Barista FIRE is best understood as a semi-retirement stage in the F.I.R.E. Movement.  It allows someone to switch from their high income, high stress, and high savings rate lifestyle into something way more enjoyable. 

In the barista FI semi-retirement stage, part of your living expenses are paid by passive income and you just make up a small difference with active income.  It is the first stage where you actually start withdrawing money from your lifetime of savings.

The exact numbers vary from person to person, but a good rule of thumb is when your living expenses are paid mostly with your retirement savings, you are in the barista FIRE stage. 

You work because you want to work or to cover stuff like health insurance.

In order to completely understand the barista FIRE stage in the FI/RE movement, you should understand the different income types (Active vs Passive), the FIRE movement principles, and the differences between each F.I.R.E. stage, so you can track your progress towards your goals.

Barista FIRE, All you need to know

What is the F.I.R.E. Movement?

The FIRE movement (also called FI/RE, F.I.R.E, FI, or just FIRE, stands for Financial Independence – Retire Early. 

The movement was started in 1992 with Vicki Robin and Joe Dominguez book titled “Your Money or Your Life”.  The book questioned the ideas of working for 40 years to retire at 60.  This idea of the value of time was taken in a different direction by Tim Ferris’s very popular book “The 4-Hour Workweek”.

Both books offer unique ways out of the rat race.  They question the value of you time, the standard retirement age of 60, and better ways to spend your time making money to break out of the rat race.  All of this is core to the FIRE movement.

People in the FIRE movement believe in working very hard to maximize their saving rate, in an effort to buy back years of their working career.  Its all about living a minimalist lifestyle while increasing your income, and saving the most they can in an investment account to get the power of compounding interest to work in their favor.

The FIRE principles are very simple.

  1. Max Saving Rate = 50-80%
  2. Minimalist Living = Under 30K a year
  3. Invest in aggressive low cost index funds

Using this simple plan, here is what you can expect starting with nothing in savings and just earning 5% return a year.  The below standard FI (Financial Independence) calculation is defined as having 25 times your yearly expenses.

  • 30K Yearly Savings, 30K Yearly Expenses, You can be FI in 16.6 years
  • 40K Yearly Savings, 30K Yearly Expenses, You can be FI in 13.6 years
  • 50K Yearly Savings, 30K Yearly Expenses, You can be FI in 11.5 years
  • 60K Yearly Savings, 30K Yearly Expenses, You can be FI in 10 years

A good rule of thumb is if you can save 2/3 of your money, you can likely retire in 10 years and be able to withdraw 4% (equals to 1/3 of your income) for the rest of your life.  Sweet deal for sure.

What is Active vs Passive Income?

Before we tackle FIRE, we need a understand a few topics and basics of investing.

Active income is when you are actively exchanging your time for money.  Most jobs are considered active income, and its when you receive an hourly wage or a salary.  Most people have an active income career.

Passive income is when you earn money on enterprises you are not actively involved, but were at one time.  For example, royalties from creating something, rental income, and investment income are just some examples.

Your lifestyle will dramatically improve when you combine both Active and Passive income to afford your yearly expenses.  We all need something to do and earning an active income will bring value to your life.  Since passive income is not traded for time, it has the potential to be a very large percentage of your overall income when planned correctly, but will require a lot of unpaid time to setup in the beginning.

What is Barista FIRE?

Like I said before, Barista FIRE is a semi-retirement stage in the F.I.R.E. Movement.  It allows someone to leave the rat race and start living the lifestyle they have always dreamt of living.

Barista is one of 3 semi-retirement stages where passive income pays for the majority of your living expenses and active income is done for mostly for enjoyment, and maybe providing needed benefits.  It working income could provide more luxuries like travel, activities, or just a buffer in your savings account.

The name comes from the trend of people getting part time jobs somewhere for health insurance.  Starbucks is one company that offers part time employees benefits if they work more then 20 hours a week, allowing you time to enjoy some travel while earning a living and getting benefits.

Most people on the fire journey are working 80+ hours a week earning and saving, so having a part time job making coffee sounds very nice, but it could just as easily mean you start your own business, work for a non-profit, write that book idea you always wanted to do.

Since you are still growing your money over 25 times your expenses, you want to keep it growing.  If you are taking out 4%, and inflation is 2.5%, then you need it earning more then 6.5% to grow.  Most people keep it in S&P500 Index funds which still earn a good return, usually in a moderate growth portfolio.

Since you are pulling money from your retirement assets, you need to be very close, if not already at your FI number.  You will be still living a minimalist lifestyle unless you are able to earn some good money on your part time work (for you business owners out there).

How to Calculate Your Barista FIRE Goal?

To reach your barista FIRE goal, you will need to understand a little math.  No worries, I have a link below to a free calculator to do all the hard work for you, but you should understand it first.

Most people believe a good Barista FIRE goal would be between 12.5-22 times your yearly expenses.  This is too broad of a target, so I have a better one.

I believe your barista FIRE goal needs to be above 22 times your expenses.  Remember you are drawing money from your investments which means they will likely have limited growth in the 1-2% range.  If this holds true for most markets, you need to be very near your target to ride it to the full financial independence number.

