How to Calculate Your FIRE Number to Retire Early

When most people plan for retirement , they make plans around their 67th birthday. However, supporters of the FIRE movement believe that it is possible to retire decades earlier than the official retirement age. Here’s what you need to know about the elusive promise of financial freedom/early retirement and what it takes to achieve financial freedom in practice.

What is the FIRE movement?

FIRE stands for “Financial Independence/Early Retirement” and you can read about the basics of FIRE here. In short, the FIRE movement is all about taking advantage of compound interest from investing in your early 20s. Naturally, the movement has some critics, mostly stating that FIRE is promoting unrealistic wealth projections for anyone who does not already have substantial wealth.

As I explained earlier , I am one of those FIRE naysayers. The ability to set a significant distance between your income and your expenses is too much of a privilege to be truly meaningful. I bet more Americans are more worried about retirement than ever to even consider retiring earlier.

But if the idea of ​​financial independence and early retirement appeals to you (who wouldn’t?), here’s how the numbers break down.

How to calculate your FIRE number

To understand what FIRE actually looks like, you need to calculate your FIRE number. This number is meant to represent the total value of the assets you need to live on passive income, which allows you to quit your job and live off the annual income alone. Here is the equation to calculate your FIRE number: Annual Expenses x 25 = FIRE number.

In other words, simply multiply your annual expenses by 25; some call it the 4% rule. For example, if your annual expenses are $40,000, you are financially independent when your total net worth is $1 million. As we said earlier , when your net worth is 25 times your annual expenses, you may consider yourself financially independent enough to retire early.

To break down another example further: Let’s say you’re reviewing your bank statements and determine that your monthly expenses are $5,000. Multiply this number by 12 to find out that your annual expenses are $60,000. Multiply by 25 and your FIRE number is $1.5 million. This means that in order to maintain your lifestyle without having to work anymore, you will need $1.5 million in invested assets.

How to get your FIRE number

To calculate how much money you need to set aside each month to stay on track, use the US Securities and Exchange Commission’s compound interest calculator at . For example, according to the calculator, a 35-year-old who invested $50,000 and wants to reach $1.2 million in 30 years would have to save an additional $1,000 per month (at an annual rate of return of 6%). Looking at these numbers, the idea of ​​reaching that FIRE number decades earlier is no small feat.

As any FIRE advocate will tell you, reaching over $1 million in invested assets certainly requires some lean living in the meantime. But for most, it probably won’t be enough to just cut costs. You will still need a decent income to get to the point where you have enough invested assets to go without a job. For most of us, the “spend less than you make” rule isn’t really enough to reach that FIRE number by a certain age.


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