What is FAT FIRE?

The FAT FIRE movement has caught the attention of many in the workforce – reaching financial independence to achieve early retirement on a high level of passive income, typically over $100K per year. For some, Fat FIRE is the pathway to living life on your own terms, in a bit more comfort.


Reaching Financial independence so you can retire early… It sounds like the holy grail of anyone stuck in the rat race, but the FIRE community is a growing group of converts, that have worked out you can retire decades earlier than conventional wisdom, and you don’t need to win the lotto to do it.

What is FIRE?

FIRE is the acronym for achieving financial independence and retiring early. It’s a growing, world-wide movement of converts who have worked out how to achieve financial freedom early in life, and live life on their own terms, not on their boss’s.

There is some discussion on what the RE in FIRE can mean – reduced effort, redirect employment, recreation enjoyment, and even retire… eventually! But it all tends to add up to the same thing. Earning money, living well below your means, saving, investing, and generating a passive income stream so you can quit work and live your best life.

The key to FIRE freedom is your FIRE number. For those impatient to FIRE ASAP, an easy ticket out is to work out your annual expenses, and multiply that by 25. For those who can live their best life on something like $25,000 a year, then a nest egg of about $625,000 could be the golden ticket to handing in your notice, as it could generate that $25 000 annually on a relatively modest 4% drawdown rate.

But what if it takes more than $25k a year to fund your best life, for the rest of your life? Well, that’s where Fat FIRE comes in.    

fat fire
Everyone’s situation is different – work out what is important to you while you pursue FIRE, as well as what is important to you during retirement

What is Fat FIRE?

Fat FIRE is when you upsize your FIRE number, to give your future self more options and security. In the race to quit your job, it may be tempting to convince yourself you’d be happy living so frugally for the rest of your life, and some people may be. But if you pull the work pin in your 20s, that’s a long time to be living on not much, and you do put yourself at risk of something called the ‘sequence of returns risk’ if you happen to ‘FIRE’ close to a recession or stock market crash. The 4% rule does factor in inflation (understanding that the same chunk of money this year will have much less purchasing power years down the track), but it does not factor in lifestyle inflation – where you choose to spend more. Typically, we talk about Fat FIRE being an income of over $100K per year (with an foundational investment portfolio of approximately $2.5M)

“With Fat FIRE, you’ll simply save a lot more money to achieve your retirement number, taking into account a much higher level of ongoing spending. You can still use the same 4% withdrawal rate in order to come up with estimates of your retirement number, but you won’t assume you’re going to live off of $20,000 per year.”

Robert Farrington – forbes.com

What is Lean FIRE vs Fat FIRE?

Lean FIRE and Fat FIRE are terms relative to average household income. Lean FIRE is when you choose to live frugally, on less than the amount for a conventional FIRE number – which for most of us is around $50,000 to $100,000 of annual passive income. For those that want a certain standard of living above the average, which includes a few comforts, then that’s where people strive to achieve Fat FIRE – typically thought to be above $100,000 of annual passive income.

Irrespective of what your FIRE number is, where you live can have a big impact on what standard of living you can afford post-FIRE. For example, city living vs regional living.

Household Income and Wealth, Australia, 2019-20 financial year | Australian Bureau of Statistics (abs.gov.au)

How do you work out your Fat FIRE number?

Fat FIRE starts by working out what standard of living you want to maintain when you stop full time work, then using that figure to calculate your FIRE number. If you want a pre-tax annual income of $100 000 per year, then you’d be aiming for a Fat FIRE nest egg of $2.5 million ($100 000 x 25) to generate passive income. Alternately, if you want a pre-tax annual income of $50 000, then your FIRE number would be a more reasonable $1.25 million.

It’s important to remember, a Fat FIRE number is specific to each individual, so there is no one-size-fits all. However, with a bit of planning, a Fat FIRE number can add a buffer for when you do reach FIRE.

What’s Your FIRE Number for Early Retirement? (yahoo.com)

fat fire
To work out your FIRE number, simply multiply your annual expenses by 25

How do you start working towards Fat FIRE?

For all the talk about FIRE numbers, perhaps the most important step is to just make a start. Let’s say you want that $100 000 passive income a year, it can be daunting to think how you will come up with that $2.5 million in a lifetime, let alone early. It’s important to remember, like with any large goal, if you break it down into manageable chunks, what can seem like a fantasy, can slowly become a reality.

First of all, look at your spending and your savings rate. At one point I was achieving an 85% savings rate but have since realised that this is not realistic to maintain. While not everyone will be able to do this, it shows what’s possible. Set a goal to save a certain amount every week. For some, it may be $1000 a week, for others $50, but the important thing is to get into the habit. Then direct those savings into investments. Even better if you can automate everything, that way, it happens in the background.

When it comes to wealth creation, it’s important to remember the fundamentals. Diversify, and don’t have all your eggs in one basket. Look at setting up multiple potential passive income streams – shares, property, super, crypto, websites, side hustles etc.