If you are able to live comfortably on 50K a year, then all you need to do is multiply 50,000 x 22 and get 1.1 million.  Full financial independence is 1.25 million so you have 150K to go, and it will take a long time if you are withdrawing your 4%.  While in barista retirement, I recommend no more then a 2% withdrawal.

For an early retirement (before 50), I recommend a long term withdrawal rate of around 3% or 3.5% over the standard 4% for a safe withdraw rate; but this will depend on your age when you enter semi-retirement.

The 4% rule was designed for people retiring at 65 for about a 30 year retirement.  If you are above 50, 4% could still be a good number to use but to play it safe, 3.5 is better.  If you are below 50 when you enter barista FI, then using 3% is better.

Here are several great FIRE and retirement calculators.

Retirement Calculators

Fire Calculators

8 FIRE Stages

I created a separate article 10 Stages Of Financial Independence And How To Get There, and on that list is one stage for Coast FIRE.  Its not really a financial independence stage but I felt it was close enough.

The 8 FIRE stages below could technically be added to the 10 stages of financial independence, but I think it makes more sense to separate FIRE from normal FI.  There are unlimited ways to get to financial independence so this list will never be complete, as new ways and milestones are being created everyday.

Below are 3 main categories towards FIRE, Accumulation, Semi-Retirement, and Retirement.  In each category are several stages showing the progress towards FI.

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Accumulation Stages

Barista FIRE, All you need to know

In the accumulation stages, you live by the phase “In life, you can play now, or you can play later”.  People in the FIRE movement believe in sacrificing today to be able to enjoy tomorrow.

The accumulation phase for non FIRE people is usually 40 working years but today people are concerned that it will be even longer, maybe up to 60 working years.  The purpose of FIRE is to reduce this by at least half.  They believe it is possible to save for an early retirement in between 10-20 years.

How do they do this?

Max Saving Rate = 50-80%

FIRE people hate debt and its always the first thing that needs to be managed.  If you have any debt, every bit of income is used to pay it off.  The second key to max savings is to increase their income level.  If their skills are not good enough to get a higher paying job, they focus their effort to learn and become more valuable, so their income (and saving rate) will increase.  They also focus on ways to increase their income with tips and tricks, like credit card points and airline mileage.

Minimalist Living = Under 30K a year

The second core principle is in never spending more then they make.  Minimalist living makes this possible by avoiding consumerism and being mindful with your money.  Credit cards are used only for the rewards they bring and for easy budget management.  They are budget hawks and love to find new ways to save money.

Invest in aggressive low cost index funds

The last core principle is to invest their money to take advantage of compounding interest.  This is the key to early retirement and the 4% rule.

1. Fast Fire

  • Income: Multiple Fulltime Active/Passive Income Streams
    • Active income (high Income/high stress job), side business
    • Passive Income, Side Hustles
  • Milestones:  None
  • Saving / Withdrawal Rate:  Savings over 50%
  • Investment Plan:  Aggressive growth
  • Lifestyle: Minimalist lifestyle to increase savings rate
  • Notes:
    • Best to start young before family and kids
    • Work career job from home, start handyman business on side, become realtor start real estate investments

2. Slow Fire

  • Income: Multiple Fulltime Active/Passive Income Streams
    • Active income (high Income/stress job)
    • Passive Income, Side Hustles
  • Milestones:  None
  • Saving / Withdrawal Rate:  Savings over 25%
  • Investment Plan:  Aggressive growth
  • Lifestyle: Normal lifestyle, but Intentional with spending
  • Notes:
    • Tim Ferris, NR / Mini Retirements
    • YOLO Lifestyle, enjoy life but also be responsible
    • Anti-Consumerism and Environmental Consciousness
    • Advice:  Tim Ferris, NR / Mini Retirements
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Semi-Retirement Stages

Barista FIRE, All you need to know

If you have been following FIRE since your early 20’s and were very aggressive with your income and savings rate, you could be looking to start early retirement by your mid 30’s.  This is a very long time to wait for social security.

Social Security works on a credit system and you can earn a max of 4 credits per year, and you need 40 credits to qualify for benefits (10 years of work).  To earn max benefits, you need 35 years of work or 140 credits.

More importantly, for Americans, you need to work for 10 years to qualify for Medicare part A health insurance, which will be available to you when you turn 65.

This means you will have 25 more years to go to get a social security check and 30 years to go before you can sign up for medical insurance.

The best way around these issues is to go into semi retirement where you are working part time, earning your yearly expenses money, contributing to social security and Medicare, and getting your current medical insurance covered by your employer.

If you are very close to your FI number, you can start withdrawing a very small percentage (no more then 2%) to help cover your expenses.  This should leave enough money there to compound and grow.

Since you are working part time, you have plenty of time to spend with family and friends or pursuing your passions and hobbies.

Congratulations, you have exited the rat race and can slow down and start enjoying life more with your future income protected.

