FIRE Calculator

F.I.R.E. is an acronym for "Financial Independence, Retire Early." The concept is simple: you save and invest aggressively until your investment portfolio is large enough to cover the cost of living. Once that happens, a paying job becomes optional rather than necessary.

This calculator provides two important answers based on income, expenses and current savings: the target amount and the number of years it will take to reach that goal. Surprisingly, salary has little effect on the time frame; what matters almost exclusively is the percentage of your income you actually save.

What are your FIRE numbers?

FIRE numbers are the amount that must be present in an investment portfolio to cover expenses adequately when a safe annual withdrawal percentage is applied, which directly depends on the chosen withdrawal rate.

A 4% withdrawal rate is the same as dividing by .04 which is the same as multiplying by 25. This is why FIRE is often referred to as "the 25x rule". If your annual expenses are $40,000 then your goal would be $1,000,000; if your annual expenses were $80,000 then your goal doubles to $2,000,000. Reducing your expenses will result in a lower target number. This is why reducing expenses is the fastest way to get this mountain smaller.

The savings rate determines when you retire.

Even if two people have very different incomes, they can achieve financial independence at the same time if their percentage of income saved is equal. This is because a high savings rate has two effects simultaneously: it accelerates the growth of your investment portfolio and reduces your cost of living, which leads to a lower FIRE number.

If you start with zero and have a real return of 5 percent and a withdrawal rate of 4 percent, the number of years that need to be worked dramatically decreases as savings rates increase.

Increasing the savings rate from 10 percent to 20 percent can reduce the wait time by about 14 years, regardless of investment choices or salary increases.

How long until we get there?

Reaching the FIRE number is a problem of compound interest. The current investment portfolio continues to grow through compounding and also the annual savings amount begins to grow through compounding. If you set future value equal to the FIRE number and solve for the number of years, you get this simple formula:

Here F is your FIRE number, P is the current portfolio value, S is the annual savings amount, r is the real return and n is the number of years saving. Assuming you have already invested $25,000, save $25,000 per year and earn a 5 percent real return with a target of $1 million, it would take about 22 years according to this calculator. The calculator calculates annually so can account for edge cases but the formula makes clear why increasing your savings rate or lowering your target will accelerate when you reach it.

The 4 percent rule and safe withdrawal rate.

The "4 percent rule" comes from the studies of William Bengen and the "Trinity Study". The researchers studied different 30-year periods on the US market and found that funds were almost depleted when retirees withdrew 4 percent of their original investment portfolio in the first year, then adjusted the amount annually to inflation. Inversely this results in a multiple of 25 for the FIRE goal (Financial Independence, Retire Early).

The length of time that early retirees need money is longer than the 30 years factored into this rule and can sometimes be as long as 40 or 50 years. Many people plan more conservatively, taking out between 3.25 and 3.5 percent of their savings each year. This increases the FIRE number but also allows for a larger financial buffer in case initial returns are poor.

The Five Types of FIRE

FIRE is not a single end point but rather a series of milestones. Each type offers a different degree of freedom.

Coast FIRE has its own calculation method. If you divide the FIRE number by the growth factor that applies to the remaining years until the target age, you get the amount that would reach the goal with constant growth.

Common mistakes to avoid:

The most common mistake is underestimating expenses. In particular, health care costs, home maintenance and the fact that living expenses gradually increase over decades are often overlooked. Taxes can also be a potential problem. Since money from a 401(k) or traditional IRA is taxed when it's withdrawn, with penalties if taken before age 59½, most people who retire early will also have taxable brokerage accounts.

The risk of an unfavorable sequence of returns is a hard problem to detect. If you experience a significant market decline during the early years of retirement, it can cause significantly larger losses than if you experienced that same decline later on because you are selling assets when their prices are falling. Common strategies for managing this risk include building up a cash reserve, lowering your withdrawal rate and being flexible in reducing spending in down markets years.

This calculator is for general educational and planning purposes only and does not constitute financial advice. It assumes that real rates of return are stable, expenses remain constant, and market volatility, taxes, and the risk of adverse sequence of returns are not taken into account. As actual results will depend on market developments, inflation, and your own decisions, these numbers should be considered as a starting point and you should consult with a qualified financial advisor before taking any action.