FIRE (Financial Independence, Retire Early) starts with one number: how much you need invested so your portfolio can cover your living costs. The most common shortcut is the 4% rule. Here's how it works, where it comes from, its limits and how to estimate how long it will take you to get there.
The FIRE number formula
FIRE number = Annual spending ÷ Withdrawal rate
With a 4% withdrawal rate that's the same as 25 × annual spending.
Examples:
| Annual spending | At 4% | At 3.5% | At 3% |
|---|---|---|---|
| $30,000 | $750,000 | $857,143 | $1,000,000 |
| $40,000 | $1,000,000 | $1,142,857 | $1,333,333 |
| $60,000 | $1,500,000 | $1,714,286 | $2,000,000 |
Calculate your own in the free FIRE / retirement number calculator.
Where the 4% rule comes from
The idea is usually traced to financial planner William Bengen's 1994 article "Determining Withdrawal Rates Using Historical Data" in the Journal of Financial Planning, followed by the 1998 "Trinity study" by Cooley, Hubbard and Walz. Both used historical US stock and bond returns to test how much retirees could withdraw each year, adjusting for inflation, without running out of money over periods of about 30 years.
The rule as most people use it:
- In year one, withdraw 4% of your starting portfolio.
- In each later year, withdraw the same dollar amount adjusted for inflation, regardless of market performance.
The limitations
The 4% rule is a rule of thumb, not a guarantee:
- It's based on past US data. Future returns may be lower, and other countries' markets have had worse histories.
- It was tested over ~30-year retirements. Retiring at 40 might mean 50+ years, which is why many early retirees use 3–3.5%.
- Sequence of returns risk. A big market drop in the first years of retirement does far more damage than the same drop later.
- Fees and taxes reduce what you can safely spend.
- Spending isn't constant. Healthcare, housing changes and family needs change over a lifetime.
Many people use 4% to set a first target, then add flexibility, like cutting spending in bad market years, part-time income or a cash buffer.
Worked example: years to FIRE
- Annual spending: $40,000 → FIRE number at 4% = $1,000,000
- Current investments: $50,000
- Saving: $20,000 a year
- Expected real return (after inflation): 5%
Each year: Investments = Investments × 1.05 + $20,000.
Running that forward, the portfolio passes $1,000,000 in about 24 years.
The two biggest levers
| Change | FIRE number | Years |
|---|---|---|
| Base case | $1,000,000 | ~24 |
| Save $30,000/yr instead | $1,000,000 | ~19 |
| Spend $32,000 and save $28,000 (same income) | $800,000 | ~17 |
| Use a 3.5% withdrawal rate | $1,142,857 | ~26 |
Cutting spending works twice: it lowers the target and raises savings. That's why savings rate is the center of most FIRE planning.
Use real (inflation-adjusted) numbers
If you use a real return (for example 5% instead of a nominal 7–8%), the FIRE number stays in today's dollars, which is much easier to reason about. To see what today's spending means in future dollars, use the inflation calculator.
Coast FIRE: a useful milestone
Some people track a "coast" number: the amount that, with no further contributions, would grow to the FIRE number by a chosen date. At a 5% real return, reaching $1,000,000 in 20 years needs about $1,000,000 ÷ 1.05^20 ≈ $376,900 invested today. Reaching it doesn't mean you can stop working, but it gives you more flexibility in what you earn.
Account for other income
If you expect a pension, rental income or a government retirement benefit later, subtract it from the spending you need to cover. For example, if $12,000 of $40,000 will eventually come from a pension, the portfolio only needs to cover $28,000 in those years. Benefit rules vary by country and individual, so use official estimates where available.
From target to monthly plan
Once you know the target, the question becomes how much to invest each month. See compound interest with monthly contributions and the compound interest calculator to model contributions over time.
Frequently asked questions
Does the 4% rule work for early retirement? It was designed around roughly 30-year retirements. For longer horizons many planners suggest a lower starting rate, flexibility in spending, or both.
Should my FIRE number include my home? Usually not. A paid-off home lowers your spending (and therefore the FIRE number), but it doesn't produce cash to withdraw unless you sell or rent it.
What return should I assume? Use a conservative real (after-inflation) return and test a range. Small changes in the assumed return change the years-to-FIRE estimate a lot, so treat it as a rough guide.
What about taxes on withdrawals? Include expected taxes in your annual spending, because withdrawals from some accounts are taxed. Rules depend on your country and account types.
Key takeaways
- FIRE number = Annual spending ÷ Withdrawal rate (25x at 4%).
- The 4% rule comes from historical US data and ~30-year retirements.
- Lower spending reduces the target and raises savings at the same time.
- Use real returns and test several withdrawal rates.
Track progress across accounts
FIRE progress is easiest to stick with when you can see it: net investable assets versus the target, and allocation across accounts. The Portfolio Tracker & Rebalancer template for Excel and Google Sheets tracks holdings across accounts, shows allocation drift and suggests rebalancing trades.
Educational content, not financial advice. Withdrawal rates are rules of thumb based on historical data, not guarantees.