Understanding FIRE Milestones
FIRE (Financial Independence, Retire Early) is not a single destination, but a journey with multiple milestones:
🏁 Coast FIRE
You have enough saved that compound interest will grow your nest egg to your retirement goal without additional contributions. You can stop saving and spend your income freely.
☕ Barista FIRE
Your investments generate enough income to cover part of your living expenses. You can leave high-stress jobs and work part-time or freelance.
🔥 Full FIRE
Complete financial independence. Investment returns cover 100% of your living expenses. You can stop working permanently if desired.
Tax-Advantaged Account Strategy
In the US, different account types have different tax treatments. Understanding these buckets is crucial for FIRE planning:
Tax-Deferred (401k/Traditional IRA)
Contributions reduce taxable income now. Growth is tax-deferred. Withdrawals are taxed as ordinary income in retirement.
Tax-Free (Roth IRA/Roth 401k)
Contributions are after-tax. Growth is tax-free. Qualified withdrawals (after 59.5) are completely tax-free, including gains.
Taxable (Brokerage)
After-tax contributions. Long-term capital gains (held >1 year) are taxed at 0%, 15%, or 20% depending on income. Useful for early retirement bridge.
Healthcare Gap Planning
One of the biggest challenges for early retirees in the US is healthcare costs before Medicare eligibility at age 65.
💡 Plan for $500-$1,000/month per person for health insurance premiums between early retirement and Medicare age. This can significantly impact your FIRE number.
Frequently Asked Questions
What is the 4% Rule for early retirement?
The 4% Rule suggests that if you withdraw 4% of your portfolio in the first year of retirement and adjust for inflation each year, your money should last at least 30 years. From this rule, your FIRE number = Annual spending × 25.
How should I allocate between tax-deferred, tax-free, and taxable accounts?
Maximize employer match first (free money). Then prioritize Roth IRA for tax-free growth. Use taxable accounts for early retirement bridge (before 59.5). The optimal mix depends on your current tax bracket vs. expected retirement tax bracket.
How do I plan for healthcare costs before Medicare?
Budget $500-$1,000/month per person for health insurance premiums from early retirement until age 65. Consider Health Savings Accounts (HSA) for triple tax advantage. Some early retirees use ACA marketplace plans or part-time work with health benefits.
Related Financial Tools
To plan for FIRE effectively, you need to understand compound interest, compare investment options, and calculate your income: