LeanFI vs CoastFI vs FatFI: Which FIRE Method is Right for You?

Early retirement from the workforce is possible, as proponents of the Financial Independence Retire Early (FIRE) movement have discovered. However, as the FIRE financial plan has grown in popularity, practitioners seeking financial freedom have come to realize that there’s no one-size-fits-all approach to pursuing the financial-independence-retire-early (FIRE) lifestyle. 

Although traditional calculations have set standard FIRE (also known as VanillaFIRE) targets at 25 times your anticipated spend in retirement, sometimes referred to as the 25x rule — a sum that should facilitate a safe 4% withdrawal rate from your retirement portfolio — there may be another modified FIRE approach that’s better suited to your needs.

Let’s meet some of the most common alternatives gaining traction within the FIRE movement:

LeanFI

As its name implies, those aiming for LeanFI (or LeanFIRE) are planning for a lean retirement — as in, one in which they expect to be able to keep their expenses quite low. The generally accepted definition of LeanFI is estimated annual expenses less than $30,000-$40,000 per year, enabling LeanFI practitioners to retire with between $750,000-$1,000,000 in their accounts (according to the 25x rule). 

The public spending records shared by Peter Adeney (known to the FIRE community as Mr. Money Mustache) are an example of what LeanFI living might look like. In his 2020 update, Adeney revealed his annual 2019 spending to be just $21,470.

FatFI

If spending your retirement years on a meager budget doesn’t sound appealing, the FatFI approach may be a better fit. FatFI practitioners plan to sustain higher levels of spending in retirement. As such, they typically aim for a target portfolio balance of at least $2,500,000. At a safe withdrawal rate of 4%, that’s roughly $100,000 per year of potential spending.

As Leif, the author of the popular Physician on FIRE blog, explains in an article on the site, “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.”

CoastFI

CoastFI, or CoastFIRE, is a little different than LeanFI or FatFI in that it’s less about hitting a target portfolio balance and then walking away from the working world entirely. Instead, CoastFI followers work to build sufficient retirement savings so that portfolio growth over time makes it extremely likely they’ll hit their target balance by the time they reach their retirement years.

It’s easiest to see how this works in practice with an example. Imagine that Chris is 30 years old, earns roughly $100,000 per year and spends about $64,000 per year. Chris plans to retire at age 67 and expects to be able to reduce expenses down to $30,000 per year in retirement. 

Even if Chris starts with $0 in a portfolio, the difference between income and expenses leaves him with $36,000 to invest per year. Assuming a 7% average portfolio growth rate, 3% inflation rate, and 4% safe withdrawal rate, Chris’s CoastFI number is $175,723 — which can be reached in about six years at his current savings rate.

Once they've reached their CoastFI number, Chris doesn’t need to put any additional money into a retirement portfolio — compounding interest and growth over time will attain the $750,000 target (25x their $30,000-per-year annual expenses) by a retirement age of 67. 

Here’s how this growth looks in practice, using WalletBurst’s CoastFi Calculator:

Once his CoastFi number has been reached, Chris still needs to cover current living expenses without touching the retirement nest egg. But now, because he only need to earn $64,000 per year — or less, if he reduces expenses further — Chris may be able to cut back on work or take a less demanding position that frees up more pre-retirement time and energy.

A related approach, BaristaFI or BaristaFIRE, involves saving enough or generating enough passive income to be able to cover living expenses while working a part-time, low-stress position. If Chris reduced daily expenses further — for example, by paying off debt or moving to a lower cost of living area — not only could that CoastFI number be reached sooner, but they may also be able to live comfortably on a part-time income without jeopardizing their future retirement.

Which FIRE Approach is Right for You?

If you’re on board with the Financial Independence Retire Early method of retirement and wondering how to become financially independent, your next step will be to choose the best model for your needs. Considering the following variables can help:

Age and Current Net Worth

If your goal is to leave the workforce as quickly as possible — and you’re willing to live a barebones life to do it — aiming for LeanFI makes the most sense. Traditional FIRE and FatFI both require building larger portfolios, and no matter how much you earn, it’ll take you longer to get there than if you stop at your LeanFI number.

CoastFI calculations, on the other hand, can look very different at different ages, since the model works best when a portfolio is allowed to grow and take advantage of compounding interest over time. 

As an example, imagine that Chris begins saving for retirement from a $0 portfolio balance at age 55, instead of 30. Rather than invest for six years at roughly $36,000 per year, Chris could invest $4,200 per month for 12 years and still only hit their CoastFI number at age 67 — when he's already planning to retire. 

Unless he can find a way to contribute substantially more, he’ll still have only reached a LeanFI sum at retirement ($750,000, or 25X his target annual spending) without the benefit of having reduced his responsibilities throughout his career.  

Target Spending in Retirement

Comfort in retirement is certainly a consideration, which is why many would-be FIRE practitioners reject the LeanFI FIRE investment strategy out-of-hand.

That said, it’s important to note that what $30,000 per year in average expenses means on a practical level can look quite different from person to person. For instance:

• Do you anticipate having paid off your home by retirement? Extremely early retirement in your 30s or 40s may mean that you’re only a few years into paying down a mortgage. Unless you can expedite your house’s debt payoff, your expenses may be higher on average than someone who retires after 15 to 30 years of mortgage payments.

• Is geoarbitrage a possibility? You may not get very far on $30,000 per year in major U.S. cities, but could you relocate to an area or country with a lower cost of living? Thailand, Portugal and many Eastern European countries where that annual sum goes further are

  for those who have crossed the FIRE finish line.

• How is your health? Do major medical problems run in your family? Many disabilities are unpredictable. But if you believe it’s likely that you’ll require lengthy periods of expensive care, plan ahead for greater financial flexibility with a FIRE or FatFI approach.

Your Available Cash for Investing

It should go without saying, but if your expenses are currently higher than your income, gaining financial independence or retiring early will be tough — there’s simply no cash left over to invest. If you’re operating in the red each month, you’ve got three choices: increase your income, cut your expenses or both.

On the income side of the equation, increasing your available cash for investing might involve pursuing additional education, asking for a raise, starting a side hustle, or transferring into a higher paying role or field. As long as you don’t fall victim to lifestyle inflation, this extra income can speed up your FIRE journey.

And when it comes to expenses, you’ve got plenty of options available as well. Discretionary spending can almost always be reduced, but take a look at your debt burden as well. If you’re carrying multiple lines of high-interest debt that you don’t pay off in full each month, a debt-management app like Tally might be able to reduce the interest you pay — freeing up more money to put towards your FIRE goals.

Want to know how much you can save on your current credit balances? Get started with Tally’s free Debt Calculator today.

Investing involves considerable risk. For questions, investors should consult with a financial professional. 

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.9% - 25.9% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.