What is Barista FIRE?

Barista FIRE (Financial Independence Retire Early) is a strategy that involves building enough savings to mostly recover and then taking on part-time work to afford the rest. Think of it as semi-retirement. Rather than quitting the workforce entirely, you instead shift into a part-time job or a freelance career that lets you earn enough money to supplement your savings and leave the full-time workforce sooner than a typical retirement.

Its name comes from a person who works in a coffeehouse preparing drinks, but that’s just one of the ways that you can earn money to help afford your lifestyle.

Why is this Strategy Popular?

One of the main reasons that to try a Barista FIRE strategy is that it typically involves less stress. Full-time work, no matter what you do, takes a lot out of you. That’s not saying that working as a barista or doing another part-time job doesn’t require effort, but if you’re not working full-time, that lowers your stress level.

It also reduces the overall amount that you need to save. These days, most people have to save most of their retirement funding themselves. Pensions and other forms of support certainly exist, but not at the level they once did. Saving up enough to live off your savings alone is tough. If you continue to work in a part-time or freelance role, you’ll need a lower savings target. This means you’ll have the freedom to leave full-time work earlier.

You also won’t have to worry as much about how your investments perform. One of the biggest fears in retirement is that you’ll have to take money out of your investment accounts during a market downturn. This can significantly affect your retirement plan, since you’ll now have less money to draw from. If you’re working part-time, you give yourself a kind of buffer against this scenario. If the markets are down, you’ll still have money coming in, so you won’t need to take as much from your investment accounts. This saves you money, helps retain your hard-earned savings, and gives you significant peace of mind.

Many part-time jobs also offer health insurance. Employer-sponsored insurance can be significantly cheaper than buying an individual plan for yourself. Health insurance becomes more and more important as you age, but when you retire full-time, you’ll have to find it yourself. However, if you can get a part-time job that provides insurance benefits, you’ll have one less expense (and stress) to worry about.

Other benefits to the Barista FIRE strategy are social and structural, rather than just financial. There are a lot of benefits to remaining in the workforce besides money. The first is social connection. Many people find themselves feeling isolated in retirement. You don’t realize how much your workplace relationships mean to you until you no longer have them. A part-time job lets you connect with co-workers and socialize, which is important for overall happiness as well as mental health.

The structure provided by a job, even a part-time one, is also important. A lot of retirees find it hard to organize their days once they’re out of the workforce. Having a place to go, even occasionally, structures your week and your overall life. 

Another common problem for retirees is that they feel like they don’t have a purpose when they retire. For most people, life goals and work goals are intertwined. When you leave work, it’s hard to know what you’re supposed to be doing with your life. Having a part-time job or a freelance job gives your life more purpose.

It’s also an opportunity to do something that you have a particular interest in with less stress about whether it helps you make a living or not. There are certain jobs that you might be drawn to but didn’t work at as a full-time career because they don’t pay enough. However, if you’re working part-time and don’t need the job to cover 100% of your expenses, it could be an opportunity. 

The Math Behind Barista FIRE

The traditional wisdom is to withdraw 4 percent of your assets from your retirement savings each yeah in retirement. So, to determine how much you’ll need to save for retirement, you can calculate your expected annual living expenses, then multiply it by 25.

Therefore, if you’re planning on spending $50,000 a year in retirement, you will need to save approximately $1.25 million to retire. However, if you’re earning another income in retirement, that changes the calculation.

Assume you earn $20,000 a year from part-time or freelance work. If that’s the case, you’ll want to have another $30,000 a year available in savings so you can still spend $50,000 each year. $30,000 multiplied by 25 is $750,000. That’s $500,000 less than if you didn’t work in retirement.

This makes it perfect for late adopters. One of the biggest hurdles faced by people who haven’t been saving for retirement for most of their working lives is feeling like they need to “catch up” on savings. This can be incredibly difficult, since the later you start to save, the more you need to put away. Barista FIRE makes it easier to reach your target savings without straining yourself too much.

Making Barista FIRE Work for You

If you’re interested in shifting to part-time work rather than opting for a full retirement, one of the first things you need to do is figure out your Barista FIRE number. This means doing the math above to learn how much you’ll need to save to make it worth it. However, that formula assumes that your expenses and your income remain consistent indefinitely. For example, in the example above, it assumes you’ll earn $20,000 every year and spend another $30,000. However, at some point you may want to transition into full retirement. This means you won’t always be earning additional income, so your monthly expenses will probably increase. For instance, you might want to only work part-time for ten years and then fully retire. You’ll need to ensure that you plan for that.

You can make up for this adjustment by either saving more or by reducing your retirement withdraw amounts. That means living off less money each year. This requires strong budgeting and discipline. It may also mean working more in the first few years of your Barista FIRE plan. However, at a certain point, you might be working nearly as much at your new job as you did in the past, which negates some of the advantages of the strategy.

It also helps to look for ways to earn passive income in retirement. If you can rent out a part of your home as a vacation rental, for example, you’ll be able to earn some extra income to supplement your retirement without working more.

Much like with all types of retirement planning, success can be found by being organized, disciplined, and aware of your financial realities. If you’re planning correctly and making good financial decisions, the Barista FIRE strategy can help you transition out of full-time work and into a more flexible lifestyle. It’s then up to you to figure out how long you want to work part-time, whether you’re able to earn some passive income, or when you’d like to move into full-time retirement.