What is the 'Lean FIRE' movement, and how can it help you reach financial independence?

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If you've dreamed of retiring early but don't have the financial means to build a massive retirement portfolio, you may be a candidate for the Lean FIRE movement.

Instead of building a bigger nest egg to support an expensive lifestyle, Lean FIRE encourages keeping your spending low so you need less to become financially independent. For those willing to embrace a more frugal lifestyle, that could put early retirement within reach sooner.

Here's a closer look at how Lean FIRE works and whether it's a realistic goal for you.

Lean FIRE — also known as LeanFI — is a version of the Financial Independence, Retire Early (FIRE) movement.

The FIRE movement has been popular within personal finance communities for many years, spawning several variations based on different lifestyles, incomes, and financial goals.

At its core, FIRE is about reaching financial independence — the point at which you have enough savings, investments, and other income sources to cover your living expenses without relying on a paycheck. Followers typically aim to get there by saving and investing a large portion of their income, usually with the goal of leaving the traditional workforce well ahead of the typical retirement age.

LeanFI follows the same basic principles, but emphasizes achieving financial independence with a modest lifestyle and lower spending.

Because LeanFI followers plan to live on less, they may need a smaller investment portfolio to become financially independent than someone pursuing a more expensive retirement lifestyle. That also means they generally have less room in their budget for discretionary spending and unexpected expenses.

"Lean fire goes further and also focuses on drastically reducing your current and future spending, thus accelerating when you can retire," said Tyler End, CFP, CEO and co-founder of Retirable, a retirement planning company. "Instead of needing a specific, large target amount in order to stop working and retire, you deliberately keep your lifestyle expenses low so your FIRE number is much smaller."

End added, "[LeanFI] generally requires sacrificing more short-term spending in favor of aggressive saving and investing, with the goal of gaining greater financial freedom earlier in life."

While traditional FIRE emphasizes aggressive saving and investing, the key principle behind Lean FIRE is keeping expenses low. By planning to spend less in retirement, you may be able to reach your target savings amount — and financial independence — sooner.

End explained that Lean FIRE starts with estimating your annual spending once you've reached financial independence. Then you can determine your FIRE savings target.

One common guideline is to multiply that annual spending number by 25, which is based on the 4% rule (withdrawing roughly 4% of your investment portfolio in your first year of retirement and adjusting future withdrawals for inflation).

"To reach that goal earlier, people pursuing Lean FIRE typically focus on keeping expenses low, saving a significant portion of their income, and consistently investing those savings," End said.

Lean FIRE is one of several approaches to the FIRE movement. For example, it sits at the opposite end of the spectrum from Fat FIRE, which emphasizes building a much larger portfolio to maintain a more affluent lifestyle in retirement.

Chubby FIRE: This is the middle ground between standard FIRE and Fat FIRE, aiming for an upper-middle-class lifestyle in retirement.

Barista FIRE: Participants leave traditional full-time employment but continue earning some income through part-time or flexible work, often reducing how much they need to withdraw from their investments.

Coast FIRE: Saving aggressively early on in life until you hit your target retirement number and then "coasting" and letting that money grow over time until you reach retirement.

Regardless of the route you take, it's important to remember that none of these approaches is a guaranteed path to permanent early retirement.

"Retirement could last 40 or 50 years for someone who retires very early, and assumptions about inflation, investment returns, healthcare costs, and your own spending needs can change significantly over that amount of time," End said.

Lean FIRE can be a good option if you're comfortable with living a scaled-down lifestyle and expect to maintain that low-cost living in retirement.

However, it's also important to consider costs that may arise later in life before choosing this strategy. Think carefully about future healthcare costs, housing, and changing financial obligations as your family grows, which could make a lean retirement plan more challenging to maintain.

You might find LeanFi to be limiting if your circumstances or lifestyle goals change.

"There's also a personal trade-off to consider because life is short and health isn't guaranteed," End said. "If you pursue an extremely frugal path during your 20s, 30s, and 40s, that can mean giving up experiences during some of your healthiest years that you may not be able to get back," End said.

He added that the goal shouldn't be to obsess over every $5 purchase or make your current life miserable just so you can stop working as quickly as possible. "Because early retirement could last 30 or 40 years (or even longer), finding a sustainable balance and building flexibility into the plan is incredibly important."

What is the 4% rule for FIRE retirement?

The 4% rule is a retirement withdrawal guideline often used by people pursuing FIRE to estimate how large their investment portfolio needs to be to support their spending.

The basic idea is that you withdraw 4% of your portfolio in your first year of retirement and then adjust that dollar amount for inflation each year thereafter. Note: it does not mean simply withdrawing 4% of whatever your portfolio is worth every year.

A simple way to calculate your Lean FIRE number is to multiply your estimated annual expenses in retirement by 25. For example, if your annual expenses total $30,000, your Lean FIRE number would be $750,000.

You have the option to factor your Social Security benefits into your FIRE number. However, if you plan to retire early, there may be a significant gap between when you retire and when you qualify to receive Social Security benefits. So, it's important to determine how much you need to save to sustain yourself before these benefits kick in.

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