Financial independence, retire early movement: what is it and how does it work?

What is the FIRE movement?

FIRE stands for Financial Independence, Retire Early. The term was first coined in Vicki Robin’s and Joe Dominguez’s popular work, ‘Your Money or Your Life.’

It’s a financial strategy (and arguably, also a lifestyle choice), aimed at gaining enough wealth and passive income to leave traditional employment much earlier than the standard retirement age. For context, the UK state pension eligibility age currently stands at 66, though this is rising as the country’s demography shifts upwards.

The movement relies on extreme saving, often more than 50% of your income, and using the cash saved to invest in assets that generate long-term returns. This naturally means living very frugally, until the point at which you achieve financial independence, where your investments generate enough passive income to cover your living expenses.

FIRE investors often have different priorities. Some emphasise the benefits of retiring early, while others care more about the freedom to reduce working hours or pursue more meaningful work that pays less. 

How to invest to try to FIRE with us

​For those looking attempt to FIRE with us, here's a straightforward approach:

1. Learn more about FIRE
2. Download the IG Invest app or open a share dealing account online
3. Search for your desired stock on our app or web platform
4. Choose how many shares you’d like to buy
5. Place your deal and monitor your investment

Investors look to grow their capital through share price returns and dividends - if paid.

But the value of investments can fall as well as rise, past performance is no indicator of future returns, and you could get back less than your original investment.

To pursue the FIRE strategy, many proponents contend that you need to build up to an investment account worth 25 times your annual expenses — meaning you can withdraw 4% a year to live on. For example, if you need £40,000 per annum to sustain your lifestyle, you will need £1 million (£40,000 x 25) invested to FIRE.

The 4% rule is based on historical market returns and is designed to ensure that your investment pot lasts for several decades, though as ever, there are no guarantees.

FIRE proponents tend to prefer low cost index-linked ETFs and reliable dividend stocks, held within tax-advantaged accounts including ISAs and SIPPs — and investing regularly by pound-cost-averaging into the market at regular intervals.

Understanding FIRE

At its core, the FIRE approach involves frugality, aggressive saving, debt elimination and a heavy emphasis on investing in low-cost, relatively low risk investments — where the goal is to reach a point where passive investment income can cover annual expenses indefinitely — freeing you from reliance on employment income.

Of course, FIRE isn’t one size fits all. There are various branches of the movement, tailored to different goals. Lean FIRE is for those who want to live a minimalist lifestyle and retire with a small budget, often in the range of £20,000 to £30,000 per year. Fat FIRE caters to individuals who aim for a higher standard of living and thus need to save significantly more.

Barista FIRE refers to reaching a point where one can semi-retire — perhaps working part-time or doing passion-driven projects while the investment pot covers the bulk of expenses. Coast FIRE is for those who save heavily early on, then stop contributing and let their investments grow until traditional retirement age.

Possibly the most important thing to consider is that the FIRE lifestyle is not for everyone. It appeals most to people who are willing to make considerable sacrifices in their day-to-day lives in exchange for future financial freedom. That often means giving up luxuries including expensive housing or holidays in favour of saving aggressively and investing consistently.

For some, this idea of strict frugality is unappealing, but for others, the reward of more control over your time and the opportunity to pursue creative or meaningful work without the pressure of earning a full salary is worth the trade-off.

FIRE started to become more popular in the wake of the pandemic — many people were forced to save more due to restrictions on spending, while the furlough scheme gave them a glimpse of life without full-time work. At the same time, exceptionally strong market gains and rising house prices helped increase household wealth.

But despite growing interest, the reality of FIRE remains challenging. According to the ONS, the average UK salary for full time employees is £37,430 per year before tax, leaving little room for high savings after essentials. Many individuals also have student loan repayments to dela with alongside other financial commitments, further limiting their saving capacity.

Those with higher earnings have more options, especially when contributing to tax-efficient SIPPs, but they still face restrictions on accessing these funds before age 55 (rising to 57 from 2028). This makes ultra-early retirement — in one’s 40s or even 30s — very difficult unless significant sacrifices are made early on.

