How the FIRE math works
FIRE stands for Financial Independence, Retire Early. You’re financially independent when your investments can fund your spending indefinitely. The usual yardstick is the 4% rule: historically, withdrawing about 4% of a portfolio in the first year (then adjusting for inflation) has lasted 30 years in almost every period on record. Flip it around and your FI number is about 25× your annual spending.
- Everything is in today’s dollars. Using a real return (after inflation) means you don’t have to guess future prices. 4–5% real is a common long-run assumption for a stock-heavy portfolio.
- Your savings rate drives the timeline. Spending less lowers the target and frees up more to save, which is why it moves your date more than anything else.
- The runway shows how long your money would last if you stopped working, assuming steady returns. Real markets are bumpier, so leave a margin.
The formulas
FI number = (spending − other income) ÷ withdrawal rate
Portfolio after n years = S × (1 + r)n + A × ((1 + r)n − 1) ÷ r
S is what you have invested now, A what you save each year (added at year-end), and r the real return. Years and savings have exact solutions. The required return is found by bisection. See the methodology.