Coast FIRE

  • Income: Fulltime active and passive Income, but work can be something you enjoy
  • Milestones:  Halfway to your retirement goal (about 12.5x expenses in 10 years, 7x expenses in 20 years)
  • Saving / Withdrawal Rate:  Savings optional, but recommended
  • Investment Plan:  Aggressive growth
  • Lifestyle: Minimalist or Normal, depends on income
  • Notes
    • Allow time and compounding interest to reach your FI number
    • Money still growing naturally to reach your FI number before your retirement age.
    • Apply YOLO principles to your lifestyle, because your retirement years are covered.

Flamingo FIRE

  • Income: Semi-Retirement, Active income from fun job, self employment or passion work
  • Milestones:  Almost your retirement FI number
  • Saving / Withdrawal Rate:  Savings Optional, 0-1% Withdrawal
  • Investment Plan:  Moderate Aggressive growth
  • Lifestyle: Minimalist, Living on active/passive income
  • Notes:
    • Apply Savings rate to living Lifestyle
    • Passive income covers gap between active income and yearly expenses (<20%)
    • Just shy of full FI, easing into full retirement lifestyle
    • Working to cover medical

Barista FIRE

  • Income:  Semi-Retirement mixing active/passive income
    • Active income from low stress job with health insurance, self employment
    • Passive 0-3% from investments
  • Milestone: Hopefully above your FI number and you are just padding your retirement account or taking small withdrawals.
  • Saving / Withdrawal Rate:  No Savings / Withdrawal between 0-3%
  • Investment Plan:  Moderate growth
  • Lifestyle: Minimalists, Living on active/passive income
  • Notes:
    • Job covers gap between passive income and yearly expenses (<70%)
    • Typically reached FI goals but need medical insurance and something to do.
    • Working to just cover medical and ease into retirement lifestyle
    • Very little difference between Flamingo and Barista FIRE stage.  Only difference is if you have reached your FI number, and are you withdrawing from retirement accounts.
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Full Retirement (Financial Independence)

Barista FIRE, All you need to know

Congratulations, you have made it to financial independence. No more work required and you can life on your savings (and interest) for the rest of your life. Of course, if you are like me, you may get bored in a week and run back to barista FIRE.

The main purpose of the semi retirement phase is to allow you to properly shift from working all the time to enjoy your free time. You hopefully start new hobbies, find non-work friends, and rediscover passions you never knew you had.

Sometimes people skip the semi retirement stages and have a very hard time in the early years of full retirement. I know I couldn’t do it.

There are several different stages of full retirement, all depending on how much money you have been able to save. Either you have Lean (22x expenses), Full or regular (25x expenses), or Fat (35x expenses) financial independence.

Lean FIRE

  • Income:  Full  Retirement, Passive income from investments
  • Milestone: 22x yearly expenses (1.1-1.25 Million)
  • Saving / Withdrawal Rate:  Withdrawal 3-5% (depends on age)
  • Investment Plan:  Moderate Growth
  • Lifestyle: Minimalists, Living under 50K per Year
  • Notes:
    • All about maintaining your minimalist Lifestyle

Traditional FIRE

  • Income:  Full Retirement, Passive income from investments
  • Milestone: 25x yearly expenses, (1.25-2.5 Million)
  • Saving / Withdrawal Rate:  Withdrawal 3-5% (depends on age)
  • Investment Plan:  Moderate Growth
  • Lifestyle: Normal, Living  50-100k per Year
  • Notes:
    • All about maintaining your pre-retirement lifestyle in retirement

Fat FIRE

  • Income:  Full Retirement, Passive income from investments
  • Milestone: 35x yearly expenses (2.5-3.5 Million)
  • Saving / Withdrawal Rate:  Withdrawal 3-5% (depends on age)
  • Investment Plan:  Moderate Growth
  • Lifestyle: Maximalist,  Living Over 100K per Year
  • Notes:
    • All about living your dreams to the max., doing what you want, when you want to do it.

Conclusion

There is a lot of interest these days about the FIRE movement and some are even writing about how its bad and you should avoid it.  They are clearly wrong!

Remember the core principles of FIRE.  Earn money, save as much as you can, and give yourself options later in life.  You can take a slow approach to FIRE and enjoy life along the way but just spend your money wisely and save.  This is exactly what your parents and grandparents will tell you to do and its sound advice.

Barista FIRE is a very close to Coast FI and Flamingo FI, and a lot of people (including myself) really consider them the same thing.  They are all states of semi retirement where you are balancing your time between passions and earning an income, while maybe supplementing it with passive retirement income.

You are now living the life you always dreamed about because your time is truly your own. You are financial independent!

Some of the details about savings and withdrawal rates vary among different FIRE experts as does some other details.  The key is you are at a point in your life where you can now enjoy your life the way you want to.

I took the slow FIRE route and now am enjoying semi-retirement, not because I need to work, but because I love working.  My personality never allows me to sit still, not even when I’m on vacation, so I will remain in the barista stage for long as I can.  It suits me.

If you liked this article, please consider subscribing to my email list and be the first to hear about new articles.  Please feel free to comment below and let me know what stage of FIRE you are in and if you need any advice. 

Thanks for reading.