FIRE
What is FIRE, and how is a FIRE number actually built?
FIRE is not a strategy or a product. It is a single arithmetic condition, plus a decision about how much margin you want.
FIRE stands for Financial Independence, Retire Early. The second half gets the attention, but the first half is the part that has to be true. Financial independence is reached at the point where the income your invested assets can safely produce covers your living costs, permanently and without a salary. Whether you then stop working is a separate choice, and a great many people who reach the point carry on working with the pressure removed.
The condition, in one line
You are financially independent when your corpus × a sustainable withdrawal rate ≥ your annual expenses. Everything else in FIRE (the frugality, the savings-rate spreadsheets, the arguments about index funds) is a means of making one side of that inequality meet the other.
Invert it and you get the target: corpus = annual expenses ÷ withdrawal rate. At a 4% rate that is 25× expenses, which is where the famous multiple comes from. It is division, not magic.
Where 25× comes from, and what it assumed
The multiple traces back to studies of historical US market data asking how large a first-year withdrawal, rising with inflation thereafter, would have survived a 30-year retirement across every historical starting year. Around 4% survived essentially all of them. It is genuinely useful research, and it is routinely quoted well outside the conditions it was tested under:
- It was tested over 30 years. Someone retiring at 40 needs the money to last 45 or 50, which is a materially harder problem.
- It used US historical returns and inflation, for a specific stock and bond mix, over a particular century.
- It is pre-tax and pre-fee. Both come out of the same withdrawal.
- It is a survival criterion. "Did not hit zero" and "was comfortable throughout" are not the same standard.
Treat 25× as a well-studied starting point that you then stress-test with your own horizon and assumptions, not as a number that has been settled on your behalf.
The variants, and what actually distinguishes them
| Variant | What it means in practice |
|---|---|
| Lean FIRE | A deliberately small target based on a modest spending level. Reached sooner; leaves little room for a spending shock. |
| Fat FIRE | A target built on comfortable spending, often 30–40× rather than 25×. Takes far longer; absorbs surprises far better. |
| Coast FIRE | Your existing investments alone will compound to the target by your chosen date, so no further contributions are strictly needed. You still work to cover current spending, but the retirement problem is solved. |
| Barista FIRE | Part-time or lower-stress income covers part of your spending, so the corpus only has to fund the remainder. |
The labels differ far less than they appear. Every one of them is the same equation with a different assumed spending level, a different multiple, or a different share of expenses covered by the corpus. All four can be modelled by changing inputs in the same calculator.
Working out your own number
The FIRE Calculator takes your current annual expenses in today’s money, grows them by your inflation assumption to your planned retirement year, and multiplies by your chosen multiple. It then compounds your existing savings over the same horizon and solves for the regular contribution needed to close whatever gap remains, treating contributions as arriving at the end of each period.
Two features of that calculation are worth understanding, because they are the source of most surprises:
- The target is expressed in future money, so it will look alarming compared with today’s prices. That is correct: it is being compared against a corpus that will also be in future money.
- The required contribution is highly sensitive to the years-to-retirement input, because that number sits in an exponent on both sides. Moving retirement out by three years often cuts the required monthly contribution by more than trimming the target ever could.
The step most FIRE plans skip
Reaching the number is the accumulation problem. Living off it is a different problem with different risks, and the multiple says almost nothing about it. Once you have a target, put it into the SWP Calculator as an opening balance, set the withdrawal to your actual expected spending, and set withdrawal growth to your inflation rate. Then look at the year the corpus runs out.
People are frequently surprised at this point, because the drawdown view exposes two things the multiple hides: the effect of a rising withdrawal (SWP and inflation), and the effect of the order in which returns arrive (sequence-of-returns risk). A FIRE number that survives both of those checks is worth considerably more than one that has only been divided out on paper.
Related guides
Try it with your own numbers
More guides in the Retirement Learning Centre, and common questions in the retirement planning FAQ.
This guide is educational and general. It is not financial, investment, tax or legal advice, and it takes no account of your circumstances. Every figure quoted is an illustration produced by the arithmetic described, not a forecast or a guarantee. Investment returns, inflation and market conditions are uncertain and will differ from any assumption used here. See the full disclaimer.