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What is FIRE Method and How Does it Work?

What is FIRE Method and How Does it Work?
February 28, 2024


Contrary to popular opinion, you don’t have to work till you’re 60 years old. In fact, many individuals these days are working towards retiring early. The FIRE method is one of the many financial strategies that let you retire far earlier than most individuals. Wondering what the FIRE method is?

Here’s everything you need to know about this unique financial rule.

What is FIRE?

FIRE is an acronym for Financial Independence, Retire Early. It is a global lifestyle movement where individuals devote themselves towards saving and investing aggressively to retire earlier than the average retirement age.

An average individual in India opts for retirement once they attain 60 to 65 years of age. Moreover, take any traditional budget or pension policy, for instance. They are also designed to enable you to retire at that age.  

How Does FIRE Work?

Followers of the FIRE movement aim to save around 50% to 70% of their total annual income every year until they accumulate a corpus equivalent to 30 times their yearly expenses. Once their corpus has accumulated enough funds, they retire from all forms of employment. Here’s an example to help you better understand how FIRE works.

Assume that your annual income is Rs. 6 lakhs, and you wish to save at least 70% of your total annual income each year. This comes up to Rs. 4.2 lakhs per year (Rs. 6 lakhs x 70%).

Now, let’s say that your yearly expenses come up to about Rs. 2 lakhs. You need to accumulate at least Rs. 60 lakhs to retire early. With your current savings of Rs. 4.2 lakhs per year, it would take you roughly 14.5 years (Rs. 60 lakhs ÷ 4.2 lakhs) to save up Rs. 60 lakhs.

However, you can reduce the number of years taken to reach Rs. 60 lakhs by investing in financial instruments that offer high returns. Additionally, you may also choose to buy a pension plan for added financial security post your retirement.

How to Effectively Implement the FIRE Method?

Now that you’re aware of the FIRE method and how it works, let’s take a look at how you can effectively implement this strategy.

Draft a Budget

The first step of the Financial Independence, Retire Early financial strategy is to draw up a budget. This simple exercise will enable you to accurately determine and categorize your income sources and expenses. Having a solid budget plan on hand can help you plan and manage your finances better.

Reduce Your Expenses

Saving and investing your income is not the only way to build your corpus for retirement. Reducing your monthly expenses is also a great way to reach your goal faster. As a matter of fact, one of the tenets of the FIRE financial movement is minimalistic living through aggressive reduction of expenses.

Draw a Detailed Financial Plan  

Once you’ve drafted a budget, the next step is to create a detailed financial plan. This involves determining the amount you need to save each year, the corpus you require to retire early and the list of investments you need to make to reach your goal. When selecting investment options, remember to consider your risk profile. Your investments should always match your risk profile.

For instance, if you’re risk aggressive, you may consider investing a major portion of your annual income in equity and other market-related investments. On the other hand, if you’re conservative, you may choose to invest in a bank fixed deposit, pension policy or government security, which are far safer and less risky investment options.  

Be Disciplined

To achieve your goal of early retirement, it is crucial to be disciplined in all aspects, be it investing or reducing your expenses. One of the best ways to ensure financial discipline is to start a Systematic Investment Plan (SIP). This way, you can ensure that you consistently invest until you reach your goal.

Monitor Your Progress

Keeping track of your progress at regular intervals is important to make sure that you’re on the right track to achieving your dream of retiring early. That’s not all. Monitoring your progress can help you determine whether you need any adjustments to your investment and savings strategies.


Although the FIRE method is a good way to bring about post-retirement financial freedom, it requires immense self-control and discipline. Despite the advantages offered by this unique financial strategy, it is essential to understand that the FIRE method may not be ideal for everyone.

For instance, if living frugally is something that may not suit your lifestyle, adopting the FIRE approach may not be ideal. On the other hand, if you’re capable of saving and investing aggressively, you may consider adopting this strategy.

If you still feel that adopting the FIRE approach may not be enough to ensure a comfortable life after retirement, you may buy a pension plan to supplement the corpus you accumulate. The monthly pension you receive should make it easier to sustain your lifestyle.

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ARN - ED/07/23/3171

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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