• Financial independence, retire early (FIRE) is often broken down into three categories: FIRE, leanFIRE, and fatFIRE.
  • LeanFIRE is when someone has saved up 25 times their annual expenses and lives on a “lean” budget, spending less than the average American.
  • By contrast, someone who achieves FatFIRE spends more than the average person.
  • Regular FIRE is someone whose spending is in line with the average US household, around $60,000 a year.
  • Pursuing a fatFIRE number – regardless of how much you actually plan to spend – can afford greater flexibility, freedom, and protection in early retirement.
  • Read more personal finance coverage.

The FIRE (financial independence, retire early) movement is largely a numbers game.

The formula is simple: A person needs to save up and invest 25 times their annual spending in order to become financially independent, assuming they plan to withdraw 4% of their nest egg each year thereafter.

At that point, they no longer need to rely on a paycheck coming in to afford their lifestyle and they have the freedom to retire early. There are a few variables at play, but the largest one in this formula is spending.

How much you spend can vary drastically depending on the size of your family, where you live, what you do in your free time, and so much more. One woman may want to be able to retire early on $100,000 a year in New York City, while a couple in the rural Midwest is happy living on $40,000 a year. As such, their target numbers will be wildly different.

To explain these variations, the online FIRE community categorizes early retirement in three ways: FIRE, leanFIRE, and fatFIRE.

What is leanFIRE vs. fatFIRE?

The average US household spends about $61,000 a year, according to Census data. LeanFIRE is when someone has saved up 25 times their annual expenses - the traditional benchmark for financial independence - and spends less each year than the average American.

FatFIRE, by contrast, is when someone who has reached financial independence spends more than average.

Using the example above, the New Yorker would be pursuing fatFIRE, since she's living on $100,000 a year. Ultimately she'd need $2.5 million invested before leaving work to maintain the same standard of living in early retirement ($100,000 x 25 years).

Meanwhile, the Midwestern couple lives on far less than the typical household, so they'd be considered leanFIRE and would only need $1 million ($40,000 x 25 years) to retire early. In other words, they're frugal.

"FatFIRE is early retirement for the entrepreneurs and high-income professionals that choose not to fully embrace frugality or give up certain creature comforts that have become customary. It's financial independence for the well-heeled," explains Leif Dahleen, a former anesthesiologist who retired at age 43, in a post on his blog, PhysicianOnFIRE.

"Whereas plain vanilla FIRE and leanFIRE may require certain choices - I would never call them sacrifices - fatFIRE allows those who have undergone some lifestyle inflation and have spent some time on life's hedonic treadmill to maintain that particular standard of living," Dahleen writes.

FatFIRE may offer more flexibility in early retirement

There are benefits and drawbacks to both leanFIRE and fatFIRE. Some, including Dahleen, argue that pursuing a fatFIRE number - regardless of how much you spend in the present - can afford greater flexibility, freedom, and even protection from unexpected events in early retirement.

"With a fatFIRE portfolio, you can do things others can't afford to do, at least not as often," Dahleen writes. "You can travel regularly during the high season, even flying first class if it suits you. You can pick up a Tesla or an Acura NSX because you want one and you know it won't derail your FIRE plan."

He continued: "You also have a better ability to trim the fat when times are tough. If our economy hits a stormy patch and stock values plummet, who's got more discretionary spending in the budget to cut? That's right, the fatFIRE family."

Ultimately, it's up to you to decide how you want your lifestyle to look in early retirement and how much it will cost. If you want some wiggle room, you may choose to aim for fatFIRE figures. If you're ready to leave work as soon as possible and are prepared to live frugally, or you have passive income streams set up, the quickest route to early retirement is probably leanFIRE.

More savings and retirement coverage