Calculating Your FIRE Number
Financial Independence, Retire Early (FIRE) is a popular movement aimed at achieving financial independence and retiring early. To determine your FIRE number, follow these steps:
- Calculate Your Annual Expenses: Start by tracking your monthly expenses and multiplying by 12 to get your annual expenses.
- Estimate Your Retirement Length: Decide how many years you expect to be retired.
- Factor in Inflation: Consider the annual inflation rate to adjust for rising costs over time.
- Calculate Safe Withdrawal Rate: Use the 4% rule as a guideline for how much you can safely withdraw from your retirement savings each year.
Once you have these figures, multiply your annual expenses by the number of years you plan to be retired, then divide by your safe withdrawal rate to get your FIRE number. This is the amount you need to have saved to achieve financial independence and retire early.