Pros & Cons Of The 13 Types Of Financial Independence

FIRE Financial Independence Retire Early first seemed like we needed to work like a maniac and save like a penny-pincher. So, we did. While raising small kids. That pushed us to our limits. But actually that’s not necessary. Here’s why.

There are 13 different types of financial independence! Did you know? I didn’t. And that’s the problem. Most don’t even know about the different flavors of the FIRE movement which is very diverse nowadays.

The purpose of this article is to gather all available information about the 13 various paths to FIRE to give you an overview and help you finding the right path for YOU. I hope this makes you believe that sooner or later you too can find a way to achieve financial independence in life and self-fund your own retirement – all while raising kids.

What The 13 Types Of FIRE Have In Common

Not every path focuses on EARLY retirement. But most paths focus on achieving financial independence one day. On investing just enough money (in the assets of your choice) so that those investments will generate a passive income for you one day to pay your bills – either partly or completely.

Earning passive income (either through dividends or rental income or others) makes you more financially independent of other sources of income such as employment income, state benefits or your pension. When you achieve this level of financial freedom and financial stability, you gain the most precious thing in life: freedom of time.

Let me tell you, the feeling of pursuing this goal is indescribable. Especially if you’re making real financial progress towards that goal. Achieving this is literally possible for ordinary people like you and me. Let’s see exactly how.

If you quickly want to run your own numbers, you can play around with an online financial independence calculator like Networthify (for free) to get an idea of how long your FIRE journey might take you.

5 Types Of Financial Independence And EARLY Retirement

We start with the different types of FIRE that focuses on financial independence and EARLY retirement. Here, your goal is to fully retire decades before traditional retirement age so that work becomes optional. In this case the passive income from the investments you’ve build up covers ALL of your living expenses. Therefore, you need to focus on earning more money, saving more money and investing more money. Let’s see what that looks like.

Comparing The 5 Types Of FIRE And EARLY Retirement

Traditional F.I.R.E.

Your Everyday Life: You enjoy living a simple life (for the moment) and are a frugal person by nature. You love home-making like home-cooking and even taking that home-cooked meal (and coffee) to work. You’re always into a DIY project at home and like fixing things on your own. You love being in nature in your free time as a family. You like hacking the system so to say like travel hacking or even moving abroad to retire even earlier with your kids. This path feels easy to you if you enjoy that kind of lifestyle.

Your Work Life (in FIRE): You work a lot of hours per week in a high-stress position or through a side hustle in additiona to your 9-to-5. Your goal is to earn more money so that you can save more and invest more quickly. By doing so you want to sprint to the finish line and truly fully retire EARLY in your 30s, 40s (or early 50s).

Your Investment Portfolio: Your goal is to accumulate 25 times your annual living expenses in your stock market portfolio. So, you multiply your monthly expenses by 12 (to cover one year of living expenses) and then multiply that number by 25. Or you just multiply your monthly living expenses by 288 (12×24). That’s your FIRE number and the portfolio value you need to fully retire and live off of your investments.

The 4 % rule: Once retired you can take out 4 % to cover your bills for a retirement period up to 30 years without running out of money (according to data from Bill Bengen under all, the creator of the 4% rule). For 30+ retirement years people in the FIRE community like to lower that 4 % withdrawal rate to around 3%-3.5%. In this case you need to have a higher portfolio value and more than 25 times your yearly living expenses in your stock market portfolio.

If you want to run your own numbers for your retirement income you can take advantage of your Passive Income Calculator to compare different withdrawal rates for your retirement years and portfolio.

Fat F.I.R.E. 

Your Everyday Life: You enjoy living a more luxurious lifestyle. Despite that you don’t mind to pare down for the moment (!) in favor of investing. Reducing your current cost of living as much as possible is like an adventure and challenge that you truly enjoy. Maybe you’ve discovered minimalism and enjoy decluttering as an liberating process.

Your Work Life (in FIRE): You are a high income earner. That circumstance combined with a frugal lifestyle by choice allows you to save and invest A LOT of money in a relatively short amount of time. This path is also a sprint to the finish line. Your goal is to have enough in retirement savings that your passive income not only covers your necessities but also pays for a ton of luxuries in EARLY retirement.

Your Investment Portfolio: You need to have at least 1 to 2 Million Dollars or a multi million Dollar investment portfolio. So, typically you expect to have at least 100.000 in annual living expenses after retiring early. This translates to having 33 times your annual living expenses in your stock market portfolio. So, you multiply your monthly expenses by 12 (to cover one year of living) and than multiply that number by 33. Or you just multiply your monthly living expenses by 396 (12×33).

