How to Retire Early: Your Complete Guide to FIRE (Financial Independence Retire Early)

INTRODUCTION • CALCULATE YOUR FIRE NUMBER • REACH YOUR FIRE NUMBER • TYPES OF FIRE • ADDITIONAL HELP • MARKET CRASHES • FAQ • CONCLUSION

Introduction

Have you ever wondered what you need to do to quit your job and live on your own terms? Or maybe just a less stressful one? That's where FIRE (Financial Independence Retire Early) comes in. In this guide we'll discuss the different types and how to get there in the UK, depending on your current situation.

Calculate Your FIRE Number

Understanding the 4% Withdrawal Rule

It's well documented that in retirement, you can withdraw 4% of your initial portfolio's value (adjusted for inflation) each year and you'll never run out of money. That was based on around 30 years in retirement but if you retire in your mid 30's, you'll need to have more money accumulated, spend less or (not the best option) not live for so long.

FIRE Calculator: Simple Steps

To calculate your FIRE number:

1. Calculate your target monthly spending in retirement (whether it's lots of expensive holidays or a more modest life)

2. Multiply by 300 to get your required savings pot (this gives you 25x annual expenses)

Example: If you want to spend £2,000/month in retirement:

• Annual spending: £2,000 × 12 = £24,000

• FIRE number: £24,000 × 25 = £600,000 invested

Once you're there, you're free to work on exactly what you want, or lie on a beach sipping piña coladas (although that may be the worst option, but that's for another blog).

Why the 25x Rule Works

The 25x multiplier comes from the 4% withdrawal rate (1 ÷ 0.04 = 25). This means your portfolio should theoretically last indefinitely when following this rule. So long as you have a large enough head start and your investments grow by around 7% annually (4% real return plus 3% inflation).

How to Reach Your FIRE Number

There are several routes to achieve early retirement in the UK, but the key is to increase income, reduce costs, or both.

Near Pension Age Strategy

If you're close to 55 (57 from 2028), the age at which you can access a pension in the UK, the best approach is maximizing contributions to a:

• Workplace pension

• SIPP (Self Invested Personal Pension)

You will get 20%, 40%, or 45% tax relief (depending on your income)

Your employer may also offer a higher contribution if you contribute more. I'm looking at you public sector employers!

You can take 25% of your pension value completely tax free on top of your tax free allowance of £12,570 each year this is a good option if you're almost able to access your pension.

Younger Savers Strategy

If you're a bit further away or don't want to wait till then, an Investment ISA (Individual Savings Account) might be better for you

• You can access your funds at any age

• No tax at all on capital gains or dividends

• Complete flexibility for early retirement

The only downside is that contributions come from post-tax income.

Business Owner Fast Track to FIRE

Being an employee is the route most people take, but if you want to retire before 40 and don't have a salary in the additional rate tax bracket, you might consider starting a side hustle or business. This is where the fastest route to FIRE can happen as you have a direct influence over the direction of the business.

Different Types of FIRE Explained

There are 3 different types of FIRE that are retired "enough" for some people, but as your goals change, you can switch between them or take more of a hybrid approach.

Lean FIRE

This is for those who want to reach retirement as fast as possible and are happy with a minimalist lifestyle so long as they are not working for someone else The key points are:

• Frugal lifestyle and aggressive saving

• Smaller portfolio than other methods

• Freedom prioritized over luxury

  
  A downside of this is that any increase in costs that can't be avoided is hard to absorb.

Fat FIRE

This version is for those who want a bit more of a luxurious retirement with more holidays and a higher than average spending. The key points are:

• Save around 70% of income, or

• Wait longer to reach your FIRE number, or

• Generate significant business income/windfall
  
  Unless you can invest a lot in Nvidia in 2016 and can cash it out, owning a successful business making regular payments or selling it for a large lump sum, you may have to make a lot of sacrifices now for the future.

  
  

Coast FIRE

This strategy involves saving as much as possible very early in your career (I continued living like a broke student for years after graduating), then stopping contributions once you reach a calculated milestone. This means you can:

• Take part-time or less stressful work

• Investments grow to support full retirement later

• Reduced pressure while maintaining FIRE trajectory

This could be debated as FIRE but some people are happy with a part time or easy job so to them that could be enough.

Additional UK FIRE Strategies

Geographic Arbitrage in the UK

This is just a fancy way to say:

1. Move to a cheaper area, this is generally the north.

2. Find a remote job that's based in London.
   

This will reduce your living costs and your salary will get a London weighting. I've chosen the London approach but understand that some people don't like to or can't do their jobs remotely.

What If the Market Crashes?

Building Your FIRE Safety Net

There is a high chance that any market you're invested in will crash a few times during your retirement but to handle these conditions:

• Maintain 1-2 years of expenses in a cash buffer or fixed bonds

• Don't sell your holdings

• Be prepared to reduce expenses if needed

Although sometimes it can take longer than 2 years to fully recover, the amount of cash in your buffer can be varied based on your risk tolerance, and ability to reduce your costs should you need to.

FIRE UK: Frequently Asked Questions

How much do I need to retire at 35 in the UK?

Using the 4% rule, multiply your annual expenses by 25. For £30,000/year lifestyle, you'd need £750,000.

Is £500k enough to retire early?

£500k supports £20,000/year using the 4% rule (£1,667/month). Whether this is enough depends on your lifestyle and location.

What's better for FIRE, pension or ISA?

• Under 50: Usually ISA for flexibility

• Over 50: Often pension for tax relief, but consider accessibility needs

Can you retire early with a mortgage?

Yes, but factor mortgage payments into your FIRE number calculation. Unlike traditional retirement, when you have paid off a mortgage, you'll still have mortgage obligations.

Key Takeaways: Your Path to Financial Independence

The upshot of FIRE is to save as much as you can as fast as you can, whether you're after Lean FIRE to get there ASAP or want a bit more of a luxurious lifestyle when you get there. Calculate your FIRE number, choose your investment strategy, and get started.

Something I think is fairly common but not talked about is that people often go from a lean retirement to a fat one via the monetisation of a hobby or having the freedom to take on roles that could pay off big but they couldn't try before when they had bills to pay.

An important point to consider is that retirement traditionally coincides with paying off a mortgage, but that's unlikely for most if you're retiring in your 30s, just factor that into your calculations.

I'd love it if you shared this with your friends and family and subscribe to our mailing list so you never miss new personal finance posts!

While you're here, check out our other blogs.

Disclaimer

The usual disclaimer: I'm just a guy on the internet sharing what I've learned about FIRE. This isn't financial advice so do your own research and speak to a qualified adviser about your specific situation.