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When most people plan for retirement, they’re making plans around their 67th birthday. Proponents of the FIRE movement, however, believe that retirement can be achieved decades earlier than the official retirement age. Here’s what to know about the elusive promise of Financial Independence/Retire Early and what it takes to reach financial freedom in practical terms.

What is the FIRE movement?

FIRE stands for Financial Independence/Retire Early, and you can read up on the basics of FIRE here. In short: The FIRE movement boils down to taking advantage of the value of compound interest from investing early in your 20s. Naturally, the movement has some critics, largely claiming that FIRE promotes unrealistic projections of wealth for anyone who doesn’t already have some substantial wealth in the first place.

As I’ve previously explained, I’m one of those FIRE skeptics. The ability to put significant distance between your income and your spending is too big a privilege to be truly relatable. I’d wager that more Americans are more worried about retiring ever to even imagine retiring early. 

But if you’re drawn to the idea of financial independence and retiring early (who wouldn’t be?), here’s how the numbers break down.

How to calculate your FIRE number

To understand what FIRE actually looks like, you’ll need to calculate your FIRE number. This number is meant to represent the total value of assets necessary to live on a passive income, allowing you to quit working and live off annual gains alone. Here’s the equation to calculate your FIRE number: Annual Expenses x 25 = FIRE Number.

In other words, simply multiply your annual expenses by 25; some call this the 4% rule. For example, if your annual expenses are $40,000, you are financially independent when your total net worth is $1 million. As we previously covered, when your net worth is 25 times your annual expenses, you can consider yourself financially independent enough to retire early.

To break another example down further: Let’s say you examine your bank statements and determine your monthly expenses are $5,000. Multiply that number by 12 to find your annual expenses are $60,000. Multiplied by 25, your FIRE number is $1.5 million. This means that to maintain your lifestyle without working any longer, you’ll need $1.5 million in invested assets.

How to achieve your FIRE number

To calculate how much money you’ll need to save each month to stay on track, check out the U.S. Security and Exchange Commission’s compound interest calculator at Investor.gov. For instance, according to the calculator, a 35-year-old who has $50,000 invested who wants to reach $1.2 million in 30 years will need to put aside an additional $1,000 per month (assuming a 6% annual rate of return). Looking at those numbers, the idea of achieving that FIRE number decades earlier is no small feat.

As any FIRE advocate will tell you, achieving over $1 million in invested assets certainly requires some lean living in the meantime. But for most, it likely won’t be enough to simply cut back on expenses. You’ll still need a decent income to get to the point where you have enough invested assets to coast without work. For most of us, a rule like “spend less than you earn” is realistically not enough to hit that FIRE number by a certain age.



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