What Is FIRE? The Portfolio a Withdrawal Rate Implies
FIRE — financial independence, retire early — here means a portfolio large enough that a withdrawal rate you choose covers a year of spending. The FI number is that portfolio. It is an assumption, not a date the market owes you.
Key takeaways
- FI number = annual spending the portfolio must replace ÷ withdrawal rate.
- $40,000 of spending at 4% is $1,000,000, because 1 ÷ 0.04 = 25.
- A 4% rate is a common illustration from historical studies of about 30-year retirements. A longer retirement can need a lower rate. This page does not estimate the odds that a rate lasts.
- The coast balance is the amount today that grows to the FI number with nothing more added.
The formula
FI number = annual spending ÷ withdrawal rate
Coast number = FI number ÷ (1 + annual return) ^ years
Each year in the savings countdown, the balance grows at the return you typed, then the annual savings is added, until the balance reaches the FI number or 80 years pass.
A worked example
Spending $40,000. Withdrawal rate 4%. Portfolio today $100,000. Annual savings $20,000. Return 7%. Coast horizon 20 years.
- FI number = $40,000 ÷ 0.04 = $1,000,000.
- Saving $20,000 a year at 7% reaches it in 18 years, at about $1,017,974.
- Coast balance = $1,000,000 ÷ (1.07) ^ 20 ≈ $258,419.
If the portfolio today is already at the coast balance, later contributions are optional under those assumptions. Run the same inputs in the FIRE calculator.
Optional fields change the target, not the identity. A tax rate grosses spending up, because the portfolio has to fund the tax as well as the spending. Part-time income produces a smaller portfolio that covers spending minus that income. The year count on the page still aims at the full FI number.
What the FI number tells you
It turns a spending figure and a withdrawal rate into a portfolio size, then shows how long a savings rate takes to get there. Change the withdrawal rate and both the target and the year count move.
What the FI number leaves out
Social Security, a pension, a spending cut in a bad year, and the order of returns are outside the formula. A poor stretch early in retirement can drain a portfolio that a smooth 7% path never touches. Salary and an employer match live on the retirement savings page.
Apple shows a company's size and price. It does not show your spending or your withdrawal rate.
For general education only. Nothing here is investment advice.
Frequently asked questions
- How do you calculate a FIRE number?
- Divide annual spending by the withdrawal rate you type. $40,000 at 4% is $1,000,000. A 4% rate is a common illustration from studies of about 30-year retirements. A longer retirement can need a lower rate. The MarketCapLens FIRE calculator does not estimate the odds that a rate lasts.
- What is a coast balance?
- It is the amount today that grows to the FI number with no further contributions, at the return and the years you type. At 7% for 20 years, a $1,000,000 FI number implies a coast balance near $258,419.