"What is Lean FIRE?" - A Complete Guide With Examples
If you've spent any time in the personal finance space, you've probably come across the term "FIRE" which stands for "Financial Independence, Retire Early". It's a movement focused on aggressively saving and investing to the point where work becomes optional and you can live life on your own terms.
If you want to get started with the basics - check out my article on FIRE here.
Lean fire is a variation on the FIRE movement that leans towards a more frugal lifestyle. The core idea is to save and invest aggressively to a point where you can support yourself on a "lean" lifestyle with lower expenses without continuing to work.
The Basic Idea
Typically, when reaching for a FIRE goal, you have one number in mind - your "FIRE Number". This is the size of the investment portfolio that is required to generate enough income or growth to support your living expenses FOREVER.
Yes! Forever! This is what independence is referring to in the FIRE acronym. If you achieve FIRE, you quite literally gain the freedom to live without needing to work for your income.
We'll dive more into the math further along in this article, but for now it's important to just understand this:
The more you wish to spend while retired, the larger your portfolio will have to be.
This is where Lean FIRE comes in. By planning for a frugal lifestyle in retirement, you can accelerate your timeline to FIRE.
What exactly does this mean?
- You can gain freedom from working many years sooner than those aiming for traditional FIRE
- You will have to plan for a simple and frugal lifestyle in retirement
- You will have to save aggressively during your working years
The Math
It's easy to grasp that a more expensive retirement means that a larger investment portfolio will be required to support that retirement. But let's put some math to this.
If you want to skip the explanation here, feel free to use our Lean Fire Calculator to visualize this with your own numbers.
Your FIRE number is $1,000,000, based on $40,000 of annual spending and a 4.00% withdrawal rate.
With your current cashflow, you contribute $20,000 per year.
With the specified assumptions, you could reach financial independence at age 49.
Real return used: 7.50% (return - inflation).
The "FIRE Number" formula
Your FIRE Number is the size of portfolio required to fully support your desired spending. It is calculated by determining your "safe withdraw rate". Which is simply the percentage of your portfolio that you will live off of per year.
Typically somewhere between 3.5 (conservative) and 4.5 (aggressive) percent are used for this calculation. You divide your desired income by this number to determine your FIRE Number. Here are some examples with different withdraw rates.
| Safe Withdrawal Rate | FIRE Number Formula | Portfolio Needed |
|---|---|---|
| 3.0% (very conservative) | 50,000 ÷ 0.03 | $1,666,667 |
| 3.5% (conservative) | 50,000 ÷ 0.035 | $1,428,571 |
| 4.0% (classic rule) | 50,000 ÷ 0.04 | $1,250,000 |
| 4.5% (aggressive) | 50,000 ÷ 0.045 | $1,111,111 |
| 5.0% (very aggressive) | 50,000 ÷ 0.05 | $1,000,000 |
Savings Rate and Investment Returns
Next, you calculate your projected portfolio size over time using your savings rate and your estimated investment returns.
- Savings Rate: How much you contribute each month to your investments
- Investment Returns: How much your investments grow each year
This is where the power of compound interest comes in. Because your investments continue to compound year after year, the sooner and more aggressively you invest, the faster you will reach your FIRE Number.
The math works out like this - Portfolio Next Year = (Current Portfolio × (1 + Return Rate)) + Annual Contributions
This math can start getting hairy, so feel free to experiment with this using our Compound Interest Calculator.
Here is an example with the following assumptions
- $1,000 invested per month
- 7% annual investment return
- Contributions made consistently
- Returns compounded yearly
| Years Invested | Total Contributed | Portfolio Value |
|---|---|---|
| 5 | $60,000 | ~$71,000 |
| 10 | $120,000 | ~$173,000 |
| 15 | $180,000 | ~$315,000 |
| 20 | $240,000 | ~$524,000 |
| 25 | $300,000 | ~$825,000 |
| 30 | $360,000 | ~$1,244,000 |
Putting it all together
Once you have these two pieces (your FIRE Number and your portfolio growth) you are now ready to determine when you will achieve Lean FIRE.
Once your total portfolio size crosses your Lean FIRE number, you are officially Lean FIRE'd! You're now able to stop working, withdraw from your portfolio at your withdrawal rate, and never have to think about working again (unless you'd like to - many people do!).