If you want to learn more about Fat FIRE, it’s best to properly understand its difference to the next FIRE path or about the Fatty Flavors of FIRE: FatFIRE and MoFIRE.

Obese F.I.R.E.

Your Everyday Life: You are used to a very luxurious and elevated lifestyle. Despite that, you want to take a step back and live more frugally so that you can achieve FIRE very quickly, in less than 5 years. There are many reasons why you might consider this like a dramatic experience you recently had that made you rethink your entire life.

Your Work Life (in FIRE): You are a super high earner and earn a salary that only a few percent earn in your country. Maybe your family is rich, or you became rich early in life, or both. Or it could be that you inherited money and invested it wisely instead of using it up and consuming it. Your goal is to hand down your wealth and create generational wealth for your kids while enjoying early retirement yourself where work becomes fully optional.

Your Investment Portfolio: You want to have at least 5 to 10 Million Dollars in your investment portfolio. So, typically you expect to have at least 200.000 in annual expenses after retiring early. You do the math.

If you want to learn more about Obese FIRE you can read the article What is Obese FIRE? A Quick Introduction and What is moFIRE.

Lean F.I.R.E.

Your Everyday Life: Lean F.I.R.E. is quite the opposite. You earn an average income (or less) and are used to living frugally for whatever reason. So, you want to only cover an extremely frugal lifestyle in EARLY retirement too. It should only pay for your bare bones necessities according to your Bare Bones Budget. If you’ve never created a bare bones budget for yourself you can get a copy of our free (!) Simple Bare Bones Budget Calculator.

Your Work Life (in FIRE): Not a few Lean FIRE folks don’t mind to work for an income on the side after retiring early for the luxuries they want to afford, if at all, or just because they find it fulfilling. Others use geo-arbitrage to relocate to a cheaper place with their Lean FIRE portfolio income. Most already know they want to continue working on the side once retired, or they are eligible for state benefits, or both.

Your Investment Portfolio: Since you’re already used to living off of 30.000 to 40.000 per year (about 2.500 to 3.300 a month) or less, your investment portfolio should be a maximum of 1 Million, but most often less. Because you expect to have an additional income (through work or state benefits or both) in early retirement you might only need to have 18-25 times your yearly living expenses in your stock market portfolio. Therefore, you multiply your monthly living expenses by 216 (12×18) for example.

If you want to run your own numbers, play around with this online Lean FIRE Calculator for free.

Slow F.I.R.E. (Slow FI)

Your Everyday Life: You enjoy buying your latte and avocado toast each day as that is what you value. You want to continue treating yourself to certain things and don’t consider to pare down, not even for the moment. So, your savings rate and investment rate is lower like 20 %. That can also be a result of you working a low stress job (part-time) job by choice to max out family time and live the life you want now.

Your Work Life (in FIRE): You enjoy your job and (work) life and don‘t want to change something about that as you earn good money or at least “enough” to reach FIRE one day and enjoy your life now. Your goal is to become financial independent later in life and retire at the age of 55 to 65 more or less. As early retirement is not your goal most talk about Slow FI short for Slow Financial Independence.

Your Investment Portfolio: You want to fully self-fund your retirement as you want to have a comfortable financial future once you retire through the passive income from your investments. Because of that, you need to apply the 25 times rule presented under traditional F.I.R.E. above.

If you want to learn more about Slow FIRE I recommend reading the article What is Slow FI?.

8 Types Of Financial Independence And SEMI Retirement

In recent years, a new FIRE movement has developed rapidly: Semi FIRE or Semi FI, short for Semi Financial Independence. These FIRE folks chase a shortcut to financial freedom. But at one cost: you will not retire EARLY. Instead, you will continue working for an income but on your terms opting for maximum work-life balance. If you want to know more about Semi FI you can read the full blog post FIRE vs Semi-Retirement: How To Semi-Retire In 5-10 Years or browse over the FAQ page for a quick overview.

The idea behind Semi FI is basically this: If you’ve created a life that you LOVE and look forward to waking up to each and every day, you don’t need EARLY retirement. In fact, as long as your ability to work is there, you never have to retire. But – and this is very important – with Semi FI you want to have the choice to fully retire one day by self-funding your personal retirement account. This gives you options and protects you financially from potential life events.

I believe (and this is my personal experience too) people who retire (early) want to continue doing meaningful work because they find fulfillment in it. But it seems like almost no one is planning for it. With Semi FI you do. Let’s see how that works.

