What Is FAT FIRE?

Retirement should not be only about making ends meet. Would you consider retiring early if it meant compromising your standard of living? Most people wouldn’t, and that’s where Fat FIRE or FAT FI comes in. This strategy is for those who want to enjoy a more comfortable and luxurious lifestyle after they retire.

Simply put, Fat FIRE is for people who expect higher expenses in retirement. Whether you need a bigger budget to support your children, secure high-end elder care, or travel the world, Fat FI can help you retire early without compromising your lifestyle.

Fat FI is the right approach if you’re planning to retire with annual expenses over $ 100,000.

How Can You Retire Early with Fat FI?

Fat FI (or Fat Financial Independence) is one of the most comfortable retirement lifestyles but requires stringent efforts. Unlike Lean FI, which focuses on minimal living, Fat FI allows you to elevate your lifestyle when you retire. 

But this also means saving a lot more than you would with other FIRE strategies. You’ll typically need to save about 30 times your expected annual expenses. So, if you plan to spend $100,000 to $150,000 per year in retirement, you will need a nest egg of around $2.5 million to $4 million, assuming a safe withdrawal rate of 4%.

While this number might sound huge, it’s achievable. The key is to maximize your income and invest in high-return assets to grow your wealth over time. 

So, What Do You Need to Do to Achieve Fat FI - Savings and Investments

While the dream of living a lavish life captures the attention, how do you save that much? With the Fat FIRE strategy, you focus on creating enough passive income to support more than just your basic needs.

So, to afford a luxurious retirement, you need to work harder during your earning years and build a solid financial cushion. You can do this by seeking higher-paying roles or starting a side business. The more you earn, the more you can save and invest.

For example, increasing your income by $10,000 a year and saving it could add an extra $250,000 to $300,000 to your retirement fund over 25-30 years, assuming a 7% annual return.

But you won’t be able to achieve Fat FIRE just by earning more and saving it in your bank account. You need to invest your money wisely. You can focus on creating a diversified portfolio that includes stocks, bonds, and real estate. 

Historically, the stock market has delivered average returns of 7-8% annually after inflation, which can significantly grow your savings over time. So, investing $1 million at a 7% return could double to around $2 million in 10 years, thanks to compounding.

The sooner you start investing, the more time your money has to grow, putting you on track to retire early and enjoy a luxurious lifestyle.

How to Calculate Your Fat FIRE Number?

Calculate your Fat FIRE number. Estimate how much you plan to spend each year in retirement. The amount you need to save will depend on this figure.

Once you have that number, multiply it by 25. This is based on the 4% rule, which suggests that withdrawing 4% of your savings yearly should allow your money to last through retirement. If you want to be a little more cautious, you can use a 3% withdrawal rate instead. In that case, multiply your annual expenses by 33.

Fat FI Number Calculation:

• Annual Expenses: $130,000
• Fat FI Number (With 4% Withdrawal Rate): $130,000 x 25 = $3.25 million
• Fat FI Number (With 3% Withdrawal Rate): $130,000 x 33 = $4.29 million

Achieving Fat FI with ReachFI

ReachFI is here to guide you on your Fat FI journey. With our calculator, you can input different expenses and income scenarios to explore strategies for achieving a grand retirement. Start planning with ReachFI today and take the first step toward securing the future you’ve always dreamed of.