So, here’s the maths bit. There are a few key concepts underpinning the financial side of FIRE. A safe withdrawal rate serves as a vital benchmark for individuals embracing FIRE, as it represents the percentage of a retirement portfolio that can be withdrawn annually without significantly increasing the risk of depleting funds throughout retirement. This rate should take into account factors like investment returns, inflation rates, and individual longevity, thereby enabling retirees to maintain their desired lifestyle while ensuring their financial resources last over potentially several decades.

 

​So the obvious follow-up question to that is - what is a safe withdrawal rate. This will depend on individual circumstances, and the type of FIRE you are doing, but the most common guidance is the 4% rule. This rule posits that retirees can safely withdraw 4% of their total investment portfolio each year, adjusted for inflation, without running out of money. The rule allows individuals to better plan their financial independence by providing a relatively safe withdrawal strategy that balances the need for sustainable income with the potential for investment growth. However, the rule does prompt ongoing discussions about its assumptions regarding market conditions and the spending patterns of individuals, making it essential for followers to consider their unique circumstances and adjust their strategies accordingly.

 

Your FIRE number, as you might expect, is the amount you need to have saved to be able to retire. Again, this will be very different for different people. To calculate your FIRE number, you typically multiply your desired annual expenses in retirement by 25, which represents the amount needed to sustain a safe withdrawal rate of 4%. This determines the total savings required to achieve financial independence and retire early. The key bit here is your expected annual expenses - you will need to be as detailed and honest as you can be with what you expect these to be, to ensure you don’t run into any unexpected issues once you take retirement. It’s always good to assume the worst and plan for your expenses being at the upper limit, even if you expect they will be less.