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- When I heard about the FIRE movement, I was intrigued. But that seemed too restrictive to me.
- My husband and I want to enjoy our life now and have free time later.
- When I heard about Barista FIRE, where you work part-time in “retirement”, it was perfect for us.
Several years ago, I came across the concept of FIRE, an acronym for financial independence/early retirement. I was immediately intrigued. I thought, Are there people who have decided to give up the “work until normal retirement age” lifestyle? Sign me up!
My dad retired early at age 54 after being diagnosed with a terminal illness, and that was a wake-up call for me: I realized I wanted to live well now while saving for life. future, and the FIRE movement seemed to offer a way forward. to do this.
The traditional FIRE lifestyle was a bit too frugal for me though. It requires saving aggressively in order to retire before the standard age of 67, giving up many of life’s pleasures to set aside all your extra cash. But there is an alternative called Barista FIRE which seemed perfect for my husband and I.
Why Barista FIRE appealed to us so much
Barista FIRE is a branch of the FIRE movement in which you still save aggressively for retirement, but instead of quitting your job completely and living off your investments, you save until you reach the point where you only need to work part-time (or earn money). some passive income). It’s called “Barista FIRE” because some people choose to work part-time as a barista in a coffee shop when retiring early.
While my husband and I love the idea of FIRE, we know we’re not willing to sacrifice as much now as some of those looking for traditional FIRE. We both love the idea of owning a business or working part-time doing things we love and earning income to supplement our retirement plans. With Barista FIRE, we can achieve financial independence faster while feeling engaged and active in retirement.
One of the main reasons people work until normal retirement age is to access health insurance; the cost of private insurance can really eat into your retirement savings. If my husband and I reach Barista FIRE and work part-time during our “retirement”, we may still have access to health insurance through one of our jobs.
The equation that allows us to “retire” earlier
One way to calculate your FIRE number is to multiply your estimated annual retirement expenses by 25. For example, $50,000 x 25 = $1,250,000. This amount of $1.25 million corresponds to what you must have saved to retire.
With Barista FIRE, you still calculate your traditional FIRE number, but then factor in how much you expect to earn from a part-time job, business, or passive income stream (like real estate investments). Then you subtract the amount you think you will earn from your spend number to get your Barista FIRE number. This is the amount you need to save before you can quit your full-time job. This approach can allow you to “retire” years, or even decades, sooner.
Using the same numbers as above and assuming $25,000 per year is from part-time work or passive income, our Barista FIRE number changes dramatically. $1,250,000 – $625,000 = $625,000.
Once we reach a certain amount of investment (hopefully in our early 50s), my husband and I will discuss taking a break from standard work. Our kids will be grown and probably out of the house by this point, and we hope to be able to travel more and work remotely or run part-time businesses to help pay for some of our expenses. The rest of our expenses would then be paid out of our retirement accounts.
In order to fund our lifestyle after entering our version of early retirement, we will first live off the money we have in our savings accounts as well as our brokerage accounts. We can then withdraw money from our Roth IRAs, but only the contributions, so we don’t have to pay any early withdrawal fees. From there, we have a plan for how to access our retirement savings early (if needed). We may incur early withdrawal penalties in the future, but hopefully we’ve saved enough – or earned enough – to avoid that.
In order to achieve Barista FIRE, we must continue to fund our retirement accounts as aggressively as we can afford. This includes working to maximize my husband’s 401(k) and our two Roth IRAs each year. We also need to keep working to stay within our budget so that we don’t accumulate credit card debt from overspending, or get to the point where we have to slow down or stop investing in order to cover our current expenses. It’s a trip, but it makes sense to us.
This article was originally published in February 2021.