What is Fat Fire? The More than Enough Early Retirement Plan

fat fire
Photo by Vincentiu Solomon on Unsplash

The popular acronym F.I.R.E. stands for Financial Independence Retire Early. The idea is simple. You save 25 times your annuals spending and invest that money in a portfolio of stocks and bonds. A portfolio value equal to 25 times your annual saving comes from the Trinity Study. The 4% rule is the takeaway from that study. It’s the granddaddy rule in retirement planning. 

There are a few variations of this approach known as: Lean Fire, Coast Fire, and Barista Fire. Lean fire is about spending less, Coast and Barita FIRE are about saving and working less. This post will dive into Fat FIRE, the more than enough plan. It’s an early retirement plan of abundance. When you have more than enough, you can focus on living and not money.

What is fatFIRE?

FatFIRE is about spending more and worrying less. It’s on the other side of the FIRE spectrum than leanFIRE, which aims to spend little and live a frugal lifestyle. 

Lean Fire < FIRE < fat Fire

FatFIRE is a lifestyle that represents your above-average spending months. You go out to dinner a little bit more. You don’t worry about the prices on the menu and you spring for the bottle of wine that want. 

FatFIRE is going on vacation and staying in nice places with quality services. You’re not staying at 5-star hotels every time you travel. You book comfortable and nice accommodations. They’re above average, clean, and located in favorable parts of your destination. 

You’re not living like the mega-rich, and you still understand the value of money. When you track your expenses for many years you build awareness around your spending. You build frugality muscles that insulate you from egregious spending. 

Good habits build good financial muscles. Good financial muscles save you from your future self. 

Definition of FatFIRE

People like round numbers on the internet. Many Facebook groups and subreddit’s define FatFIRE to be an annual budget of $100,000 per year. That’s a good amount of spending and if you move to a lower-cost area of the country that money will go along way.

$100,000 per year in spending requires a portfolio of $2.5 million if our safe withdrawal rate is 4%. The target portfolio values increase to $3.0 million if we use a 3% SWR. That’s a lot of money. Looks pretty fat to me!

I’ve personalized my own fatFIRE number based on my historical spending. I track all my spending across 39 categories to get a clear picture of where my money goes. When planning my fat Fire lifestyle I identified categories that provide high value. For example, I love spending money on traveling and golf. Spending more money in these categories is very enjoyable. Clothing and electronics are low-value categories for me. Spending more does little to improve my mood or my life. 

For categories of high value, I increased my spending versus my historical averages. For all other categories, I assume spending will continue as usual. Over time my monthly averages per category are consistent and predictable. 

I did this exercise a few different times but got similar results each time. The net result, a modest increase in my planned spending. Funny enough, the increase was a nice and neat round number.

My personal definition of FatFIRE: 

Part 1: The spending. Here’s what the math product from my category planning exercise.

A 20% increase in monthly spending compared to your FIRE budget. 

If you’re financially independent and can cover your monthly expenses with your investments, you have enough. Fat Fire to me is 20% more than enough. Again the number derived from a category by category planning exercise. 

Let’s look at more numbers. So for me, a 20% increase in spending equates to $7000 per month or $84,000 per year. Not quite $100K but it’s still a lot of money to spend on an annual basis. 

To sanity check that this is more than enough, I like to look at the math through this lens. If I had a job that paid me $120,000 per year, my after tax income would be about $84,000 dollars. Spending every penny of a $120,000 salary makes spending habits sound crazy! Writing that makes me want to buy less stuff.

Part 2: The safe withdrawal rate. At $84,000 per year in spending.

  • A 4% safe withdrawal rate, calculates a target portfolio value of $2.1 million dollars
  • A 3% safe withdrawal rate, calculates a target portfolio value of $2.8 million dollars

FatFIRE is about living an early retirement filled with abundance. If your portfolio continues to grow you’ll feel wealthy. Living without a scarcity mindset with do wonders for your fatFIRE wellbeing. So use a low withdrawal rate of 3% so you portfolio will continue to grow.

I’ve now quantified the two parts of my fatFIRE definition. To summarize, my definition of FatFIRE would be: 

“Spend 20% more than your enough budget and use a very low withdrawal rate so your networth continues to grow.  ”

Simple Money Habits

To ensure the longevity of my fatFIRE lifestyle, I’m planning on using a SWR of 2.5%. If my portfolio delivers a real return of 5%, I’m spending half and reinvesting half. Life will feel abundant if all goes according to plan. 

I’m also considering bench marking my withdrawal rate to the dividend yield of the S&P 500. The current dividend yield historically accounts for about half of the real return of the index.

Why pursue FatFIRE?

I’m a big believer in finding meaningful work to find fulfillment and purpose in life. Unfortunately, that doesn’t always come with a meaningful paycheck. 

There may be times when doing meaningful work requires capital. If you start a business it may take months or years to generate a profit. FatFIRE can be an incredible tool to launch into these areas of your life. When you don’t need money from your work, you can focus on the quality of the work. Prioritizing good work and not short-term profits is a small business superpower. 

Having more than enough allows you to make investments in yourself. It also allows you to give back and invest in your community. More than enough means to more worrying about the little things. Your mind is now free and you can enter the day in a peak state of being. 

My personal journey helped me discover and create Darwin FIRE. It’s FatFIRE math with a structure to organize my week and focus on creating.

Don’t wait! Get started today and plan your own fatFIRE lifestyle. Need help? Check out the 13 habits I used to become financially independent at age 32.