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The FIRE number is one of the key concepts of the FIRE (financial independence, retire early) movement. Working this out should be pretty easy: Multiply your annual expenses by 25, and voilà, you have the figure you’ll need to live on comfortably for the rest of your life once you’ve reached retirement age. You’ll then be able to safely withdraw 4% of your assets per year.

This method is based on a 1998 research paper known as The Trinity Study. It aimed to work out safe withdrawal rates from retirement portfolios that are based on stocks and bonds. The original data took into account retirement dates between 1925 and 1966, and then an updated version included data with retirement ages up to 1980.  

Now, you probably have some of the same questions we do: If the FIRE number is based on retirement data from people who retired back in the 1980s, it almost certainly is looking at traditional retirement ages in the upper 60s. While traditional retirement expense planning does present some challenges, especially where basing withdrawal rates on volatile stock markets is involved, we’re in a completely different ballpark with FIRE retirement planning. 

Predicting your annual expenses accurately for when you are in your 40s and 50s has a seemingly infinite number of variables. What if you decide to move to the opposite side of the country? What if you get married/divorced/decide to start a family/get sick? Not to mention the fact that you (hopefully) will live much longer than another 25 years after your early retirement than the traditional retiree aged in their late 60s/early 70s.

What to do? Do you ditch the whole FIRE number concept altogether, as too unreliable? 

How to Calculate Your FIRE Number

Not necessarily. In fact, for the FIRE number to be helpful to you at all, you may need to approach many things differently. 

BiggerPockets had an intriguing conversation about this with Jessica, a successful FIRE prominent and the co-founder of the FIRE blog The Fioneers. Ultimately, her take is that the FIRE number is something that you’ll need to adjust over time, depending on what direction your life takes.

A big part of working out your FIRE number is being able to imagine the major life changes you foresee for yourself. Jess advises to then go with “the number from one of the higher scenarios.” So if you have a partner and kids are in the cards, plan for annual expenses with children. 

Just don’t go Googling “how much do kids cost” online, cautions Jess. All that will do is just give you “the average of how much kids cost in the U.S.” 

Jess adds:

“People pursuing FI are typically not average. Many people who have kids upgrade their house and decide to get another or larger car (usually financed) and put their kids into all of the expensive activities. I’d encourage them to talk to people with kids to learn more about their parenting style and how much their expenses changed when having kids. The expenses will go up, but they may not go up as much as the average.”

To a large extent, an accurate FIRE number calculation comes from developing a very good understanding of how much will be enough for you specifically. 

People who seem to get the most out of FIRE are prepared to reconsider at least some of the typical tenets of what a comfortable lifestyle looks like. Many (though by no means all) choose to be location-independent, for example. In effect, that means giving up on the dream of homeownership. 

By the way, if you want to do FIRE alongside homeownership, never include your home equity into your net worth unless you’re prepared to sell your home and not buy another. 

There’s one final important factor to consider when working out your FIRE number: Will you be able to support yourself financially if and when the markets let you down? If you can be flexible and work when necessary, “you should have no issues with running out of money,” says Jess. But if, for whatever reason, you won’t be able to work during leaner years, the 25 rule probably won’t cut it—you’ll need to save 30-35x your annual expenses instead. 

Final Thoughts

Ultimately, the FIRE number is a useful tool, but it gives you a figure that’s always an approximation, never a guarantee. Use it, but be prepared to revisit it as frequently as your life circumstances (are about to) change.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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