Is fatFIRE a State of Mind?
Is fatFIRE a State of Mind?
Today for The What’s Up Next Podcast we recorded a whole episode on fatFIRE. Among the questions we pondered is whether there is an actual definition. Physician on FIRE suggested that it is spending comfortably above what the average retiree in the same situation spends. This definition, of course, leads to several caveats. It all depends on where you live, what you spend on, and what brings you joy. The slipperiness of defining this concept makes me wonder if fatFIRE is just a state of mind.
Maybe while a catchy phrase to use, in reality we are looking for a term that specifies comfortable enough not to worry.
Not Exactly Luxury
I admit that before this recording, I thought fatFIRE had to do with luxury. I had a vision of MTV Cribs or Robin Leach toasting us with champagne. Yet, our guests considered themselves in this category but were anything but frivolous. They budget. Maintain a frugal outlook on life. And rarely spend unnecessarily.
All that being said, they would all define their lifestyles as luxurious. They look at time and control over their activities as luxury, and not the oft honored conception of big houses and fancy cars.
Their lives are not wanting or lacking. They feel an overabundance in what they have, and enough money to cover most of their future wants.
Frugality/Value as Lifestyle
Having some outrageous multiple of yearly spending saved up in the bank doesn’t mean becoming a different person. Those who espoused frugality, minimalism, and valuism don’t automatically ditch those habits once they reach fatFIRE. They continue to cling to them for the very reason they started in the first place.
They enjoy the lifestyle. Getting value becomes ingrained in one’s psyche. It is hard to let it go. To enjoy the finer things in life, one has to have a deep understanding and appreciation for the less fine. Luxury is a lot more enjoyable when it is the exception and not the norm.
Spending more money would not add to contentment. it would not be the extra icing on the cake. The cake is already covered adequately. Anything more would be less decadent and more nauseating.
Conservatism
Maybe we are just a fiscally conservative group of people. We like to hedge our bets. Why exist off a 4% safe withdrawal rate when 3% is more likely to withstand more turbulent storms? Is there a difference between fatFIRE and an adherent to an SWR of 3%?
Some would say that the fatFIRE proponent actually spends more while the other saves at a higher rate. But I would argue that this is a false dichotomy.
Most people I know who reach the highest levels of FI have done so by spending less and being careful. They are conservative people. They don’t go hog wild once they start calling themselves fatFIRE.
Potentiality
What makes most sense to me is that fatFIRE is having the potential to spend more money than necessary to be fulfilled. It is a state of mind more than an actual spending plan. It is having extra in the bank. A so called bonus insurance policy in case things go south.
I have yet to see someone in the financial independence community truly living it up. Because if they were, they probably would eventually stop being financially independent. The hedonic treadmill has consequences.
Final Thoughts
I think fatFIRE is a state of mind. It is the potential to spend much more than needed for fulfillment. In most cases, it is a result of our conservative fiscal outlook. It generally doesn’t make us more happy or cause us to withdraw from our frugal lifestyles.
But it does help us sleep better at night.
And this might be the best advantage of all.
Don’t forget to join us for a live discussion of Episode 26 of The What’s Up Next Podcast.
How funny! I wrote a post today about this very thing that is scheduled to be released in … an hour and 20 minutes from now.
My FAT-FIRE is many people’s ordinary or lean fire. But I’ll be living like a King!
You can’t put a dollar value on it – people’s lifestyles vary too much.
My FAT-FIRE aim is generated very much from fear of being in my grandfather’s shoes – I want to give my boys the gift of their mother being financially independent. No handouts needed for Frogdancer Jones!
The levels of FIRE are so personal. Luxury is hard to define.
I think it will be forever ill-defined. The first time I saw it used it referred to having the resources to retire early without having to live frugally. Which to that writer, and I can’t remember who it was, was $100,000 per year of spending. Since most FIRE people claim to be shooting for annual budgets of $35-60K that kind of made sense. But Financial Samurai makes an iron clad case that you can’t touch survival with young kids in San Fran, and by extension Vancouver or New York City for much less than $300k, so what works in Montana or North Carolina isn’t going to fly if you need private schools for kids and housing is astronomical. In my case I live in a very low cost area but still live a six figure lifestyle with my kids off the payroll and I will never even approach a 2% withdrawal rate, which feels pretty fat to me.