There are also psychological and practical concerns about the sustainability of FIRE. Retiring at 40 means needing to fund potentially 40 or more years of expenses. Market downturns, inflation, unexpected costs and lifestyle changes can derail even the best-laid plans. The 4% rule is increasingly debated, with some financial experts suggesting a more conservative 3% withdrawal rate in light of increasingly volatile market dynamics and longer life expectancies.

That said, FIRE isn’t about abandoning work entirely for everyone. Many who achieve financial independence continue working in some form, but they do so on their own terms. This could mean starting a business, taking on freelance projects, volunteering or simply exploring hobbies and passions.

What sets FIRE followers apart is the freedom of choice, where work becomes optional, not mandatory. Ultimately, choosing whether to join the FIRE movement is about deciding what matters most to you as an individual, and what trade-offs you’re willing to make to achieve financial freedom. 

Best FIRE ETFs to watch

These ETFs have been selected for their historically stable returns and diversifications benefits, though there is some subjectivity to their inclusion. Arguably though, UK-based investors will typically prefer funds that are UCITS-compliant, GBP-denominated and low cost.

Vanguard FTSE All-World UCITS ETF

The Vanguard FTSE All-World UCITS ETF provides significant diversification through global equity exposure, investing across thousands of companies in both developed and emerging markets.

It’s popular with FIRE investors seeking long-term capital growth but also distributes dividends and has a yield around 1.8%, with a reasonable expense ratio of 0.22%. As a ‘set it and forget it’ global tracker, it's a strong core holding for passive investing.

Vanguard FTSE All-World High Dividend Yield UCITS ETF

The Vanguard FTSE All-World High Dividend Yield UCITS ETF (Acc) focuses on global stocks with above-average dividend yields, offering a diversified income stream from both developed and emerging markets.

It’s attractive to many FIRE followers looking for higher passive income, with a yield of around 4%. While the expense ratio is slightly higher at 0.29%, proponents justify the increased expense with the stable payouts.

iShares S&P 500 UCITS ETF

The iShares S&P 500 UCITS ETF provides exposure to the S&P 500 — the largest 500 companies listed in the United States by market capitalisation. It sports a very low at expense ratio of just 0.07%, and also pays a dividend, making it an efficient core holding for long-term FIRE portfolios.

iShares Core FTSE 100 UCITS ETF

The iShares Core FTSE 100 UCITS ETF tracks the FTSE 100, which includes the 100 largest companies listed on the London Stock Exchange. With a yield of around 3.8% and the same low 0.07% expense ratio, it offers investors exposure to the FTSE’s high-dividend blue-chip stocks. It’s a popular choice for those who value regular income and domestic market exposure alongside some inflation resilience.

iShares Global Clean Energy ETF

The iShares Global Clean Energy ETF offers exposure to companies involved in renewable energy production and clean technology, appealing to FIRE investors who prioritise ESG factors alongside growth potential.

While more volatile than broad market ETFs, it taps into the energy transition trend, which could offer high long-term returns. Its expense ratio is higher at 0.65%, but for ethical investors, it may be a worthwhile trade-off.

Pros and cons of FIRE

As with all investing strategies, there are advantages and drawbacks to FIRE:

Pros of FIRE:

• Financial freedom — you get to choose how you spend your time once your target has been reached
• Flexibility — you could travel extensively, pursue hobbies or start businesses.
• Peace of mind — much reduced financial stress once financial independence has been achieved

Cons of FIRE:

• Sacrifice — aggressive saving can mean skipping holidays and life upgrades, which may not be worth the trade-off for everyone
• Market risk — a downturn right after you retire could jeopardise your plan
• Healthcare costs — as you age, care costs can spiral, and it can be hard to inflation-proof for your much later years
• Longevity risk — you may outlive your savings without a backup plan

Financial independence, retire early summed up

• FIRE (Financial Independence, Retire Early) is a lifestyle and investment strategy aimed at achieving enough wealth to retire far earlier than usual
• It relies on extreme saving, frugal living, and investing in low-cost, income-generating assets to build a large enough nest egg
• Many followers aim for an investment pot worth 25 times their annual expenses, allowing for a 4% withdrawal rate to fund retirement
• There are different FIRE paths — Lean, Fat, Barista and Coast — but all emphasise personal freedom, long-term planning and financial discipline