Comparing The 8 Types Of FI And SEMI Retirement

Barista F.I.R.E. / Barista FI

Your Investment Portfolio: You invest until your passive income would cover a big part of your living expenses. Now, you stop saving and investing AND start withdrawing money. That slows down the growth of your portfolio and limits compound interest. Let’s look at our family’s example for an insight.

We currently live off of around 42.000 a year. In Semi FI, Marc and I could each earn 7.000 per year (to qualify for health insurance through our employers). We would also continue to receive child benefit and a small tax refund. That would be a total annual income of 23.000. So, our Barista FI portfolio only needs to cover 19.000 in annual expenses. That’s 475.000 in investments following the 4 % rule recommended for up to 30 years of retirement. And that’s the problem. If you semi retire in your 40sy your portfolio may only last until your 70s. So, what do you do?

What many don‘t realize is that Barista (F.I.R.E.) might be a concept forever. Your portfolio may never compound into your FIRE number or you outlive your retirement savings. So technically, you might never become financially independent and will need to work forever. But, it can also be that your investments will grow into your FIRE number. In this case Barista FIRE deserves its naming. The point is: it depends.

Your Work Life (in FIRE): Since the savings rate in Semi FI can be 0%, you no longer need a 9-to-5 job. You just need an easy part-time job that also helps with paying for healthcare to supplement your passive income. So, you work, save and invest more now to work less later in life. The term Barista comes from the US company Starbucks offering health insurance to their part-time employees (hence the name Barista FI).

Tax Advantages: With Barista (FIRE) you profit from tax advantages. Because income from your stock market portfolio is taxed with lower income taxes than a job income, at least that‘s how it is in Europe/Germany where we live. You pay less taxes if getting dividend payments from a stock market portfolio for example than if getting a salary. Also, part-time jobs often fall into a lower tax bracket than jobs where you work full time. So, there‘s more money left over so to say overall.

Your Everyday Life: You have to pare down for 5 to 10 years more or less in favor of investing. Therefore, you need to embrace frugality. Living a simple life with kids doesn’t have to feel like giving up something.

If you want to go really deep on the Barista FIRE approach, I recommend reading the article Barista FIRE Explained (Bonus: Free Barista FI Calculator).

Baby F.I.R.E. / Baby FI

Baby FIRE or Baby FI is a variation of Barista (F.I.R.E.) and might also be a concept forever. Technically you may never become financially independent. But that’s not the goal. The goal is to allow you spending more time with your future kids while they’re young. So, you start saving and investing money early like in your 20s, before even being pregnant. I wish I would had such a level of foresight in my 20s and admire everyone starting investing while attending college or university.

Your Investment Portfolio: You invest just enough money so that your withdrawals allow you to go on an extended parental leave the moment your baby is born or to start working part-time afterwards. Your goal is to simply cover the expected gap in living expenses with your passive income.

Your Work Life (in FIRE): Most Baby FI folks wants to empower themselves to not having to go back to work full-time during the first years of their child (or forever). They simply don’t want to worry about their finances once their baby is born because they bring in a passive income that allows them work part-time.

If you want to learn more about the Baby FIRE / FI approach, I recommend reading the article and interview Baby FIRE – A Cool Milestone to Reach Before Starting a Family.

Coast F.I.R.E. / Coast FI

Coast F.I.R.E. is the fastest way to a semi retired lifestyle. But it’s also the longest way to full FIRE (typically at official retirement age at age 65+). With Coast FIRE or Coast FI you make sure to self-fund your personal retirement account as soon as possible.

Your Investment Portfolio: You aggressively save and invest A LOT of your income into your assets of choice early on in life. You do this up to a specific point in your portfolio‘s value. That is when you have invested enough to achieve financial independence by the time you reach official retirement age. So, you don’t have to contribute anything else to your portfolio. Now, you stop saving and investing but don‘t start withdrawing. In the back your money grows into your F.I.R.E. number through compound interest.

Your Work Life (in FIRE): You work full-time for a couple of years. Then you “coast” towards traditional retirement. As your savings rate could be 0% from now on, allowing you to make changes in your work life without risking your financial future. From that point on, you only need to earn money to cover your family’s living expenses or to achieve other financial goals such as becoming debt-free.

Your Everyday Life: You have to pare down for a couple of years to save and invest A LOT of money fast early on in life. Therefore, an open mind to concepts such as frugality, thrift and minimalism is required. But, that is only temporary. Just for a couple of years. Afterwards, the lifestyle benefits are huge.

I like to think of Coast FI as of the most important milestone for someone’s FIRE journey. But also, for everyone who wants to ever retire at all. Because once you’re there, you we will be ok in retirement. You already took care of closing your personal retirement gap. That gives me so much peace of mind.

