How to Calculate Your FIRE Number: Retiring Early

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

I was unemployed, married with two children, renting in a high-cost housing area, and experiencing a global pandemic. Fortunately, he had some money tied up in retirement accounts with previous employers when he was in his 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’re now on our way to becoming optional work at 47. That’s how quickly one issue of FIRE can change your life.

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

FIRE stands for financial independence, retire early. 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 work optional.

Before learning about FIRE, I thought that retirement was something that only people with pensions at the age of 65 could do.

Now, I know that retirement does not magically happen at a certain age, but when we can pay our annual expenses with passive income.

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

On the one hand, knowing this number left me and my husband worried. He was scared and wondered if we could ever retire, since we didn’t start investing steadily until we were thirty. But at the same time, he was empowering.

While 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 meet our early retirement goal, we’d still be on our way to retirement at some point, and considering we had loved ones who couldn’t say the same, we were itching to at least get started.

How to calculate your FIRE number

As soon as I learned that retirement could happen at any age, I needed to determine our personal FIRE number: the total value of assets we would need to accumulate to live off passive investment income. While researching the best way to calculate this number, I found the Trinity Study, the source of the well-known 4% rule, and this simple formula to calculate 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 times 25, or $1.2 million.

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

Annual Expenses ÷ 0.03 = Number of FIRE

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

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

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

This included:

Home spends: mortgage/rent, utilities, cable, internet, general maintenance, housewares, property taxes and insurance, credit card payments

Foods: groceries, drinks, dining out

Personal care: clothing, products, hobbies, subscriptions, child care, pet care

health expenses: health insurance, out-of-pocket expenses, dental, glasses/contacts, 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. On the low end, if my husband and I move to a less expensive area with $60k in annual expenses, our FIRE number is $1.5 million. At the high end, if my husband and I continue to live in a high-cost housing area with $120K in annual expenses, our FIRE number is $3 million.

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

Others on your FIRE journey

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

“We plan to have enough cash-producing real estate in Mexico and the United States so we don’t have to exchange dollars for hours of work,” said Víctor Zeledón, 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 we will also rent so that we can fund our early retirement.”

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


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 streams of passive income that can subsidize a work-optional lifestyle. If you feel overwhelmed, consider creating a FIRE number range. Make sure your goal reflects your values ​​and lifestyle preferences. Ultimately, even if you don’t retire early, calculating your FIRE number is a great way to start planning for your retirement.

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