FIRE Number Calculator

How this is worked out

The target is one division:

portfolio needed = annual spending ÷ withdrawal rate

At a 4% withdrawal rate that is 25 times your annual spending. At 3.5% it is about 29 times; at 5% it is 20 times. Small changes in the rate move the target a great deal, which is why the choice of rate deserves more thought than it usually gets.

The 4% figure comes from studies of historical US market returns which asked how much a retiree could withdraw, rising with inflation, without running out over a 30-year retirement. It was never a law of nature. It came from one market's history, over one length of retirement, with a particular mix of shares and bonds. People retiring in their forties are planning for a retirement far longer than 30 years, and many use a lower rate for that reason.

The years figure is calculated by stepping forward one year at a time: grow the balance by your real return, add another year of saving, repeat until it clears the target. Because the return is entered after inflation, the answer stays in today's money and you do not need to adjust it.

The uncomfortable insight buried in this calculation is that your spending does double duty. Cutting annual spending by 1,000 reduces the target by 25,000 and frees 1,000 a year to invest. That is why savings rate, not income, dominates how quickly anyone gets there.

A worked example

Spending 36,000 a year, 4% withdrawal, 60,000 invested, adding 18,000 a year, 5% real return:

Portfolio needed: 900,000
Still to accumulate: 840,000
Time at this rate: about 23 years

Now cut spending to 30,000 and put the 6,000 difference into investing, so you save 24,000 a year:

Portfolio needed drops to 750,000
Time falls to about 17 years

A 6,000 change in annual spending moved the finish line six years closer. No change in income was required.

What this doesn't cover

This assumes a steady real return every year. Real markets do not cooperate, and the order of returns matters enormously once you start withdrawing. A bad first decade can sink a portfolio that would have been fine with the same average in a different order.
Tax is not modelled, in either the accumulation or the withdrawal phase, and it can be substantial.
Any state or workplace pension arriving later is ignored. If you expect one, your portfolio only needs to bridge the years before it starts, which can reduce the target considerably.
Health cover, which employment often provides, is a large and frequently forgotten line in early-retirement budgets.

Common questions

Is 4% still a sensible rate?

It remains the most common starting point, and it remains contested. The arguments for a lower rate are longer retirements and the possibility that future returns are weaker than the historical period the rule came from. The argument for flexibility is that real retirees adjust their spending in bad years rather than mechanically withdrawing. Running your own numbers at 3.5% and at 4.5% shows you how much the answer depends on an assumption nobody can settle.

Should I include my home in the portfolio?

Generally not, because you cannot spend it without selling it and needing somewhere else to live. It belongs in the plan as a reduced housing cost once the mortgage is gone, which lowers the spending figure instead.

What return should I put in?

Whatever you use, make sure it is a return after inflation — otherwise the answer comes out in future money and looks far too optimistic. Real returns are naturally much lower than the headline numbers people quote.