What FIRE means
FIRE stands for Financial Independence, Retire Early. The idea is simple: save and invest aggressively until your portfolio can pay for your life, so that work becomes optional. Your FIRE number is the portfolio size that makes this possible, and the time to reach it depends mostly on how much of your income you save.
The formulas
- FIRE number = yearly spending ÷ withdrawal rate
- With a 4% withdrawal rate, that is 25 times your yearly spending
- Years to FIRE: the time for current savings plus yearly contributions, growing at the expected real return, to reach the target
Use a real return, after inflation, so that the target stays in today’s dollars. Historically, 5% is a reasonable real return for a stock-heavy portfolio, but it is not guaranteed.
Worked example
You want to spend $40,000 a year, have $50,000 invested and save $20,000 a year at a 5% real return.
- FIRE number = 40,000 ÷ 0.04 = $1,000,000.
- You are 5% of the way there.
- Years to FIRE = ln((1,000,000 × 0.05 + 20,000) ÷ (50,000 × 0.05 + 20,000)) ÷ ln(1.05) = 23.3 years.
- At the target, a 4% withdrawal gives $3,333 a month.
Savings matter more than returns
| Saved per year | Years to $1,000,000 |
|---|---|
| $10,000 | 32.2 |
| $20,000 | 23.3 |
| $30,000 | 18.5 |
| $40,000 | 15.4 |
| $50,000 | 13.2 |
Cutting spending works twice: it raises what you can save and lowers the FIRE number itself. Every $1,000 of yearly spending you drop reduces the target by $25,000.
Where the 4% rule comes from
In 1994, financial planner William Bengen found that a retiree withdrawing 4% of a balanced portfolio in the first year, then raising the amount with inflation, would not have run out of money over any 30-year period in US history. The 1998 Trinity study reached similar conclusions. Early retirees face 40 to 50 years of withdrawals, so many plan on 3 to 3.5%, which means 29 to 33 times spending.
Things to plan for
- Health insurance before Medicare at 65, often through the ACA marketplace.
- Access to retirement accounts before 59½, through Roth conversion ladders or the 72(t) rule.
- Social Security, which will lower the withdrawals needed later in life.
- Sequence risk: a market crash in the first years of retirement does the most damage, so a cash buffer or flexible spending helps.
This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.