FIRE

FIRE number: yearly spending ÷ withdrawal rate, raised each year by inflation. Your portfolio grows monthly from what you have plus what you invest, and you are financially independent the first year it covers the FIRE number.

What it assumes

• The “4% rule” comes from US market history over 30-year retirements. Morningstar's latest estimate is 3.9% for 30 years with a 90% chance the money lasts. Retiring early means 40 or 50 years, and India has higher inflation, so this calculator starts at 3.5%.
• One steady return and one steady inflation rate. A crash in your first years of retirement is the biggest risk, and an average hides it.
• Healthcare and education often rise faster than general inflation. If you expect big costs like these, add them to your monthly spending.
• No taxes, pensions, EPF, Social Security or rental income. Income you will still have lowers the number you need.

Worked example

Spend $4,000 a month, have $50,000 invested, and invest $2,000 a month, raised each year with 3% inflation, at an assumed 10% return. At a 3.5% withdrawal rate your FIRE number is $1,371,429 in today's money, and you get there in about 22 years, when it has grown to $2,627,799 in the money of that year.

Spend ₹50,000 a month, have ₹10,00,000 invested, and invest ₹40,000 a month, raised each year with 6% inflation, at an assumed 10% return. At a 3.5% withdrawal rate your FIRE number is ₹1,71,42,857 in today's money, and you get there in about 21 years, when it has grown to ₹5,82,78,233 in the money of that year.

Learn the idea behind it

• Compounding: small numbers, big outcomes
• Inflation: the quiet tax
• Risk and reward are the same coin

Terms used here: Inflation, Real return, Time horizon, Drawdown.