Can you imagine living on $300K a year?
i was thinking of a 5% withdrawal rate without spending it all. i might start it next year while i’m still working and just keep the excess in cash. i think 60k would be plenty fat for us where we live with no kids. i don’t think we ever exceeded that when we were both working. the WAY we spend our dough might have people call it fat fire, though. we have a huge wine budget, have bicycles we never ride, and sometimes lunch costs a couple of hundred bucks. so people might judge that based on their values about which we don’t care. hell, we might never even venture to the frugal fire mecca: the national park. to each his own i guess.
Definitely to each his own.
My understanding of the difference between regular fire and fat fire is how many multiples of your annual spending you have saved up. The commonly assumed 4% safe withdrawal rate is used with 25 times your annual spending. It says once you have achieved this savings goal, you are financially independent and can safely retire. Fat fire is 30 times annual spending. This is for people who aren’t quite ready to retire when they reach 25 times annual expenses saved up, or want more safety. I understand it as a matter of degree of safety. Guess this isn’t as commonly known as I thought it was.
I always wonder, a degree of safety or a degree of freedom to spend more.
That depends on what your goals are. At the point of Fat Fire, you have more choices. You can choose to increase spending, or reduce the percentage you withdraw. This is how I hold fire, fat fire, and higher fire’s. Have you heard of obese fire? If I remember correctly that is 50 times annual spending.
Interesting how different people hold FI, their progress and goals. Thank you for the discussion.
I don’t think FAT fire is a state of mind. I think it’s a very real state of leverage on the future. Retirement spending and portfolio longevity has little to do with the accumulation mindset and should not be viewed through that lens IMHO. That approach is like looking backward through a telescope. That view instead of the big picture is a postage stamp view of the future.
4 things determine FAT FIRE, budget, portfolio size, length of retirement and leverage. Budget is how much you spend. 300K in SF isn’t any fatter than 300K in Miami or NYC, it just costs a lot to live in those places. The same accumulation math applies. 3×33 means for a 33 year retirement you need 10M to retire. If you want to extend that period to say 40 years you need leverage on the portfolio. If you want to pay for inflation you need leverage on the portfolio. If you want to cover the risk associated with living like surviving a cancer diagnosis or getting Alzheimer’s you need leverage on the portfolio. If you have 5M and you need 10M the only way to get there is leverage. All of that leverage is accumulative and the only way to figure it out is to start at death and work backward to rationalize the cost. YOU DON’T START THE ANALYSIS IN THE MIDDLE like most fire types like to do. Incomplete understanding of the multiple sources of leverage and poor analysis is the reason for FIRE fear. The idea FAT fire is somehow strictly related to “expenses” misses the point. ALL FIRE depends on longevity, inflation, risk management, the economy and the presumption of economic growth, stable politics, the ability to economically handle catastrophe, and how far in the hole you start. The good news all of those can be addressed and understood and the probabilities planned for.
So how do you define fatFIRE?
Zero leverage on the future or guaranteed growth (negative leverage) is the fattest for a given lifestyle choice. It’s not about how much crap you can buy ala Robin Leach. The ONLY THING money buys you is peace of mind. If you’re too leveraged you will not own peace of mind. For 300K/yr lifestyle today, a portfolio will need to throw off 800K/yr in 40 yrs with only 2.5% stable inflation. That’s the leverage necessary just to cover inflation. That’s paying a lot for ready access to sourdough bread.
Interesting. I like being conservative too. That’s how we got to this point.
Spending 4% just seems too risky with a potential 50+ years in retirement.
3% sounds way better. I think I can loosen up when I’m 55 and spend more, but we’ll see.
Most frugal habits will probably stay, but I’m pretty sure we will go out more and spend money to enjoy life.
It’s hard to change long ingrained habits.
Ya, I never liked that term and the definitions surrounding it. When we call it FatFire it makes it sound like ppl adhering to a more conservative approach have some sort of moral failing. I feel like most people take the 4% rule and riff off of it to adhere to their own personal comfort level with risk and asset classes (you know, because personal finance is personal!). The prevailing narrative with bloggers proposing strict adherence to the 4% rule or even being more aggressive feels a little hypocritical since so many have cash flow coming from blogs or other side hustles. At any rate, I wonder if anybody has adjusted their philosophy/rules since the pandemic?
My wife and I are fortunate to make high incomes so we spend a good chunk and save a lot at the same time. That to me is fatFIRE. My hobbies also aren’t super expensive – I play a ton of guitar and piano and video games. I buy a coffee 5-6 days a week. I have a daughter and cat. Other than those things, money goes into investments.