Your Ultimate Guide to the FatFIRE Movement

In recent years, more and more people have been looking at ways to achieve financial independence with a view to retiring early. This has popularized the FIRE, which stands for Financial Independence, Retire Early movement within the financial community. While there are many different ways that can help you achieve FIRE, in this article, we’ll be exploring FatFIRE and the overall FatFIRE movement. 

What is the FatFIRE Movement?

The Fat FIRE movement is a financial strategy that enhances the potential to retire early and maintain or even improve your lifestyle. This is where the “fat” part of the term comes from, as it represents a more luxurious variant of the standard FIRE strategy. The aim of FatFIRE is to allow you to live your idealized lifestyle in early retirement. 

To be clear, this doesn’t mean living on just a portion of pre-retirement income, but on your full income. This could mean that you have the funds to go on luxury vacations, eat out frequently or live in a big city. The overall aim of FatFIRE is to give you the ability to live the retirement lifestyle that you want. 

It is this philosophy that separates FatFIRE from other FIRE strategies, which tend to lean more towards frugal tactics to retire with a more modest lifestyle. For example, with Lean FIRE, you may need to get rid of your car, reduce your travel or move to an area with a lower cost of living. This requires some sacrifices to retire early, whereas FatFIRE is based on building a large enough fund that you don’t need to worry about continuing working or reducing your spending. This does make FatFIRE a more difficult strategy, but it does allow for a more abundant lifestyle. 

How Much Do You Need for FatFIRE?

The specific fund you’ll need for a FatFIRE strategy will depend on your preferences and income. 

Once you know your specific number, you’ll be able to create a timeline for your FatFIRE. A typical rule of thumb to achieve FatFIRE is to save a minimum of 50% of your income. There are two strategies for using your FatFIRE fund, and this will determine how much you need. 

For example, if you have a fund of $2.5 million and you withdraw 4% each year, you’ll have an annual income of $100,000. On the other hand, if you prefer the idea of living on the interest, you’ll need to have a larger fund. To live a comfortable lifestyle, you’ll need a minimum of $5 million. 

Bear in mind that $1 million doesn’t go as far as it would have in the 1980s, so you’ll need to plan accordingly. With rates of return of 1% to 4%, you’ll need $5 million to generate an income of $50,000 to $200,000 per year to live on the interest payments.

This is likely to influence when you will be able to retire early. If you have a family and have less than $3 million, you’re likely to need to work until you reach approximately 50 years old, while singles or childless couples could manage to retire closer to 40 with a similar fund. Bear in mind that in either scenario, it is still far younger than the average age of retirement of 61. 

In an ideal scenario, to live a FatFIRE lifestyle, you should be planning to retire with $10 million or greater in net worth. If your investable assets are more than $10 million, even when return rates drop, you should still have no problems generating at least $200,000 in passive income per year. 

Strategies to Achieve FatFIRE

There are two general approaches to achieving FatFIRE; earn a higher income and invest excess funds into a diversified portfolio or start a business that could eventually be sold.

Since FatFIRE is a strategy for early retirement, you won’t have a lot of time to compound any returns to build your asset base. This means that you need to rely on a large liquidity event or high cash flows.

We’ll delve into both of these approaches in a little more detail.

1. Earning a Higher Income and Investing in a Diversified Portfolio:

This is one of the most straightforward ways of achieving FatFIRE, but that doesn’t mean it is easy. You’ll typically need a high level of education, a specialized skill set or a highly demanding job to achieve a high income bracket. If you want to adopt this approach, you’ll need to do several things:

• Develop high-value skills: You’ll need to develop a high-value skill set to meet the demand in your chosen field or industry. You may need to work towards achieving credentials that are sought after by potential employers. 

• Maximize the earning potential: After you have your skill set, you should continually look for any opportunities to increase your income. This may mean negotiating raises, taking on further responsibilities or even job hopping. 

• Adopt a lifestyle below your means: Even if you have a higher income, you still need to save a high percentage of your earnings to achieve FatFIRE. So it is important to adopt a lifestyle below your means. You will need to be careful to minimize lifestyle creep and adopt a more strict attitude to your finances. While this doesn’t necessarily mean an extremely frugal lifestyle, you always need to be aware of investing for the long term. 

• Aggressively invest: With a significant income, you should have the funds to save and adopt an aggressive investment strategy. You will need a diversified portfolio that can produce income. Remember that the more that you can invest as early as possible, the more potential for compounding to reach fatFIRE.

2. Start a Business:

Starting a new business with a view to selling it and creating a large liquidity event could represent a potentially faster way to achieve FatFIRE, but it is riskier. Your goal is to build a business that could be sold for a large enough amount to meet your FatFIRE goals. 

There are a number of ways to approach this:

• Find a problem you can solve: One of the keys to creating a successful business is finding a problem you can solve for a group of people. You should focus your efforts on areas where the current solutions are inadequate or simply don’t exist. You can then leverage your knowledge and skills to offer a better solution. 

• Cater to an in-demand market: There are some markets and industries where demand remains constant or even increases regardless of the market conditions. In a recession, while some industries tend to stagnate, there are others that flourish. For example, the building trade tends to suffer in an economic downturn, but businesses providing healthcare products and services remain stable. So, aim to start a business that can continually cater to an in-demand market. 

• Keep cost aware: Remember that your overall goal is to sell your business to create your retirement fund. So, while you will have operating costs, you should be aware of the risks of taking on finance and business debt. When you sell your business, you want to get the maximum amount, rather than needing to use the money to settle outstanding debts. 

