FIRE Calculator
Financial independence is the point where the portfolio can cover the spending without you working. The number that decides how long it takes is not the return — it is the share of income you save.
Financially independent in
205months
- Target portfolio
- $1,200,000.00
- You have
- $100,000.00
- Still to build
- $1,100,000.00
- Saving each month
- $3,000.00
- Saving rate
- 40.0%
- Spending covered
- $4,000.00 a month
- That is a year
- $48,000.00
- The saving rate — 40.0% of income — is the number that matters most here. It moves the date from both ends at once: more going in, and less needed to live on.
- The withdrawal rate is the assumption everything rests on. Four per cent comes from a study of thirty-year retirements in one country over one historical period. A retirement lasting fifty years is a different question, and the honest range of safe rates is wider than the rule suggests.
- The target is in today's money. Inflation is not modelled, so use a return net of it — a real return rather than a nominal one — and read the answer in today's terms.
- Health cover, tax on withdrawals and the fact that spending is not flat across a long retirement are all outside this. It is a direction of travel, not a plan.
About the FIRE calculator
The target comes from the withdrawal rate. If you believe four per cent of a portfolio can be taken each year without exhausting it, the portfolio you need is twenty-five times a year of spending. On $4,000 a month — $48,000 a year — that is $1.2 million.
The saving rate does more work than anything else here, because it moves the answer from both ends at once. Saving more puts more in, and it also means you live on less, which lowers the target. That double effect is why the years-to-independence curve is so steep: going from saving a tenth of your income to saving half does not halve the time, it collapses it.
The withdrawal rate is the assumption everything rests on, and it deserves more scepticism than it usually gets. The four per cent figure comes from a study of thirty-year retirements, in one country, over one historical period. A retirement lasting fifty years is a materially different question, and the honest range of defensible rates is wider than the rule suggests. Try three and a half and see what it does to the target.
Everything here is in today's money, so use a return net of inflation — a real return rather than a nominal one — and read the answer in today's terms. Health cover, tax on withdrawals, and the fact that spending is not flat across a long retirement all sit outside this. It is a direction of travel rather than a plan.
What it works out
- The portfolio needed at your own withdrawal rate
- How long it takes at your saving rate
- Your saving rate as a share of income
- Any starting balance you already have
The formula
Target = Annual spending ÷ Withdrawal rate then compound the saving until the balance reaches it
Two steps. First the target: a year of spending divided by the withdrawal rate. At four per cent that is the same as multiplying by twenty-five, which is where the "twenty-five times expenses" shorthand comes from. $48,000 a year needs $1.2 million.
Then the balance is compounded month by month — existing investments growing, new saving landing on top — until it reaches that target.
The saving rate is what dominates. Someone saving 40% of their income needs a portfolio covering the other 60%, and is filling it fast. Someone saving 10% needs a portfolio covering 90% and is filling it slowly. Those two effects multiply rather than add, which is why the relationship between saving rate and time is a curve rather than a line.
The return matters much less than people expect, and much less than the saving rate. Doubling the assumed real return from 5% to 10% shortens the wait far less than raising the saving rate from a third to a half does — and the return is the part you cannot control.
- Annual spending
- Monthly spending times twelve. What you need, not what you earn.
- Withdrawal rate
- The share of the portfolio taken each year. Four per cent is conventional, not proven.
- Real return
- Growth after inflation, so the target and the answer are both in today's money.
- Saving
- What goes in each month. The single most powerful input here.
A worked example
Spending $4,000 a month, saving $3,000 of a $7,500 income, starting from $100,000 invested, at a 5% real return and a 4% withdrawal rate.
That works out to 205 months.
- Target portfolio
- $1,200,000.00
- You have
- $100,000.00
- Still to build
- $1,100,000.00
- Saving each month
- $3,000.00
- Saving rate
- 40.0%
- Spending covered
- $4,000.00 a month
- That is a year
- $48,000.00
Questions
How much do I need to retire early?
Twenty-five times your annual spending, if you accept the four per cent rule. On $4,000 a month that is $1.2 million. At a more cautious three and a half per cent it is nearer twenty-nine times, or $1.37 million.
What is the 4% rule?
A finding that a portfolio could have supported withdrawals of four per cent of its starting value, rising with inflation, for thirty years without running out. It is a historical observation about one market over one period, not a law, and a fifty-year retirement is a different question.
Why does the saving rate matter more than the return?
Because it works on both sides. Saving more puts more in and means you live on less, which lowers the target. The return only affects one side, and it is the side you do not control.
What return should I use?
A real return — after inflation — because the target is in today's money. If you model a 8% nominal return with 3% inflation, use 5% here. Using a nominal return against a today's-money target overstates things badly.
Is this a retirement plan?
No. It is one number, and a real plan needs several: health cover before state pension age, tax on withdrawals, what happens if the market falls in the first few years, and the fact that spending is not flat across decades.
What about sequence of returns risk?
It is the biggest thing this does not model. A portfolio that falls sharply in the first years of withdrawals may not recover even if the average return is fine, because you sold units at the bottom to live on. It is the main argument for a lower withdrawal rate or a cash buffer.
Does a pension count towards the target?
It reduces what the portfolio has to cover, but only from the age it starts. The usual approach is to size the portfolio to bridge the years before it, then a smaller amount after — which is two calculations rather than one.