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What Is The FIRE Method & How It Works

By : Bajaj Allianz Life

When it comes to retirement, what is the age that usually comes to mind? 60, 65 or 70? What about 40 or even earlier than that? Surprised, don't be! A new movement is slowly gaining traction and it is called the FIRE movement.

So, let’s understand what FIRE is all about.


The concept of the FIRE method


Introduced back in 1992 in the book ‘Your Money or Your Life’, FIRE was conceptualized1. FIRE stands for Financial Independence, Retire Early. It is the process of saving and investing rigorously when you are young so that you can retire early. The entire concept of FIRE revolves around debunking the conventional idea of retiring at an older age. It is more of a lifestyle than a particular retirement plan. Under this method, people endeavor to save a major part of their income, invest it in suitable avenues so that they can create a retirement corpus and also generate passive income from the saved corpus.


Who Does the FIRE Method Suit?


The FIRE method is for any individual that plans for early retirement, i.e., retiring between 30 and 50 years of age. So, people in their early ages are likely to consider and use the FIRE concept as they can save up for early retirement.

In later stages of life, you might have too many pending financial responsibilities or you might already be approaching retirement to consider FIRE. As such, it is usually for the millennials or the GenZ who can start saving immediately after they start earning so that they can retire early.

Secondly, if you believe that the FIRE concept is for the wealthy, think again. The FIRE method retirement plan is not contingent on income. Any individual can adopt the FIRE approach, provided they are prepared to save and maintain a frugal lifestyle.


The Working of the FIRE Method


The first concept of the FIRE method is Financial Independence. This means creating sufficient savings so that you can retire early. The overall approach to the FIRE method is aggressive savings and investments. FIRE followers save anywhere between 50-70% of their income, depending on their debts, retirement age, and earnings1.

There are three approaches to FIRE2 that can help figure out how much you need to save. They are as follows -

  • Lean FIRE - Under this approach, you intend to cut your expenses to retire early. You try and live on the minimum possible income, cutting down on major expenses.
  • Fat FIRE - Under this approach, you intend to retire early without compromising on your current lifestyle. As such, you may need some aggressive strategies for savings and investments.
  • Barista FIRE - Under this approach, you combine the first two approaches. You try and maintain a better lifestyle in retirement by supplementing your savings with a side hustle.

After you decide on your approach, you can use mathematical calculations to figure out how much corpus you need for retirement. For this, there’s a 25X rule2 that is popularly used. The rule says that you need to save 25 times your current annual expense for retiring.

For instance, say you spend Rs. 5 lakhs annually, and you need to save Rs. 1.25 crores for retired period on retiring early.


Benefits of the FIRE method5


The FIRE method is becoming popular because of the benefits that it provides. Here are some of the advantages of the concept -


1. Encourages financial planning:


The FIRE concept is all about managing your finances and becoming mindful of your income and expenses. When you adopt the FIRE method, your finances take center stage, and you start planning for your finances. As such, financial planning becomes a habit in your journey to financial freedom.


2. Helps in Achieving Financial Independence:


As mentioned earlier, FIRE’s first concept is financial independence. It means accumulating sufficient funds, so that you can fulfil your financial goals easily. This gives financial independence as your savings may become optimal to meet your needs.


3. You Can Take Control of Your Finances:


As you adopt FIRE, you take control of your income and expenses. You scrutinize the sources of inflow and outflow and ensure that deviations or problem areas are resolved quickly and effectively. This also allows you to cut down on unnecessary expenses so that your disposable income is enhanced and you can save more.


4. You Start Retirement Planning Early On:


The next part of FIRE is all about retirement. While individuals might delay retirement planning at the early stages of life, FIRE forces them to change their views. Under the FIRE method, you start retirement planning early and give importance to it. This might allow you to save up a sufficient corpus for retirement so that you do not depend on others after you retire.


5. Better Debt Management:


Under the FIRE method, debt repayment also becomes a priority since individuals do not want to retire with an existing debt burden. This can promote efficient debt management wherein you try and repay your debt on time and get rid of your liability at the earliest. This also helps you avoid missed payments, late payment charges and degradation of the credit score due to improper debt servicing.


6. Savings and Investments Become Priority:


With the FIRE movement, saving money and investing it in suitable avenues becomes a priority because creating a retirement corpus becomes paramount. As such, you try and save more and more of your income and invest it into good avenues that can generate returns and grow your corpus. While you plan for retirement, you also fulfil other financial goals along the way so that your responsibilities are taken care of by the time you retire, and you can live a financially worry-free life post-retirement.




The FIRE method is a novel idea which is still in its nascent stages. Individuals might not be aware of the concept, how it works and how to achieve it. So, understand what FIRE is all about, how it works and its benefits. If you want to retire early, know how to do so by planning your finances effectively and consider cutting down on your expenses to save more.

Also, invest in suitable avenues for retirement so that your savings are supplemented by the returns that investment avenues might yield. A life insurance pension plan can help you save up for retirement. You can channel your savings into a deferred pension plan that allows you to build up a retirement corpus over time. As the plan matures, you can opt for regular annuity payouts that can create a source of income after retirement and take care of your expenses.

So, weigh in on the FIRE method and opt for it if it suits your needs and requirements.





1) How can someone with a meagre or average income adopt FIRE?


If your monthly salary is low, limiting expenses and supplementing your income can be the first two objectives of your FIRE plan. Look for expenses that you can reduce or eliminate entirely. Next, consider how you may increase your income through a raise, a side business, or any other source of side income. Enhance your savings, and you might be able to retire early with the FIRE method.


2) Can the FIRE Method save tax?


The FIRE method is not a saving scheme. It is a financial planning concept. To save taxes you can invest your savings in tax-saving avenues and achieve FIRE while enjoying tax benefits.


3) Is the FIRE movement the same for everybody?


No, the movement is different for different individuals. Depending on an individual’s age, income, expenses, time to retirement, financial obligations, existing assets and liabilities, every individual approaches the FIRE concept differently.


4) How does the FIRE movement work?


The FIRE movement advocates saving aggressively during your early years in order to retire earlier than usual4.








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