What's Your FIRE Number for Early Retirement?

A FIRE number represents the amount of money needed to achieve financial independence and retire early. It is typically calculated by estimating annual expenses and multiplying that figure by a chosen withdrawal rate, often based on the 25x and 4% rules. The number varies depending on lifestyle goals, expected investment returns and inflation. Some people aim for “Lean FIRE,” requiring minimal expenses, while others pursue “Fat FIRE,” allowing for a more comfortable retirement. Adjustments to savings, spending and investment strategies can influence how quickly a FIRE number is reached, making it a personalized benchmark for financial independence.

Consider working with a financial advisor about how to create a financial plan that will empower you to retire when you want to.

What Is a FIRE Number?

A FIRE number is a financial benchmark that signifies the point at which a person has accumulated enough assets to sustain their desired lifestyle without relying on active employment. It represents the total savings or investments required to generate sufficient passive income, typically from investment returns, to cover living expenses indefinitely.

This concept is central to the “Financial Independence, Retire Early” (FIRE) movement, which advocates for aggressive saving and investing to achieve early retirement. The idea is that once someone reaches their FIRE number, they can step away from traditional work, pursue passion projects or adopt a more flexible approach to employment.

FIRE isn’t a one-size-fits-all approach. Some individuals pursue Lean FIRE, where they retire with a relatively modest lifestyle, keeping discretionary spending to a minimum and focusing on low-cost living. Others aim for Fat FIRE, which involves accumulating a larger portfolio to support a higher standard of living, often without the need for strict budgeting.

Between these extremes, Barista FIRE allows individuals to semi-retire, covering most expenses with investment income while working part-time for additional flexibility.

Factors That Go into a FIRE Number

A person’s FIRE number is influenced by multiple factors, including lifestyle choices, geographic location, healthcare needs and long-term financial goals. Additionally, economic conditions such as market fluctuations, inflation and interest rates can impact whether a FIRE number remains sufficient over time.

It’s worth noting that a FIRE number can also vary based on expected retirement age, investment returns and life expectancy. So, if you plan on retiring earlier, your FIRE number will be higher because you’ll need to save more money to cover a longer retirement. The same goes for those with longer life expectancies. However, your FIRE number may be lower if you expect higher investment returns.

By defining this financial milestone, individuals gain clarity on what financial independence means for them. Rather than setting an arbitrary retirement age, a FIRE number shifts the focus to financial readiness, enabling a more personalized path toward early retirement.

How to Calculate Your FIRE Number

Determining a FIRE number starts with estimating annual expenses in retirement. This includes fixed costs like housing, utilities, and insurance, along with variable expenses such as travel, healthcare and discretionary spending. A realistic assessment of future spending is key, as underestimating costs can lead to financial shortfalls.

A common approach to calculating a FIRE number is applying the 4% rule, which suggests withdrawing 4% of an investment portfolio annually while maintaining financial stability. To find the target savings amount, annual expenses are multiplied by 25. For example, if someone expects to spend $50,000 per year, their FIRE number would be $1.25 million ($50,000 × 25).

This formula is based on the Trinity Study, the better-known name for a 1998 paper titled “Retirement Savings: Choosing a Withdrawal Rate that is Sustainable” published by three finance professors at Trinity University. The study led to what we now know as the 4% rule. Essentially, this rule supports the theory that if you withdraw 4% from your savings annually during your retirement, adjusted for inflation every year following the first, then you’ll have a sustainable long-term passive income.

So, this first formula, known as the 25x rule, is an estimate of how much money you’ll need in total to safely rely on the 4% rule.

Adjusting Your FIRE Number

However, this calculation is not absolute. Those pursuing Lean FIRE may aim for a lower multiple, relying on frugality and minimal expenses, while Fat FIRE followers often increase their target to 30 or more times their annual spending for greater security. Market conditions, inflation, and investment performance also impact sustainability.

Another approach incorporates variable withdrawal strategies, adjusting withdrawals based on market conditions. For instance, some retirees reduce withdrawals during economic downturns and increase them in strong market years. Others use a floor-and-ceiling method, where withdrawals fluctuate within a set percentage range.

For those who expect significant non-portfolio income – such as rental properties, annuities or Social Security – calculating a FIRE number based on net required portfolio income can provide a more accurate target. By subtracting guaranteed income sources from annual expenses, investors determine how much their portfolio must generate, reducing the total savings required.

Why Does Your FIRE Number Matter?

A FIRE number, and hitting it, can matter for a multitude of reasons. For one person, it’s the difference between working long-term at a stressful corporate job and part-time at a passion project. For another, it’s the freedom from living paycheck to paycheck for the rest of their life. Or the ability to look forward to their senior years.

Your FIRE number gives you a goal to work toward that allows you to live comfortably. You can fill time formerly devoted to working. Instead, you can explore alternative sources of passive income.

Is Early Retirement Right for You?

FIRE may not be the right avenue to retirement for you, even if you’d like to retire early. Some critics of the FIRE movement argue that it’s only attainable for the upper class. In particular, there are concerns that the target group is mostly white and male, with high-paying jobs. Even some supporters who don’t fit in the larger demographic agree there’s a lack of diversity in the FIRE movement (although there are prominent figures, like Tanja Hester, author of “Work Optional,” trying to change that).

Lack of diversity makes it hard for those with complex lives to follow the same guidelines others may find easy through FIRE. Your life may require a list of unique expenses that make it difficult to cut back in the same way.

Additionally, FIRE doesn’t necessarily account for unexpected expenses. You may encounter serious illness in the future, or your investments may take a drastic hit. If so, your preplanning may go out the window since you only allotted so much in your retirement. However, while the FIRE movement may not work for you, that doesn’t mean you should give up on retiring earlier. You just need to plan accordingly.

One way to make early retirement a reality is to implement strategies that can help you cut expenses. These may include cancelling unnecessary subscriptions and services, living below your income level or moving to a location with a lower cost of living. You may also look for ways to boost your income by starting a side business or taking on freelance work, and making financial investments for long-term growth and retirement income.

Bottom Line

The FIRE movement is only one pathway to financial independence. For some, the strict savings and budgeting habits may align well with their goals. For others, it may ask for too much restriction. So, while working to achieve a secure retirement is worth the work for some people, it might not fit into a lifestyle you can tolerate. You can always take away certain advice from the movement without following it. Building up your nest egg and keeping track of your annual expenses are good habits to form. However, if you want an alternative path to early retirement, consider speaking with a financial advisor. They can help you define your goals and build a plan for you that takes your situation into account.

Tips for Retirement Planning

Retirement planning and meeting specific retirement goals can be difficult on your own. You may want to work with a financial advisor to help put you on the right path. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Get ahead of the game and learn how much you’ll need by using a retirement calculator. If you’re wondering how to reach that goal number, consider investing in an employer-sponsored 401(k) program.
If you’re interested in moving to a location with a lower cost of living, check out our list of the cheapest places to live.