Thu. Dec 1st, 2022

Several years ago I stumbled upon the concept of FIRE, an acronym for financial independence/retire early. Right away I was intrigued. I thought, There are people who have decided to forgo the “work until you’re of standard retirement age” lifestyle? Sign me up!

My dad retired early at the age of 54 after a terminal illness diagnosis, and it was a wake-up call for me: I realized I wanted to live well now but still save for the future, and the FIRE movement seemed to offer a way to do that.

The traditional FIRE lifestyle was a little 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 tuck away all your extra cash. But there’s an alternative called Barista FIRE that seemed perfect for my husband and me. 

Why Barista FIRE was so appealing to us

Barista FIRE is a branch of the FIRE movement where you still save aggressively towards retirement, but instead of quitting work full stop and living off of your investments, you save until you reach the point where you only need to work part-time (or earn some passive income). It’s called “Barista FIRE” because some people choose to work part-time as a coffee shop barista in early retirement.

Although my husband and I love the idea of FIRE, we know that we aren’t willing to sacrifice as much now as some of those who are chasing traditional FIRE. We both like the idea of owning businesses or working part-time doing things we love and bringing in income to supplement our retirement accounts. With Barista FIRE, we can reach financial independence faster and still feel engaged and active during retirement. 

One of the main reasons people work until the standard retirement age is for access to health insurance; the cost of private insurance can really eat into your retirement savings. If my husband and I achieve Barista FIRE and work part-time during our “retirement,” it’s possible we will still have access to health insurance through one of our jobs. 

The equation that allows us to ‘retire’ early

One way to calculate your FIRE number is to multiply your estimated yearly expenses in retirement by 25. So for example, $50,000 x 25 = $1,250,000. That $1.25 million number is what you need to have saved in order to retire.

With Barista FIRE, you still calculate your traditional FIRE number, but then you factor in how much you think you will earn from a part-time job, business, or passive income source (such as real estate). Then, you subtract the amount you think you will earn from your expenses number to get your Barista FIRE number. That’s how much you need to save before you can leave full-time work. This approach can allow you to “retire” years, or even decades, earlier.

Using the same numbers as above and assuming $25,000 a year earned from part-time work or passive income, our Barista FIRE number changes dramatically. $1,250,000 – $625,000 = $625,000.

Once we get to a certain investment amount (hopefully in our early 50s) my husband and I will discuss taking a break from standard work. Our children will be grown and likely out of the house at this point, and we hope to be able to do more traveling and work remotely or run businesses part-time in order to pay for some of our expenses. The rest of our expenses would then be paid for out of our retirement accounts. 

In order to pay for our lifestyle after entering our version of early retirement, we will first live off of any money we have in cash accounts as well as our brokerage accounts. We can then take money from our Roth IRAs, but only the contributions, so we don’t have to pay an early-withdrawal fee. From there, we have a plan for how to access our retirement savings early (if necessary). We may incur some early-withdrawal penalties down the line, but we hope to have enough saved — or be earning enough — to avoid that.

In order to reach Barista FIRE, we need to continue to fund our retirement accounts as aggressively as we can afford to. This includes working to max out my husband’s 401(k) and both of our Roth IRAs each year. We also need to continue to work to stay within our budget so that we aren’t racking up credit card debt due to overspending, or get to the point where we need to slow down or stop investing in order to cover our current expenses. It’s a journey, but it’s one that makes sense for us.

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By senior