Finally, here are some full examples to give you an idea of Lean FIRE timelines at different savings and withdrawal rates given an assumption of 7% investment returns and a desired income of $40,000.
| Monthly Invested | Withdrawal Rate | Lean FIRE Number | Years to Lean FIRE |
|---|---|---|---|
| $1,000 | 4.0% | $1,000,000 | ~30 years |
| $1,500 | 4.0% | $1,000,000 | ~24 years |
| $2,000 | 4.0% | $1,000,000 | ~20 years |
| $1,500 | 3.5% | $1,142,857 | ~27 years |
| $2,000 | 3.5% | $1,142,857 | ~22 years |
| $2,500 | 3.5% | $1,142,857 | ~19 years |
Tax considerations
One important detail that the simple FIRE math ignores is taxes.
In the real world, your portfolio will likely be spread across different account types, and each one is taxed differently when you withdraw from it.
For example:
- Traditional 401(k) / IRA withdrawals are taxed as ordinary income
- Roth accounts can often be withdrawn tax-free (if rules are followed)
- Brokerage accounts are typically taxed at capital gains rates
- Dividends and interest may create yearly tax drag
Retirement specific accounts are typically penalized if withdrawn from before typical retirement age. Building up a brokerage account to cover this gap is a common strategy.
What this means is that your actual spending power depends not just on your portfolio size, but also on how tax-efficient your withdrawals are.
Two people with the exact same FIRE Number could have very different outcomes depending on how their money is structured.
Why this matters for Lean FIRE
Lean FIRE often operates with tighter margins than traditional FIRE. If your annual expenses are $40,000 and taxes unexpectedly eat $5,000-$8,000 of that, your plan may no longer work as expected.
It's very important to create your Lean FIRE plan with taxes in mind from the very beginning.
Some common approaches include:
- Blending withdrawals across account types to control taxable income
- Using Roth conversion ladders during low-income years
- Harvesting capital gains strategically
- Keeping expenses low enough to remain in favorable tax brackets
The good news is that many Lean FIRE retirees fall into relatively low tax brackets, which can make their effective tax rate surprisingly small.
Still, it's smart to treat taxes as a real line item in your retirement math rather than assuming your withdrawal rate is 100% spendable.
Who is Lean FIRE For?
Lean FIRE isn't for everybody. It requires aggressive savings and assumes a very frugal lifestyle which many might not be able or willing to accommodate.
Lean FIRE is a good fit for you if:
- You are highly disciplined with saving and investing
- You are minimalistic in your consumption choices
- You don't feel the need to "keep up with the joneses"
- You want to achieve financial independence quickly
Lean FIRE might not be a good fit if:
- You enjoy the finer things in life (expensive cars, vacations, houses, etc)
- You aren't willing or able to save aggressively
- You enjoy your work or don't feel the need to be financially independent
- You are ok reaching retirement at a traditional age (or at least not as quickly as Lean FIRE paths)
Alternative FIRE Paths
As I always say:
Personal finance is personal
And luckily, there are plenty of non-traditional FIRE paths which might be a better fit for you than Lean FIRE.
- Coast FIRE: A FIRE path where you front-load your savings so you can spend more of your income, sooner.
- Barista FIRE: Save aggressively with the goal of leaving your day job early to pursue a more relaxing career path.
- Fat FIRE: Essentially the opposite of lean FIRE - aiming for a retirement where you can spare no expense and live as you'd like.
- Traditional FIRE: Save aggressively to support a reasonable lifestyle without working.
All of these options have their own set of trade-offs. It's important to fully evaluate your options to pick the path that might be best for you! Luckily we have resources to help you come to the best decision for yourself, so feel free to explore our tools to learn more.
Lean FIRE FAQ
Is Lean FIRE safe?
Lean FIRE can be safe if planned carefully, but it leaves less margin for error than traditional FIRE. Conservative withdrawal rates and tax planning become especially important.
How much do you need for Lean FIRE?
It depends on your expenses. A common rule is 25-30x annual spending. For a $40,000 a year retirement this comes out to about $1,000,000 dollars.
Can you work after Lean FIRE?
Yes! many people choose part-time or passion work after reaching Lean FIRE. Just because you are financially independent, doesn't mean you can't work. Many people get fulfillment from their jobs, but it's best when you do it on your own terms.