[[FIRE]] Strategies: Planning Your Path to Early Freedom

FIRE (financial independence, Retire Early) has grown from a niche concept to a movement. But achieving FIRE requires more than saving aggressively—it requires strategy. This lesson covers the tactics that accelerate your path to freedom.

The FIRE Varieties

Traditional FIRE

• Accumulate 25× annual expenses
• Withdraw 4% indefinitely
• Work completely optional

Lean FIRE

Target: $500K-$1M Lifestyle: Minimal, often $25K-40K/year Pros: Faster to achieve Cons: Less cushion, requires continued frugality

Fat FIRE

Target: $2.5M-$5M+ Lifestyle: Comfortable to affluent, $100K+/year Pros: More flexibility, more cushion Cons: Takes longer, may not be worth the wait

Barista FIRE

Target: Partial FI + part-time income Lifestyle: Investments + $15-25K/year from work Pros: Earlier freedom, health insurance solved Cons: Still requires some work

Coast FIRE

Target: Enough invested that compounding handles retirement Lifestyle: Only need to cover current expenses Pros: Can take lower-stress work now Cons: Traditional retirement age still applies

Accelerating Your Savings Rate

The Savings Rate Formula

Savings Rate = (Income - Taxes - Expenses) / (Income - Taxes)

Strategies to Boost It

1. House Hacking

• Buy multi-unit, live in one, rent others
• Reduces/eliminates housing costs
• FHA allows 3.5% down for 1-4 units

Potential Savings: $500-1,500/month

2. Geographic Arbitrage

• Move to lower-cost area
• Keep remote job with higher salary
• Or work locally at lower cost

Potential Savings: $1,000-3,000/month

3. Transportation Downgrade

• One car instead of two
• Used instead of new
• Bike/transit when possible

Potential Savings: $300-800/month

4. Optimize Food Spending

• Meal planning and cooking
• Reduce restaurant spending by 50%
• Batch cooking on weekends

Potential Savings: $200-500/month

5. Income Stacking

• Main job + side hustle
• All side income goes to investments
• Skills-based gigs (freelance, consulting)

Potential Addition: $500-2,000/month

Tax Optimization for FIRE

Maximize Tax-Advantaged Accounts

Priority Order:

1. 401(k) match (free money)
2. HSA max (triple tax advantage)
3. Roth IRA max (tax-free growth)
4. 401(k) max (tax-deferred)
5. Taxable accounts (remaining)

The Roth Conversion Ladder

For early retirement access to 401(k) funds:

How It Works:

1. Retire with money in Traditional 401(k)/IRA
2. Each year, convert some to Roth IRA
3. Pay taxes on conversion (ideally at low bracket)
4. After 5 years, withdraw conversions penalty-free
5. Repeat annually

Requirements:

• 5-year waiting period per conversion
• Need bridge money for first 5 years
• Careful tax planning

Tax-Gain Harvesting

When income is low:

• Sell investments with gains
• Pay 0% capital gains tax (if in 0% bracket)
• Immediately rebuy (reset cost basis)
• Future gains start from higher basis

Withdrawal Strategies for Early Retirement

The Sequence of Withdrawals

Early Retirement (Before 59½):

1. Taxable accounts (capital gains)
2. Roth contributions (always available)
3. 72(t)/SEPP from IRA (penalty-free)
4. Roth conversion ladder (after 5 years)

Traditional Retirement (After 59½):

1. Traditional IRA/401(k) up to tax bracket
2. Roth IRA (tax-free)
3. Taxable accounts (manage capital gains)

The 72(t) / SEPP Rule

Substantially Equal Periodic Payments

Take penalty-free distributions from IRA before 59½:

• Must continue for 5 years OR until 59½ (whichever is longer)
• Amount based on IRS calculation methods
• Penalty if you stop early

Best for: Large Traditional IRA, need income before conversion ladder works

Safe Withdrawal Rate Variations

The 4% Rule: Standard, historically successful The 3.5% Rule: More conservative, longer retirements The 3% Rule: Very conservative, large cushion Variable Spending: Reduce withdrawals in bad years

For Early Retirement (40+ years): Consider 3.25-3.5% for extra safety margin.

Building Your FIRE Portfolio

asset allocation for FIRE

During Accumulation:

• 80-100% stocks (maximize growth)
• 0-20% bonds (if needed for comfort)
• Long time horizon = ride out volatility

Approaching FIRE:

• Gradually shift to 70-80% stocks
• 20-30% bonds for stability
• 1-2 years cash for sequence risk

In Early Retirement:

• 60-75% stocks (need long-term growth)
• 20-30% bonds (stability)
• 5-10% cash (near-term spending)

The Bucket Strategy

Bucket 1: Cash (1-2 years expenses)

• Cover near-term spending
• Don't sell stocks in downturns

Bucket 2: Bonds (3-5 years expenses)

• Refill Bucket 1
• More stable than stocks

Bucket 3: Stocks (Everything else)

• Long-term growth
• Refill Bucket 2 over time

Handling Healthcare Before Medicare

The Pre-65 Healthcare Challenge

This is often the biggest FIRE obstacle.

Options:

1. ACA Marketplace

• Subsidies based on income
• Control income to maximize subsidies
• Keep MAGI below ~400% FPL

2. Health Sharing Ministries

• Not insurance but alternative
• Lower cost, some restrictions
• Research carefully

3. Part-Time Work with Benefits

• Barista FIRE approach
• Some employers offer benefits at 20+ hours
• Starbucks, Costco, others

4. COBRA

• Continue employer coverage
• Expensive (full premium + 2%)
• Good for short gaps

5. Spouse's Employer Coverage

• If spouse continues working
• Often the simplest solution

ACA Subsidy Optimization

Income sweet spot: Keep MAGI low for max subsidies

Strategies:

• Contribute to Traditional 401(k)/IRA (reduces MAGI)
• Roth conversions add to MAGI (time carefully)
• Manage capital gains

The One More Year Syndrome

Symptoms:

• Hitting FI but not stopping
• Constantly raising the goal
• Fear of the unknown
• Work identity attachment

Solutions:

• Set a firm date, not just a number
• Build in cushion to the calculation
• Practice "mini-retirements"
• Develop post-work identity

FIRE Risks and How to Mitigate Them

Sequence of Returns Risk

Bad returns early in retirement hurt more than later.

Mitigation:

• 1-2 years cash buffer
• Flexible spending (reduce 10-20% in bad years)
• Part-time work option

Longevity Risk

Living longer than your money lasts.

Mitigation:

• Use 3.5% instead of 4%
• Keep some equity exposure for growth
• Delay Social Security to 70

inflation Risk

Purchasing power erosion.

Mitigation:

• TIPS/I-Bonds for some fixed income
• Stocks for long-term inflation protection
• Flexible spending

Healthcare Cost Risk

Especially pre-Medicare.

Mitigation:

• ACA subsidy planning
• HSA maximized before FIRE
• Budget conservatively for healthcare

Your FIRE Action Plan

The Bottom Line

FIRE is about strategy, not just sacrifice. Choose the FIRE variety that fits your values. Maximize tax-advantaged accounts and plan your withdrawal strategy before you need it. Handle healthcare proactively—it's often the biggest early retirement challenge. Build cushion for sequence of returns risk, and know when enough is enough. The goal isn't to accumulate the most money—it's to buy your freedom as efficiently as possible.