Understanding Barista FIRE: The Middle Path to Financial Independence

Posted by Financtitute on December 07, 2023 · 8 mins read

Having explored the traditional approach to FIRE (Financial Independence, Retire Early) in our initial series, we now turn our attention to a unique and increasingly favored variant: Barista FIRE. This approach is about striking the right balance between work and leisure. It doesn’t mean stepping out of the workforce completely; rather, it’s about scaling down to part-time work or shifting to a less demanding career or role. This adjustment allows you to savor an early taste of retirement while still maintaining a connection to the professional world. Barista FIRE is an adaptable and practical strategy, ideal for those looking to transition into retirement at a comfortable, gradual pace.

What is Barista FIRE?

Barista FIRE is a unique strategy within the personal finance and FIRE (Financial Independence, Retire Early) community. It’s an approach where individuals achieve financial independence but choose to continue working part-time or in less demanding, lower-paying jobs. This work helps cover a portion of their current expenses, while they also begin to draw on their retirement funds for the rest. The concept gets its name from the idea of leaving a full-time job to work as a part-time barista. This switch offers not only a source of income but potentially benefits like health insurance as well. A key advantage of Barista FIRE is that, since you’re still earning, you don’t need as large a retirement fund as you would for complete retirement. This means you can start your semi-retired lifestyle earlier!

Some might question whether working part-time truly counts as financial independence. I encourage a broader perspective. Imagine, instead of the standard 9-5, Monday to Friday grind, you only work Monday to Wednesday. With a four-day weekend every week, this lighter schedule might be quite appealing, especially if it means you can start enjoying the perks of retirement sooner. Barista FIRE is about redefining financial independence to fit a more flexible and enjoyable work-life balance.

Why Consider Barista FIRE?

  1. Reduced Financial Pressure: As previously mentioned, earning an income through part-time work can significantly lower the amount you need in your retirement portfolio. Let’s break it down with an example: suppose your annual spending is $50,000. According to the traditional FIRE model, you would need a retirement fund of $1,250,000. But, if you take on a part-time job earning $15 per hour for 20 hours a week, you’d bring in roughly $15,000 after taxes annually. This income reduces your required FIRE fund by $375,000, dropping it to $875,000. This reduction could potentially mean reaching your financial goals years earlier.

    Additionally, having a part-time job allows you to ease off from relying solely on your savings. This setup offers a buffer against market volatility and the stress of stretching your retirement funds over many years. In the event of a market downturn or an unexpected financial need, you have the flexibility to increase your working hours temporarily to supplement your savings, and then reduce them again when things stabilize. This flexible approach is far more manageable when you’re already employed, compared to the challenge of finding a job during a market crisis.

  2. Maintain a Routine: For most of us, working takes up a significant portion of our lives, deeply ingraining a sense of routine that becomes a part of our identity. Transitioning to a Barista FIRE lifestyle, where you take up part-time work, helps preserve this structure in your daily life. It’s a common experience for retirees to miss the regularity and framework that a job provides once they leave the workforce entirely. By choosing part-time employment, you smoothly ease into the retirement phase, rather than abruptly stopping work altogether. This gradual shift can make the transition to full retirement more comfortable and less jarring, maintaining a sense of normalcy and purpose in your everyday routine.

  3. Pursue Passions: A major draw of the Barista FIRE lifestyle is the freedom it offers to delve into your passions and interests, aspects of life that often get sidelined in the demanding pace of full-time employment. Embracing Barista FIRE isn’t solely about reducing work hours; it’s also about seizing a golden opportunity to rekindle old hobbies or venture into new realms of personal fulfillment. This period can be the perfect time to embark on learning endeavors you’ve always dreamed of, like mastering a musical instrument or writing your own book. Additionally, with more free time at your disposal, you might find it rewarding to engage in volunteer work for causes you are passionate about, utilizing this period not just for personal growth but also for contributing meaningfully to your community.

When is a Barista FIRE Individual Fully Retired?

You might be wondering, “Does Barista FIRE mean I have to work part-time indefinitely?” Not at all. While it does involve thoughtful planning, there are several strategies to make this work in your favor. One key approach is to manage your withdrawals so that they are less than the growth of your retirement account. This could be achieved by either using a lower withdrawal rate or supplementing your income more significantly through your part-time job, allowing your savings to continue to grow.

Another way to think about this approach is choosing a higher withdrawal rate which under a traditional FIRE retirement may have a lower success rate such as 80%. However, if you are able to suppliment with a part time job, you can boost your success rate significantly until your portfolio has stabalized and you feel comfortable going forward.

Eventually, once you reach your designated FIRE number, you have the option to fully retire. Alternatively, if your part-time job brings you joy and satisfaction, you might choose to continue with it. Another strategy involves working until you reach the age of 65, when Medicare becomes available, helping to significantly reduce your healthcare costs. Each of these approaches offers a viable route to eventually transitioning out of part-time work, providing flexibility and choice in how you navigate your Barista FIRE journey.

What Are We Doing?:

While our primary aim is the traditional FIRE route, we’re considering incorporating strategies from the Barista FIRE approach. Our plan is to continue full-time work until we reach our FIRE goal. However, instead of transitioning directly into retirement, we’re contemplating a shift to less stressful and less demanding careers. This change will allow us more quality time with our family. For instance, my wife, who currently enjoys part-time teaching, plans to leave her full-time job upon reaching our FIRE number and focus solely on her teaching career.

This strategy closely aligns with the ‘Maintaining a Routine’ benefit of Barista FIRE. We believe that an abrupt stop from working could be challenging, so a gradual transition seems more appealing.

Barista FIRE represents an attractive option for those seeking a balance between traditional retirement and the more intensive early retirement approach. It provides a blend of flexibility, active engagement, and financial stability. As with any retirement strategy, it’s crucial to plan carefully, save consistently, and invest intelligently. Whether your target is complete FIRE or Barista FIRE, the most important aspect is to choose a path that resonates with your personal values, aspirations, and lifestyle preferences.