FIRE Calculator

FIRE stands for Financial Independence, Retire Early. It centers around reaching a point where your savings and investments generate enough passive income to cover your living expenses without relying on a traditional job. This empowers you to retire decades earlier than the standard retirement age and provides flexibility with how you spend your time.

Traditional retirement planning prioritizes accumulating enough savings to withdraw in your later years (usually 65+). FIRE focuses on aggressive savings and investing to reach financial independence much sooner. It also emphasizes a high savings rate and intentional lifestyle choices, allowing you greater control over time and finances.

Not necessarily. Many in the FIRE community embrace various forms of work after reaching financial independence. This could involve pursuing passion projects, part-time jobs, consulting, or starting a business. 

Yes! There are several types of FIRE, each with different aims and lifestyle implications. Lean FIRE focuses on extreme frugality and a lower retirement income, allowing you to achieve financial independence faster. Fat FIRE, on the other hand, strives for a more luxurious retirement lifestyle with a higher target savings amount. Barista FIRE targets a semi-retirement state, where part-time employment supplements investment income for greater flexibility and choice.

To get the most accurate results from a FIRE calculator, you'll need several key inputs. These include your existing savings and invested assets, your yearly income before taxes and deductions, and your current living costs. Additionally, you'll need to estimate the amount of money you expect to spend annually throughout retirement, the percentage you plan to withdraw from investments each year (known as the safe withdrawal rate, usually a conservative 3-4%) and the average annual return you anticipate your investments generating over time.

Start by carefully tracking your current spending habits. Categorize your expenses (housing, food, utilities, etc.) and identify areas where you can cut back once you retire. You also might want to factor in potential new expenses like healthcare and increased travel or hobbies. Creating a "retirement budget" is helpful for a more accurate projection.

A safe withdrawal rate is the percentage of your retirement savings you can withdraw yearly without a high risk of depleting your funds too early. Traditionally, a 4% withdrawal rate is considered conservative. A higher withdrawal rate means you'll need a lower total savings amount to retire, but it also carries more risk. Conversely, a lower withdrawal rate increases the necessary nest egg size but offers greater security.

Historically, the stock market has averaged around a 7-10% annual return when inflation is adjusted. However, returns vary from year to year. Planning for a slightly lower return (5-8%) adds a layer of conservatism to your FIRE calculations. It's also crucial to remember that past performance doesn't guarantee future results.

While FIRE advocates for aggressive saving and investing, the journey can differ depending on your financial situation. A lower income may mean reaching FIRE takes longer. Focus on increasing your savings rate as much as possible, even if the amounts initially seem small. Explore potential side hustles or ways to increase your income while decreasing spending.

Inflation (rising prices of goods and services) erodes money's buying power over time. Factoring a projected average inflation rate into your FIRE calculator is crucial. This will lead to a slightly higher target savings goal, ensuring your retirement funds can keep up with future costs of living.

Most FIRE calculators allow you to adjust the inputs as your circumstances change. It's essential to recalculate and update your FIRE number regularly as significant life events occur, a promotion changes your income, or spending habits and retirement goals shift.

Unexpected expenses are a reality. FIRE strategies often include contingency planning for emergencies by saving an additional buffer on top of your core FIRE target. In the US, retiring before the traditional Medicare age (65) requires careful planning for health insurance coverage, either through private plans or options under the Affordable Care Act. It's vital to include potential healthcare costs in retirement budget estimates.