Healthcare expenses: health insurance, out-of-pocket payments, dental, glasses/contact lenses, life insurance Personal care: clothing, products, hobbies, subscriptions, childcare, petcare Household expenses: mortgage/rent, utilities, cable, internet, general maintenance, household supplies, property tax & insurance, credit card payments I looked at the amount my family currently spent on household expenses, meals, personal care, healthcare, transportation and community care. Once I had a FIRE number formula, I calculated our expected annual expenses at retirement by listing our current monthly expenses. The researchers found a 100% chance that someone with a portfolio with at least 50% in stocks could safely withdraw 3% of their investments for 40 years without depleting their investments, which is why we divide by 0.03. Professors used historical market data to study sustainable withdrawal rates based on various stock and bond allocations for different retirement horizons. This second formula is based on a more recent study from Trinity University. It can help you calculate your monthly and yearly spending.) (If you need help tracking expenses, check out this Google spreadsheet. In this case, $4,000 in monthly expenses would equate to a FIRE number of $48,000 divided by. However, after some additional digging, I felt more comfortable with a different withdrawal rate and chose to calculate my FIRE number based on this formula: So for example, if your living expenses are $4,000 per month, your annual expenses are $48,000 and your FIRE number is $48,000 times 25, or $1.2 million. As I researched the best way to calculate this number, I came across the Trinity Study, the source of the well-known 4% rule, and this simple formula for calculating your FIRE number: We realized that even if we did not reach our early retirement goal, we would still be on track to retiring at some point-and considering we had loved ones who could not say the same, we were eager to at least start.Īs soon as I learned that retirement could happen at any age, I needed to determine our personal FIRE number: the total value of assets we would need to accumulate in order to live off passive investment income. But, at the same time, it was empowering.Īs I calculated how much we would need to invest to retire early, my husband and I started to view FIRE as a game that would make planning for retirement fun. I was scared, wondering whether we would ever be able to retire since we didn’t start investing consistently until our thirties. On the one hand, knowing this number left me and my husband worried. Simply put, your FIRE number is the amount of money you need to have invested in order to live off those returns and quit working. Now, I know that retirement doesn’t magically occur at a certain age, but rather when we can afford to pay our annual expenses with passive income. The higher your savings rate and the percentage of income you don’t spend, the faster you can become work optional.īefore learning about FIRE, I thought retirement was something that only people with pensions could do at the age of 65. It’s a movement that encourages people to live below their means so they have more money to invest towards early retirement or part-time work. What Is a FIRE Number, and Why I’m on This JourneyįIRE stands for financial independence, retire early.
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