promotions, negotiate raises aggressively, change jobs every 2-3 years for 10-20% salary jumps, develop high-value skills, or build income-producing side projects. Earning more has no ceiling, while cutting expenses has a floor.
Build Your Investment Portfolio
Max out all tax-advantaged accounts first
Contribute the maximum to: 401(k) (23,500 USD in 2026), Roth IRA (7,000 USD), and HSA (8,550 USD family). That is 39,050 USD per year in tax-advantaged space. These accounts grow tax-free or tax-deferred. If your savings rate exceeds what fits in tax-advantaged accounts, invest the remainder in a taxable brokerage account using tax-efficient index funds.
Invest in low-cost, broad market index funds
The simplest and most effective FIRE portfolio is a two or three-fund approach: total US stock market (VTI or VTSAX, 60-70%), total international stock market (VXUS or VTIAX, 20-30%), and optionally a total bond market fund (BND, 0-10% depending on age and risk tolerance). Total expense ratio: 0.03-0.10%. This approach has outperformed 90% of actively managed funds over every 15-year period historically.
Build a taxable brokerage account for early retirement bridge years
Retirement accounts (401k, IRA) have penalties for withdrawals before 59.5 (with some exceptions). Your taxable brokerage account provides penalty-free access for the years between early retirement and 59.5. Invest in tax-efficient index ETFs (VTI, VXUS) that generate minimal taxable events. Long-term capital gains (assets held 1+ year) are taxed at 0% for income up to approximately 47,000 USD (single) or 94,000 USD (married).
Plan Healthcare Before Medicare
Research ACA marketplace plans for coverage before age 65
The ACA marketplace at healthcare.gov provides health insurance regardless of employment status. Premiums are subsidized based on income. In early retirement, your income (from withdrawals) may be low enough to qualify for significant subsidies. A couple with 50,000 USD in annual income may pay 200-500 USD per month for a Silver plan after subsidies. Some early retirees keep income below subsidy thresholds through careful withdrawal planning.
Budget 500-1,500 USD per month for healthcare costs before Medicare
Healthcare is often the largest expense for early retirees under 65. Budget for premiums (200-800 USD per month after subsidies), deductibles (3,000-7,000 USD per year for an HDHP), and out-of-pocket costs. An HSA accumulated during working years provides tax-free healthcare spending in retirement. At age 65, Medicare coverage begins (Part B premiums: approximately 175 USD per month), significantly reducing costs.
Plan Your Withdrawal Strategy
Build a Roth conversion ladder for penalty-free early access to 401(k) funds
A Roth conversion ladder works like this: in year 1 of early retirement, convert a year's expenses from your Traditional 401(k)/IRA to a Roth IRA. Pay taxes on the conversion at your low early-retirement tax rate. After 5 years, the converted amount can be withdrawn from the Roth tax-free and penalty-free. During the 5-year waiting period, live off taxable account withdrawals. Start planning this ladder 5 years before your target retirement date.
Consider the Rule of 55 for early 401(k) access
If you leave your employer in or after the year you turn 55, you can withdraw from that employer's 401(k) without the 10% early withdrawal penalty (still taxed as income). This only applies to the 401(k) from the employer you separated from at 55+, not IRAs or old 401(k)s. Some FIRE planners time their retirement to coincide with the year they turn 55 to access this provision.
Plan for sequence of returns risk in early retirement
The biggest risk in early retirement is a market crash in the first few years (sequence of returns risk). A 30% drop in year 1 with withdrawals can permanently deplete a portfolio. Mitigations include: keeping 2-3 years of expenses in cash or bonds, reducing withdrawals during downturns, maintaining some part-time income in the first 3-5 years, and starting with a 3.5% withdrawal rate instead of 4%. Flexibility in spending is the best protection. This guide is informational only, not financial advice.
Frequently Asked Questions
How much do I need to retire early?
Using the 4% rule, multiply your annual expenses by 25. For 40,000 USD per year: 1,000,000 USD. For 60,000 USD: 1,500,000 USD. For 80,000 USD: 2,000,000 USD. For very early retirement (30s or 40s) with a 40+ year horizon, a more conservative 3.5% rate is prudent (multiply by ~29). Add a buffer for healthcare costs before Medicare (500-1,500 USD per month). Your specific number depends entirely on your desired lifestyle and spending level.
What is a good savings rate for FIRE?
At a 50% savings rate, you can retire in approximately 17 years of working. At 60%, about 12.5 years. At 70%, about 8.5 years. The average US savings rate is 5-8%, which leads to 40+ years of working. Most FIRE practitioners aim for 50-70%. Start wherever you can and increase by 5% each year. The savings rate matters more than investment returns because it affects both sides of the equation (more invested and less needed).
Can I retire early with a million dollars?
One million USD supports approximately 40,000 USD per year in withdrawals (4% rule). This works well in low-cost areas (Midwest, Southeast, international locations) but may be tight in high-cost cities. Factors that determine sufficiency: whether your housing is paid off, healthcare costs, family size, and willingness to adjust spending. Many early retirees in the FIRE community live comfortably on 40,000-50,000 USD per year, often by eliminating mortgage debt before retirement.
What are the biggest risks of early retirement?
Top risks include: healthcare costs before Medicare at 65, sequence of returns risk (market crash early in retirement), underestimating expenses (especially housing maintenance, healthcare, and inflation), boredom and loss of identity (the psychological adjustment is often harder than the financial one), and longevity risk (your money needs to last 40-60 years instead of 20-30). Mitigations include flexible spending, part-time work options, maintaining diverse income sources, and building a strong social network outside of work.