How to Calculate Your FIRE Number – Early Retirement

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I didn’t start thinking about retirement until I was 33.

I was unemployed, married with two children, a tenant in an expensive living area and the victim of a global pandemic. Fortunately, I had invested money in retirement accounts with former employers since my twenties. But my husband? Well, he was 32 years old without a dollar in a 401(k) or an IRA.

Less than a year later, we are now well on our way to becoming an optional job at 47. This is how quickly a FIRE number can change your life.

What is a FIRE number and why am I on this journey

FIRE stands for Financial Independence, Early Retirement. It’s a movement that encourages people to live below their means so they have more money to invest in early retirement or part-time work. The higher your savings rate and the percentage of income you don’t spend, the faster you can become optional work.

Before I learned FIRE, I thought retirement was something only people with pensions could do at age 65.

Now I know that retirement doesn’t magically happen at a certain age, but rather when we can afford to pay our annual expenses with passive income.

Simply put, your FIRE number is the amount of money you need to have invested to live off those returns and stop working.

On the one hand, knowing this number worried me and my husband. I was afraid, I wondered if we could one day retire since we only started investing regularly in our thirties. But, at the same time, it was stimulating.

As I was calculating how much we would need to invest to retire early, my husband and I began to see FIRE as a game that would make retirement planning fun. We realized that even if we didn’t reach our early retirement goal, we would still be on track to retire at some point – and given that we had loved ones who couldn’t say the same, we were looking forward to at least getting started.

How to calculate your FIRE number

As soon as I learned that retirement could occur at any age, I had to determine our personal FIRE number: the total value of the assets we would need to accumulate to live on passive investment income. While researching the best way to calculate this number, I came across the study of Trinity, the source of the well-known 4% rule, and this simple formula for calculating your FIRE number:

Annual expenses x 25 = FIRE number

So, for example, if your living expenses are $4,000 per month, your annual expenses are $48,000, and your FIRE number is $48,000 multiplied by 25, or $1.2 million.

However, after some further research, I felt more comfortable with a different withdrawal rate and opted to calculate my FIRE number based on this formula:

Annual expenses ÷ 0.03 = FIRE number

In this case, $4,000 in monthly spend would equal a FIRE figure of $48,000 divided by 0.03, or $1.6 million. (If you need help tracking your expenses, check out this Google spreadsheet. It can help you calculate your monthly and annual expenses.)

This second formula is based on a more recent study by Trinity University. The professors used historical market data to study sustainable withdrawal rates based on various stock and bond allocations for different retirement horizons. Researchers have found a 100% chance that someone with a portfolio of at least 50% in stocks can safely withdraw 3% of their investments for 40 years without depleting their investments, so we divide by 0, 03.

Once I had a FIRE number formula, I calculated our projected annual retirement expenses by listing our current monthly expenses. I looked at the amount my family currently spends on household expenses, meals, personal care, health care, transportation, and community care.

To calculate my FIRE number, I included the following expenses:

  • Household expenses: mortgage/rent, utilities, cable, internet, general maintenance, household supplies, property tax and insurance, credit card payments.
  • Meal: shopping, drinks, restaurants.
  • Personal care: clothing, products, leisure, subscriptions, childcare, pets.
  • Health expenditure: health insurance, direct payments, dental care, glasses/contact lenses, life insurance.
  • Transportation: car insurance, maintenance, fuel, registration.
  • Community care: gifts, charitable donations, remittances, etc.

Once I found our monthly expenses, I multiplied them by 12 to see our annual expenses.

To feel less overwhelmed by such a large number, I decided to calculate a range of FIRE numbers. At the low end, if my husband and I move to a less expensive area with $60,000 in annual expenses, our FIRE figure is $1.5 million. At the high end, if my husband and I stay in a high-cost living area with annual expenses of $120,000, our FIRE figure is $3 million.

We invest this money for early retirement both in taxed accounts and in a taxable brokerage account. To reduce our current tax liability, we contribute the maximum amount to our 401(k) accounts and Individual Retirement Accounts. However, since we will need access to our money before the age of 59½ and want to avoid paying penalties for early withdrawals, we also invest in low cost index funds within a taxable brokerage account.

Others on their FIRE journey

Your reason for pursuing FIRE, your FIRE number, and your path to FIRE will reflect your values ​​and wealth building preferences. The Zeledon family, known online as @ourjourneywithless, have a more adventurous approach to investing. They decided to sue FIRE because they want to maximize their time together. Instead of investing in the stock market, they mostly invest in real estate to generate semi-passive income during retirement.

“We plan to have enough money-generating real estate in Mexico and the United States so that we don’t have to trade dollars for hours of work,” said Victor Zeledon, a FIRE enthusiast who advises others. on how to secure their own short-term rentals. . “Ideally we will have four to five rentals that we will live in and also rent out so that we can fund our early retirement.”

By being very intentional with their purchases, the Zeledons are now a single income family since Adriana retired from her 9am-5pm job to homeschool their 9-year-old son. Victor plans to retire in the next five years at age 40. Moving to Mexico and using their long-term and short-term rentals to cover their annual expenses of $36,000, the Zeledons are another example of how being determined with your income can lead to early retirement.


Know that you can retire at any age as long as you have the income to do so. Calculate your FIRE number and create a plan to generate different passive income streams that can subsidize a work-optional lifestyle. If that seems overwhelming, consider creating a range of FIRE numbers. Make sure your goal reflects your values ​​and lifestyle preferences. Ultimately, even if you’re not retiring at an early age, calculating your FIRE number is a great way to start planning for your retirement.

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