• Develop an exit strategy: Although it is important to build and grow your business, your ultimate goal is selling your business. So, early on, try to come up with your possible exit strategies. While it can take years to scale your business, it is a good idea to identify potential buyers or groom the business for IPO as early as possible. 

• Don’t sell: Another approach is to not sell your business and live off the income that it generates instead. This has a different set of risks, but if you can continue to grow the business while taking a step back, you could generate more future wealth for your early retirement. 

These two approaches represent different ways to achieve FatFIRE, but both require the hard work and discipline needed. Each approach has its own pros and cons, so you will need to assess which one is best suited to your preferences and circumstances. 

Pros and Cons of FatFIRE

As with any financial strategy, there are both pros and cons associated with FatFIRE. Here we’ll explore some of the key positives and potential negatives to help you make an informed decision.

The Pros:

• Maintaining your lifestyle: One of the reasons why many people dismiss the FIRE movement is that you need to compromise on your lifestyle in retirement. This is where the FatFIRE movement stands apart, as it doesn’t require sacrificing your lifestyle while offering the benefits of early retirement. 

• Retirement options: In addition to preserving your lifestyle, FatFIRE can provide you with more options for your retirement. You’ll have the funds to try a new hobby, go on vacations or even continue to work. FatFIRE can offer the freedom to choose what you want to do in your retirement. 

• More peace of mind: As you need substantial assets to achieve FatFIRE, you can have more peace of mind compared to many other early retirement strategies. 

• More possibilities for giving: Another benefit of FatFIRE is that you will have more capacity to give even after you retire. While many other retirement strategies focus on keeping spending low, if you do want to be philanthropic or help out your children or grandchildren, you simply may not have the available funds. However, FatFIRE provides more capacity to use your money as you wish. 

• Less need for luck: Since you need greater assets for FatFIRE, you will be less reliant on luck. You don’t need a certain percentage within the market to retain your financial freedom. You don’t need to worry about a health condition limiting your ability to work. Essentially, you can continue your retirement even if you are a bit unlucky. Of course, you won’t be immune to financial setbacks, but there is a lower likelihood that you will need to return to work or cut your spending. 

The Cons:

• Greater accumulation phase: As FatFIRE requires greater assets compared to other early retirement strategies, you are likely to need to work longer. You’ll need a greater accumulation phase, which may mean retiring later than your original plans. There are other strategies that could provide an earlier timeline. 

• Loss of purpose or motivation: Having sufficient money to do what you want may not be all you anticipate. FatFIRE may offer the potential for early retirement, but it could impact your relationships, health, or even your identity. 

• Greater sacrifice before your retirement: Since there is such a high financial bar needed for FatFIRE, you will have to make greater sacrifices during your working years. You will need to put away a large chunk of your income towards retirement or spend longer hours establishing a business you could sell, simply to retire earlier. You will need to balance out the desire for early retirement against your present enjoyment. 

• More investment reliance: To achieve Fat FIRE, you are likely to have more reliance on your portfolio returns compared to someone who needs less for their retirement fund. While investment growth is important in all retirement funds, it is crucial for FatFIRE. 

• Emotional and mental challenges: Pursuing FatFIRE requires mental and emotional discipline that can be taxing. You will need to be patient and resilient, but you may develop an encompassing focus on money. Feeling the pressure to achieve your investment and financial goals may lead to neglecting other areas of your life, straining relationships or even damaging your health. Additionally, deviating from the societal norms around work and traditional retirement may impact how you relate to others. 

Fat FIRE FAQs

Is there a difference between FIRE and FatFIRE?

Yes, FIRE refers to Financial Independence (and) Retire Early. But there are numerous strategies for this, including FatFIRE. While many FIRE strategies focus on reducing spending or working in retirement, FatFIRE aims to provide sufficient income to continue your desired standard of living. 

Who is FatFIRE best for?

FatFIRE is a solid strategy for high-income professionals or entrepreneurs who don’t want to fully embrace frugality or have to give up the creature comforts that they’ve become used to. Essentially, it provides financial independence for the non-frugal.

What is the minimum FatFIRE net worth?

To achieve FatFIRE, you will need a net worth of at least $2.5 million, but the specific figure you need will depend on your preferences, lifestyle and other factors. 

What is Chubby FIRE?

Chubby FIRE is a strategy that almost provides a compromise between FatFIRE and leanFIRE. Chubby FIRE allows you to live a comfortable lifestyle in retirement without needing to adopt a lean, frugal life. Chubby FIRE can provide a modest retirement without the excessive costs a FatFIRE retiree is likely to have. 

Summary

There are numerous retirement strategies, but if you are interested in retiring early without compromising on your lifestyle, FatFIRE is likely to appeal to you. This type of FIRE retirement does mean that you will not only achieve financial independence but need significant funds in your investment portfolio, from which you can claim an interest income or draw down funds each month. 

This is a rather audacious approach, which means you will need to work out how much money you will need for retirement and find a way to achieve this sum. This is typically via a high income with diligent saving and investment or creating a successful business that can be sold. There are both pros and cons associated with each pay, but neither is easy. 

This means a large effort is required to secure your financial future. But the rewards of FatFIRE mean you can enjoy retirement with a lifestyle where you don’t need to worry about working part-time or cutting back on your spending. 

So, if you’re interested in living the life you want in retirement, you may want to consider FatFIRE. Just be prepared for the sacrifices that will be needed to achieve your retirement goals.