How to Calculate Your FIRE Number
Your FIRE (financial independence, retire early) number is the invested amount you’d need to cover your annual spending from withdrawals. The usual formula is annual spending divided by a safe withdrawal rate. At 4% that is 25 times annual spending; lower rates such as 3% to 3.5% give a larger, more conservative target.
At a glance
- Formula
- Annual spending ÷ withdrawal rate
- At 4%
- 25 × annual spending
- Based on
- Historical US data for ~30-year retirements
- Main risks
- Sequence of returns, inflation, longer retirements, fees
How do you calculate a FIRE number?
Estimate your annual spending in retirement and divide it by your chosen withdrawal rate. At a 4% withdrawal rate that is the same as multiplying annual spending by 25. Someone planning to spend $40,000 a year would need about $1,000,000 invested.
FIRE number = annual spending ÷ withdrawal rate
| Withdrawal rate | Multiple of annual spending | $40,000 / year needs |
|---|---|---|
| 5% | 20× | $800,000 |
| 4% | 25× | $1,000,000 |
| 3.5% | ≈ 28.6× | ≈ $1,143,000 |
| 3% | ≈ 33.3× | ≈ $1,333,000 |
Where the 4% rule comes from
The 4% figure traces back to financial planner William Bengen’s 1994 study of historical US market data, which found that withdrawing about 4% of a portfolio in the first year, then adjusting that amount for inflation, would have lasted at least 30 years in every historical period he tested. The 1998 “Trinity study” by three professors at Trinity University reached broadly similar conclusions for 30-year retirements using stock and bond mixes.
Two details are often lost:
- Both studies looked at roughly 30-year retirements. Early retirees may need their money to last 40 to 50 years, which argues for a lower withdrawal rate.
- They used US historical returns. Future returns, other countries’ markets and different portfolio mixes can produce different results.
Step by step
- Estimate retirement spending, not current spending. Include healthcare, housing (paid-off or not), travel and irregular costs such as car replacements.
- Subtract reliable income you’ll receive regardless, such as a pension or rental income. Only the gap needs to come from the portfolio.
- Choose a withdrawal rate that fits your time horizon and flexibility. Many early retirees use 3% to 3.5% rather than 4%.
- Divide the spending gap by the withdrawal rate.
- Add taxes and fees. Withdrawals may be taxed, and fund fees reduce what the portfolio can sustainably pay. A 1% annual fee is a large share of a 4% withdrawal (see our investment fee calculator).
What the FIRE number doesn’t capture
- Sequence-of-returns risk: a market fall in the first years of retirement does far more damage than the same fall later.
- Flexibility: being able to cut spending in bad years makes a higher withdrawal rate safer.
- Inflation: the rule assumes you raise withdrawals with inflation. Periods of high inflation strain it.
- Currency and country: if you spend in one currency and invest in another, exchange rates add risk.
Estimate your own figure with our FIRE calculator, then stress-test it with a lower withdrawal rate.
This is educational information, not personal financial advice. Consider speaking to a licensed financial adviser about your situation.
Frequently asked questions
Is the 4% rule still safe?
It is a historical rule of thumb for roughly 30-year retirements based on US data, not a guarantee. For longer retirements or lower expected returns, many planners suggest a lower initial withdrawal rate, or flexible spending rules.
Why multiply by 25?
Because 1 ÷ 0.04 = 25. A 4% withdrawal rate means the portfolio must be 25 times the annual amount you plan to withdraw.
Should my FIRE number include my home?
Usually not, unless you plan to sell it or rent it out. A home you live in doesn’t produce spendable income, though owning it outright lowers the spending you need to cover.
Does the FIRE number include taxes?
Only if you include them in your spending estimate. Withdrawals from many account types are taxable, so add expected taxes to annual spending before dividing.
Sources
- U.S. SEC Investor.gov: free financial planning tools — regulator retirement and savings calculators
- Bengen, W. P. (1994), “Determining Withdrawal Rates Using Historical Data”, Journal of Financial Planning — the original 4% research (published by the FPA’s journal)