Financial Planning · 7 min read
FIRE: Financial Independence Retire Early Explained
Learn the FIRE movement, the 4% rule, how to calculate your FIRE number, and the math behind early retirement.
What is FIRE?
FIRE stands for Financial Independence, Retire Early. The goal is to save and invest aggressively so that your portfolio can support your living expenses without needing a traditional job. Some people pursue lean FIRE (minimal expenses), others fat FIRE (higher spending), and still others choose barista FIRE (part-time work for benefits).
The 4% rule
The 4% rule is a common guideline for safe retirement withdrawals. It suggests you can withdraw 4% of your portfolio in the first year of retirement, then adjust for inflation each year, with a high probability of not running out over 30 years. Critics argue 3.5% or 3.25% is safer for longer retirements.
How to calculate your FIRE number
Multiply your annual expenses by 25 (which equals 4% withdrawal). For example, if you spend $40,000 per year, you need $1,000,000 invested. If you want a more conservative 3.5% withdrawal rate, multiply by about 29.
Action step
Use the FIRE calculator to enter your income, expenses, savings rate, and expected return. See how many years it will take to reach financial independence and what your safe withdrawal amount would be.