The FIRE (Financial Independence, Retire Early) movement is a lifestyle movement with the goal of gaining financial independence and retiring much earlier than traditional retirement ages (typically in one’s 30s or 40s).
Achieving FIRE requires extreme savings rates (often 50% to 70% of monthly income) and disciplined investing to build a retirement portfolio that can sustain your living expenses for the rest of your life.
How is Your FIRE Number Calculated?
Your FIRE Number is the total value of investments you need to accumulate before you can stop working. The most common way to calculate this is using the Rule of 25 (originating from the famous Trinity Study):
$$\text{FIRE Number} = \text{Annual Living Expenses} \times 25$$
This is mathematically equivalent to having a Safe Withdrawal Rate (SWR) of 4% per year.
Safe Withdrawal Rate (SWR)
The SWR is the percentage of your portfolio you can withdraw in the first year of retirement, and then adjust for inflation each year after, without running out of money over a 30-year horizon.
- 4% SWR (25x expenses): The traditional rule of thumb, backed by historical stock market data.
- 3.5% SWR (28x expenses): A more conservative approach, popular for early retirements that may span 40 to 50 years.
- 3% SWR (33x expenses): Highly secure, ensuring a very low probability of portfolio depletion.
The Impact of Inflation
One of the biggest mistakes early retirement planners make is ignoring inflation. Over 10 to 20 years, inflation reduces purchasing power, meaning your monthly expenses at retirement will be much higher than they are today.
Our FIRE calculator simulates this year-by-year:
- It inflates your current monthly expenses annually by your chosen Inflation Rate (typically 5% to 7% in developing economies like India, and 2% to 3% in developed countries).
- It compounds your current net savings and ongoing monthly investments by your Expected Portfolio Return.
- It finds the exact age where your projected portfolio exceeds the inflation-adjusted target corpus required to support your future expenses.