Also, keep in mind that leverage can your friend when it comes to wealth creation in a rising economy. You could save a deposit for shares or property, then let the bank’s money help you reach your FIRE number with a property mortgage and debt recycle with something like the NAB Equity Builder for shares. And if you’re young, even better, you’ve got compound interest on your side. However, leverage is a double-edged sword, and can be a harsh lesson for anyone who is over geared during a market downturn, crash or recession – gains are multiplied on the way up, but losses are also multiplied on the way down. Leverage can therefore be quite risky, and many people have been bankrupted by it.

The Laws of Wealth Creation | Wealth Within

What is a safe withdrawal rate?

On average, over the past few centuries, the share market generates somewhere around a 10% return on investment, but that fluctuates, as we have seen very recently. Some years it gains more than 10%, other years it may lose money. This volatility is the price we pay for admission into the stock market and long term wealth generation. According to the trinity studies, the general rule of thumb is that if you draw down a maximum of 4% on your investments each year, then your nest egg should last, despite the volatility of the market highs and lows, and factoring inflation at its long term historic levels of around 2-4%.

The 4% rule is based on a number of assumptions. One being, your drawdown rate is based on keeping your spending power in line with inflation, not how well your investments perform. Some believe this approach is outdated, and it may be better to drawdown more in good years and less in bad years, rather than a flat 4% every year.

What is the 4% Rule – Investopedia

In any case, a lower withdrawal rate is considered ‘safer’ – or more likely to result in portfolio success (that is, the portfolio out lives your life). Many in the FIRE community opt for a 3.5% or even a 3% withdrawal rate as it is adjusted to suit their personal level of risk tolerance. You will have to work out your own.

What are the other types of Fire?

As mentioned earlier, RE in FIRE can mean different things to different people. While the most widely accepted meaning is “retire early”, for others it may mean “reduced effort”, by going part-time, or “redirect employment” into another line of work you find more enjoyable but doesn’t pay as much, or “recreation enjoyment”.

With this flexible approach, it can be possible to reach Lean FIRE, then make a few changes for a better quality of life, while you are still pursuing Fat FIRE in the background. This is basically what I have done, where I am aiming to grow a portfolio of semi-passive websites to try and provide some extra passive income.

Traditional FIRE

Traditional FIRE is the concept of creating assets that generate passive income, so you can quit your job, and spend time doing what you want. Reach 25x your desired income level and boom, you hit FIRE.

Coast FIRE

Coast FIRE is a concept when all your investments are coasting along and self-sustaining to grow to a required retirement amount. This is the time when you don’t need to put any more money into your retirement accounts, and then when your Coast FIRE portfolio hits its predicted level at your predicted retirement age, you can start drawing down.

One example of Coast FIRE is to heavily ‘front load’ your superannuation or other retirement accounts when you are still quite young until you reach your Coast FIRE figure – for example to reach $150,000 invested by age 25 would result in $1.66M at age 50 (inflation adjusted to $1.1M worth of spending ability back to when you were aged 25). At Age 50, you could then retire on this $1.66M portfolio using the 4% rule to draw out $5,553 per month or $1280 a week of income. Of course, due to inflation, everything would be a little bit more expensive when you are 50 – so that money would afford the equivalent of $846 worth of stuff you could get at 25.

Barista FIRE

Barista FIRE is a combination of working part-time and generating just enough passive income so you don’t need to work full time. In traditional terms, it may be considered akin to transition to retirement. You no longer work full time, and you may not even work in the same industry. It’s more like working part-time in a less stressful job and adding to your quality of life. If you couldn’t quite make it to ‘Regular FIRE’ but you have hit your lean FIRE number and you just really really hate your job or cant reign in your budget, you just pick up a part time job.

I always figured if I had to do this I would work in a (plant) nursery or something like the bunnings garden section, but as it turns out I enjoy tinkering with blogs. So many I am really a Barista FIRE?

Nomad FIRE

Nomad FIRE is a way of living life after reaching FIRE, by choosing to travel rather than living in one spot. Living a nomadic life, travelling the world, can be funded by reaching FIRE, or choosing the digital nomad life. Living in a Van for example, cuts out the huge line expense of accommodation, and I have friends who have moved to Bali, Indonesia, as digital nomads as the cost of living is just so low over there – this is called geographic arbitrage.

Find your why & type of FI – Pearler Australia

fat fire
Be realistic about your annual expenses, your savings rate, as well as considering inflation

“Whereas plain vanilla FIRE and Lean FIRE may require certain choices — I would never call them sacrifices — Fat FIRE allows those who have undergone some lifestyle inflation and have spent some time on life’s hedonic treadmill to maintain that particular standard of living”

LEif Dahleen – Physicianonfire.com/fatfire


The Financial Independence Retire Early community is a growing worldwide community that many aspire to. If you are happy to live a frugal and minimalist life, you can reach Lean FIRE far sooner than you may realise. For others, their Fat FIRE number may be worth working a bit longer for, to ensure retirement is more comfortable and with higher margins of safety built in. With a bit of planning, a combination of Lean and Fat FIRE may be the right approach – for example Achieving Lean FIRE, then working part-time or on a passion project to supplement passive income – this can enhance your quality of life on your way to Fat FIRE, potentially even coasting a bit after FIRE, whilst still living a (reasonable persons) dream whilst your assets continue to grow!

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