FIRE and Coast FIRE glossary

Short definitions in our own words. They are general information, not financial advice.

FIRE

Financial independence, retire early: building investments large enough that paid work becomes optional, often well before a traditional retirement age.

FIRE number

The portfolio needed to fund yearly spending not covered by other income, at a chosen withdrawal rate: spending ÷ withdrawal rate. At 4% that is 25× spending. Calculator.

Coast FIRE

Having enough invested that, with no new contributions, it could grow to your FIRE number by a later retirement age. Calculator.

Barista FIRE

Leaving full-time work when investments cover the part of spending that part-time income does not. Calculator.

Lean FIRE and Fat FIRE

Informal labels for financial independence on a frugal or a generous budget.

Withdrawal rate

The first-year withdrawal as a percentage of the portfolio, usually raised with inflation afterwards. The “4% rule” is the best-known example.

Safe withdrawal rate

A starting withdrawal rate that historical or modelled tests suggest would last a given period with high probability. Morningstar’s latest base-case estimate is 3.9% for 30 years.

Real return

Investment growth after inflation: (1 + nominal) ÷ (1 + inflation) − 1. Use it with spending in today’s dollars.

Savings rate

The share of income saved. Define income and savings consistently, including pre-tax contributions and any employer match. Calculator.

Sequence-of-returns risk

The risk that poor returns early in retirement, while withdrawals continue, permanently reduce how long a portfolio lasts.

Rule of 55

Informal name for the IRS exception to the 10% additional tax for distributions from a qualified plan after separating from service in or after the year you reach 55.

72(t) / SEPP

Substantially equal periodic payments: an IRS exception for a series of payments that must continue until the later of five years or age 59½.

Roth conversion ladder

Converting traditional IRA money to a Roth IRA each year and withdrawing each conversion after its five-year period.