If you want to go really deep on the Coast FIRE approach, I recommend reading the article Coast FI Explained [includes Coast FIRE Calculator]. Also, get your copy of our free Compound Interest Calculator.

How Big Is Your Retirement Gap?

If you want to calculate your own exact retirement gap we offer a Retirement Gap Calculator for your convenience. It helps you to calculate the expected hole in your pocket in retirement so that you don‘t oversee something you might easily forget (which happened to us). Here‘s an insight into this Calculator:

Coast-to-Target FI

Coast-to-Target FI is a version of Coast FI. Here you don’t want to wait until official retirement age to fully retire. Instead, you already opt for a specific target (semi) retirement date. This may stem from a certain age of your kids when you want to be more present or a milestone birthday like your 50th or 60th.

Your Investment Portfolio: Your Coast-to-Target portfolio will likely be higher than your Coast FI portfolio (if you want to retire earlier than the official retirement age). So, you will enter Semi FI later. We’ve created an Investment Growth Calculator you can get for free (!) to run your own numbers. Here’s our example.

We want to semi retire in 5 years (2030) when our oldest changes schools at age 10 to be fully present for her. In Germany, children at the age of 10 either move to junior high school or directly to high school (which prepares children for university). So it’s a crucial moment. This is what our path ideally looks like:

Your Work Life (in FIRE): You work full-time for 5-10 years to build up your required portfolio value. Then, you want to coast towards the target retirement age you desire (when you fully retire). During your semi retirement years you still work but less hours and a low stress job to prioritise family time. Your focus is to max out work-life balance and family time.

Your Everyday Life: You have to pare down for 5-10 years to save and invest A LOT fast. Because this is quite some time, living frugally must feel really good to you personally. Compared to Coast FI you delay semi-retirement for years and that can feel significant. But, and I found this very powerful, in return you can reach full retirement sooner. Now, you decide what’s more important to you.

Flamingo F.I.R.E. / Flamingo FI

Flamingo F.I.R.E. is another version of Coast FIRE / FI. Here you want to reach a specific target portfolio value before you stop investing. That should allow you to eventually even retire EARLY. But you will reach Semi FI later. Also, your semi-retired period will be shorter. It’s a trade off.

Your Investment Portfolio: Your goal is to have 50% of your FIRE number in retirement savings (as soon as possible) before you stop investing. You then don‘t start withdrawing money yet. What that does is allowing your portfolio to compound quite fast into your FIRE number. If you consider a 7 % return rate on average your portfolio doubles in 10 years. If you expect a 10-15+ % return on average it can be only 5 years or somewhere in-between. This reduces your semi-retirement years to 5-10 years.

Your Work Life (in FIRE): Your primary goal is to work, save and invest A LOT for minimum 5 years (but mostly more). Once you hit 50 % of your FIRE number you typically quit your full-time job (and corporate career). Now your savings rate and investment rate can be 0%. You then work a part-time job in a less stressful position that also pays a decent income in semi retirement to cover your bills.

Your Everyday Life: You live very frugally until you hit 50% of your FIRE number in investments. That’s how you save and invest as much of your income as soon as possible. This time frame is too long to consider frugal living as a burden. You rather must feel really good about it so that you stay the course.

We modeled how Flamingo FI would look like for us in this blog post in section “Semi-FI through Coast FIRE / Flamingo FIRE”. If you want to know everything about Flamingo FIRE (including the origin of its naming), read Flamingo FI – The Best Path to Financial Independence? from its creator Money Flamingo.

Barista-Coast F.I.R.E. / Barista-Coast FI

Barista-Coast FIRE / FI is a combination of 2 FIRE / FI ways: Barista FIRE / FI and Coast FIRE / FI. The purpose behind is to cherry pick the best of both worlds.

Your Investment Portfolio: You want to split your portfolio into 2: your Coast FIRE portfolio and your Barista portfolio. First, you need to figure out your Coast FIRE number (see above). Than you subtract this number from your current portfolio. Now, you need to leave your Coast FIRE portfolio untouched until traditional retirement so that it can compound into your FIRE number until you retire at age 65+. Your Barista portfolio is the rest what‘s remaining.

You start withdrawing money from your Barista portfolio to supplement your income. Therefore, you can use the 4% rule but you could withdraw more as you don‘t need that portfolio to survive forever. You just need it to survive during your semi retirement years. As a rule of thumb, you can withdraw 5%-6% for 25 years of semi retirement (if you don’t want to pass it on to your children).

