FIRE calculator for financial independence
Find out when you reach financial independence, with your FIRE number, a year-by-year portfolio projection, the passive income and scenarios side by side.
What is FIRE?
FIRE stands for Financial Independence, Retire Early. The idea is simple: you invest a much larger share of your income than is usual until the portfolio reaches a size where its returns cover your living costs. From that point on, work is optional.
It is not necessarily about stopping work. Most people who reach independence carry on working: they can simply choose what, with whom and how much. That freedom is the real goal, and the word “retire” in the acronym is somewhat misleading.
What the FIRE number is, and where the 25× comes from
The target is called the FIRE number, and it is annual spending divided by the safe withdrawal rate. At the usual 4% that is 25 times your annual spending. The portfolio grows towards it from two sources: your regular contributions, and compounding, whose share takes over with time.
The 25× rule is the same thing written differently. Withdraw 4% a year and you need a portfolio twenty-five times your annual spending, because 1 divided by 0.04 is exactly 25.
An important consequence: the FIRE number is set not by your income but by your spending. Someone spending €18,000 a year needs €450,000. Someone spending €36,000 needs twice that: regardless of what either earns.
| Symbol | Name | Jednotka |
|---|---|---|
| FIRE number | € | |
| Annual spending | € | |
| Safe withdrawal rate | ||
| Net annual return | ||
| Inflation | ||
| Monthly investment | € | |
| Current portfolio | € |
The safe withdrawal rate and the 4% rule
The 4% rule comes from an American study in the 1990s that tested historical periods, looking for the withdrawal rate at which a portfolio lasted at least thirty years. The answer was roughly four percent a year, adjusted for inflation.
The figure became the starting point for most FIRE calculations. It is not, however, a law of nature.
Why starting early matters
A portfolio grows from two sources: what you pay in, and returns that themselves generate further returns. The first is linear, the second compounds and in time it far outgrows the first.
In the reference example below, your own contributions are only a minority of the final sum. Compounding produced the majority, but it needed three decades to show its full effect. That is why a year of delay costs more than it seems: what you lose is not the last year of saving but the first, the one that had the longest to work.
Why inflation moves the finish line
The FIRE number is not a fixed point. Spend €18,000 a year today with prices rising 2%, and in thirty years the same standard of living needs about €32,600 and therefore a much larger portfolio.
The calculator therefore recomputes the target every year. On the growth chart you can see the dashed FIRE target line rising: the portfolio has to catch it while it runs away.
A worked example
Common mistakes
Related calculators
- Compound interestThe engine that does most of the work on the way to independence.
- SavingHow much regular contributions accumulate without investing.
- DiscountingWhat your future portfolio is worth today.
- InflationWhy the FIRE number has to rise along with prices.
- MortgageRepay faster, or invest instead?
Related terms
Every term used in this calculator has its own encyclopedia entry with a detailed explanation.
Related topics
Terms that come up in this calculation
- FIREAn approach in which someone saves and invests heavily to reach financial independence and stop working before the usual retirement age.
- Compound interestA way of charging interest in which the interest credited is added to the principal and earns alongside it in the next period, so you earn on interest earned earlier too.
- InflationThe general rise in prices across an economy, which gradually erodes the purchasing power of money: the same sum buys less in a few years than it does today.
- Safe withdrawal rateThe percentage of a portfolio that can be withdrawn each year so that the money will probably last the whole planned horizon. Four percent is the figure most often quoted.
- Passive incomeIncome that requires no direct involvement once the money or work has been put in. Typically it is a return on assets: dividends, interest or rent.
- Investment portfolioThe whole set of one investor's investments. What decides is the composition of the whole, not the result of individual positions.
Calculators that follow on from this one
- Compound interestWork out how an investment grows under compound interest, including regular contributions, the effect of inflation, and a year-by-year breakdown.
- SavingsSee how much you can save through regular investing, and how inflation affects the result.
- InflationSee how inflation will affect the value of your money: how much you will need, and what today's amount will really buy.
- DiscountingWork out the present value of future cash flows, with the discount factor, a year-by-year breakdown, the effect of inflation and the whole method explained.