Use this FIRE (Financial Independence, Retire Early) Retirement Calculator to estimate the number of years required to reach your desired retirement capital based on your current savings, investment habits, and expected market returns.
FIRE Retirement Calculator
fire retirement calculator Formula
The calculation uses the future value of a geometric series (annuity) to determine the number of periods (years) required to reach the target portfolio value, adjusted for the real rate of return (expected return minus inflation).
Target Capital (C) = Annual Expenses / Safe Withdrawal Rate
Real Return Rate (r) = ((1 + Expected Return) / (1 + Inflation)) – 1
Years to FIRE (Y) = $\frac{\ln(\frac{C \cdot r + A}{P \cdot r + A})}{\ln(1+r)}$
Formula Source: Investopedia – The 4% Rule (High Authority Link)Variables Explained
- Current Portfolio Value (P): The total amount you have saved and invested today.
- Target Annual Expenses (E): The amount you expect to spend annually in retirement (in today’s dollars).
- Safe Withdrawal Rate (SWR): The percentage of your portfolio you plan to withdraw each year (typically 4%).
- Annual Investment/Savings (A): The amount you plan to save and invest annually until retirement.
- Expected Annual Return (R): The average annual growth rate you expect from your investments.
- Expected Annual Inflation (I): The average rate at which prices are expected to rise.
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What is FIRE Retirement?
FIRE, which stands for Financial Independence, Retire Early, is a growing movement focused on aggressive saving and investing to build a large enough investment portfolio to live off of, decades before the traditional retirement age. The core principle involves achieving a “financial independence number.”
This number is typically calculated using the 4% Rule, where your annual expenses are multiplied by 25 (because 4% is 1/25th). Once your portfolio reaches this 25x multiple of your annual expenses, you are considered financially independent, as historical data suggests a 4% withdrawal rate provides a high probability of never running out of money over a 30-year period.
How to Calculate FIRE Retirement (Example)
- Determine Target Capital: If your annual expenses are $40,000 and your SWR is 4%, your Target Capital is $40,000 / 0.04 = $1,000,000.
- Calculate Real Return: If your expected return is 7% and inflation is 3%, the Real Return Rate (r) is $\frac{1.07}{1.03} – 1 \approx 0.0388$ (or 3.88%). This rate is used to project growth in inflation-adjusted dollars.
- Solve for Years (Y): Plug the Target Capital, Real Return Rate, Current Portfolio, and Annual Investment into the future value formula to find Y, the number of years required to bridge the gap between your current savings and the $1,000,000 target.
Frequently Asked Questions (FAQ)
- What is the 4% Rule? The 4% Rule is a guideline stating that retirees can safely withdraw 4% of their initial portfolio balance (adjusted for inflation each subsequent year) without depleting their funds over 30 years.
- How does inflation affect my FIRE number? Inflation is critical because it erodes purchasing power. By using the Real Return Rate (Return minus Inflation), the calculator projects growth in today’s dollars, ensuring your target capital is sufficient for future expenses.
- Can I use a higher Safe Withdrawal Rate? While 4% is standard, some people use 3% for greater safety or 5% for a faster, riskier path. Changing this rate significantly changes your target retirement capital.
- What if my Annual Investment is zero? If your annual investment is zero, the calculation only projects the growth of your current portfolio, meaning it will take significantly longer (or never happen) if your current savings are far from the target.