Your Work Life (in FIRE): In Semi FI, you will continue working for an income to pay for the rest of your living expenses that your passive income doesn‘t cover. Also, you don’t need to add any additional funds to your retirement portfolio. This combination allows you to choose the kind of work you‘re really passionate about (even if it doesn’t pay much).

Your Everyday Life: The crux with this approach is that it takes longer. Because obviously you need to accumulate not only your Coast FIRE portfolio but also your Barista portfolio. As this should cover a significant amount of ones living expenses to be able to bring in significant passive income (like 500-1,000 a month) it takes a while to fund it. So, frugality hast to be your best friend along the way.

If you want to know everything about Flamingo FIRE, I recommend reading the blog post The Barista-Coast FIRE Strategy – The Best Of Both Worlds?.

Barista-Coast FI As A Partial Drawdown Strategy

Barista-Coast FIRE / FI as a Partial Drawdown Strategy is another version of Barista-Coast FIRE / FI. You start withdrawing from your portfolio but at a very low withdrawal rate. So, you only partially withdraw from your investments. That delays your FI or FIRE date by about a couple of years more or less.

Your Investment Portfolio: You withdraw at a 1%-2.5% withdrawal rate from your portfolio. So, you don’t split it in two parts. By doing so you still earn a small passive income from your investments when you semi retire. Also, your nest egg can compound into your FIRE number as you draw down next to nothing. However, keep in mind that during a market downturn, ongoing withdrawals significantly impact your portfolio, delaying your FIRE date further.

Your Work Life (in FIRE): Even if you don’t earn significant passive income, you still bring in additional income once you semi retire. That might be only 100-400 Euro a month but it supplements your earned income during your semi retirement years. As your savings rate could be 0% you can start working part-time until you reach full FI.

Your Everyday Life: As it is with the Barista-Coast FIRE / FI pathyou need to live frugally until you’ve build up your portfolio. But the question remains: if you only earn a small amount of passive income anyway, why don’t you save or earn that amount instead? If having 100-400 euros a month as passive income really makes the difference then this approach might be just perfect.

Part-Time FI

Part-Time FI is a combination of Slow FIRE and Barista (FIRE). The difference to Barista (FIRE) and all the other Semi FI types is that you’re not done with saving for retirement (basically until retirement). That is also a similarity to Slow FIRE / FI. So, your overall income level needs to be higher to make that possible.

Your Investment Portfolio: It will grow REALLY slowly. That’s because your savings rate is REALLY low. But, if it’s high enough to reach FI one day and self-fund your retirement, that’s no problem.

Your Work Life (in FIRE): You want to change something about your current (work) life as soon as possible – before reaching any financial milestone (as it is with every other Semi FI path). So, you do. You work a part-time job you enjoy doing in a low-stress environment even if it doesn’t pay as much. You simply want to escape the rat race quickly (even if I really don’t like this saying, you get the idea).

But, you have to earn more than with all the other Semi FI approaches. That’s because you still have to save and invest for retirement. You cannot only work to pay your bills. That limits your job choices.

Your Everyday Life: The biggest benefit is that you could take some mini retirements along the way as there is no specific financial milestone or target date. You only need to ensure that your overall savings rate and investments are high enough to allow you to reach FI one day.

Now, What Is Right For You?

There are 3 most important questions to ask yourself:

• Do you want continue working for a (decent) income until you fully retire – sooner or later?
• How do you fell about withdrawing from your investment portfolio before retiring?
• What would you do if facing a longer market down?

I will share my experience and thoughts here to hopefully give you some food for thoughts.

I’m about to end my 2-years long parental leave. During that time I still worked in our business (since our baby was 2 months old). But, I was highly flexibel with my working hours and loved it. However, in recent months whenever I passed a “We are looking for new employees on a small fee basis” ad I literally wanted to run into the store saying “I’m the one you’re looking for”! I was desperated. I felt the urge to work in the real world if that makes sense. Now, I know I WANT TO WORK FOR AN INCOME as long as I can.

Also, I’d prefer to work a couple of extra hours rather than withdraw money from my portfolio—especially when we face a longer market downturn. I don’t like the idea of limiting the power of compound interest. I prefer letting my money sit in the market for decades so that it can generate more and more returns.

Now, I’d love to hear from you: which FIRE or Semi FI path seems most appealing to you and why? Do you want me to go deeper into a specific path? Let me know in the comments below!

When you walk away today with at least one new idea to improve your personal financial journey I’d love to show you some more in the next posts. If you haven’t already, you can apply to become a part of the community to not miss any new release below in the green footer.