FIRE Calculator

Understanding FIRE

What is Financial Independence?

Financial Independence means having enough assets to live without depending on employment income. Your investments generate enough passive income to cover all your expenses indefinitely.

The FIRE Number

Your FIRE number is the amount of money you need invested to retire. It's typically calculated as 25 times your annual expenses, based on the 4% safe withdrawal rate.

• • Annual expenses × 25 = FIRE number
• • £40,000/year expenses = £1,000,000 FIRE number
• • Withdraw 4% annually (£40,000) adjusted for inflation
• • Portfolio should last 30+ years with high probability

Why Retire Early?

• • Freedom to pursue passions and hobbies
• • More time with family and friends
• • Better health and wellbeing
• • Option to work on your own terms
• • Travel while young and healthy

Types of FIRE

There are different approaches to FIRE depending on your lifestyle preferences and income goals:

Lean FIRE

Retire with minimal expenses, typically under £25,000 per year. Requires significant lifestyle adjustments but achievable with smaller portfolio.

• • Target: £500,000 - £750,000 portfolio
• • Annual spending: £20,000 - £30,000
• • Focus on essential expenses
• • Minimalist lifestyle approach

Standard FIRE

Maintain a comfortable middle-class lifestyle in retirement. The most common FIRE approach balancing freedom with comfort.

• • Target: £1,000,000 - £1,500,000 portfolio
• • Annual spending: £40,000 - £60,000
• • Comfortable but not luxurious lifestyle
• • Room for travel and hobbies

Fat FIRE

Retire with a high standard of living without financial constraints. Requires substantial wealth accumulation but offers maximum flexibility.

• • Target: £2,000,000+ portfolio
• • Annual spending: £80,000+
• • Luxury lifestyle maintained
• • No financial compromises needed

Barista FIRE

Achieve partial financial independence and supplement with part-time work. Allows earlier "retirement" with continued income.

• • Lower FIRE number needed
• • Part-time or passion work continues
• • Benefits like healthcare covered by work
• • More social interaction maintained

The Path to FIRE

1. Calculate Your FIRE Number

Start by understanding your annual expenses and multiply by 25. This is your baseline FIRE target.

• • Track all expenses for 6-12 months
• • Identify essential vs discretionary spending
• • Project retirement expenses (may be different)
• • Add buffer for unexpected costs

2. Maximize Your Savings Rate

Your savings rate is the most important factor in reaching FIRE. The higher your savings rate, the faster you'll achieve financial independence.

• • 10% savings rate = 51 years to FIRE
• • 30% savings rate = 28 years to FIRE
• • 50% savings rate = 17 years to FIRE
• • 70% savings rate = 8.5 years to FIRE

3. Invest Wisely

Your money needs to work hard through smart investing. Most FIRE seekers use low-cost index funds for reliable growth.

• • Focus on low-cost index funds
• • Maximize tax-advantaged accounts (ISA, pension)
• • Maintain appropriate asset allocation
• • Stay disciplined during market volatility

Strategies to Accelerate FIRE

Increase Income

• • Negotiate salary increases regularly
• • Develop high-income skills
• • Start a side business or freelance
• • Invest in career development
• • Consider job changes for higher pay

Reduce Expenses

• • House hack or geographic arbitrage
• • Eliminate or reduce car expenses
• • Cook at home and meal prep
• • Cut unnecessary subscriptions
• • Find free or low-cost entertainment

Optimize Investments

• • Minimize investment fees (aim for under 0.2%)
• • Tax-loss harvesting where applicable
• • Maximize employer pension matching
• • Use ISAs to shelter investment gains
• • Consider SIPP for tax efficiency

The 4% Rule and Safe Withdrawal Rates

Understanding the 4% Rule

The 4% rule suggests you can withdraw 4% of your portfolio in year one of retirement, then adjust for inflation each year, with a high probability of not running out of money over 30 years.

Factors Affecting Withdrawal Rates

• • Retirement length: Longer retirements may need lower rates (3-3.5%)
• • Market conditions: Starting in a bear market increases risk
• • Asset allocation: Stock/bond mix affects sustainability
• • Flexibility: Ability to reduce spending in down years
• • Geographic factors: UK vs US market returns differ

Alternative Withdrawal Strategies

• • Variable percentage: Withdraw fixed % of current portfolio
• • Guardrails method: Adjust based on portfolio performance
• • Bond tent: Higher bonds early in retirement
• • Cash cushion: Keep 1-2 years expenses in cash

Tax Optimization for FIRE

UK Tax-Advantaged Accounts

• • ISA (£20,000/year): Tax-free growth and withdrawals
• • SIPP: Tax relief on contributions, but taxed on withdrawal
• • LISA (£4,000/year): 25% bonus, accessible at 60
• • Premium Bonds (£50,000 max): Tax-free prizes

Tax Strategy in Retirement

Careful withdrawal planning can minimize taxes in early retirement:

• • Use ISA withdrawals first (tax-free)
• • Stay within personal allowance for other income
• • Consider pension access from 55 (57 from 2028)
• • Manage capital gains within annual allowance
• • Plan dividend income efficiently

Common FIRE Mistakes to Avoid

Planning Mistakes

• • Underestimating healthcare costs
• • Not accounting for inflation properly
• • Forgetting about taxes in retirement
• • Assuming expenses will stay constant
• • Ignoring sequence of returns risk

Lifestyle Mistakes

• • Extreme frugality leading to burnout
• • Sacrificing all enjoyment for FIRE
• • Not planning for post-retirement purpose
• • Ignoring relationships during accumulation
• • Failing to build skills beyond work

FIRE Success Factors

Financial Factors

• • High savings rate (50%+ ideal)
• • Consistent investing regardless of market
• • Low investment costs
• • Multiple income streams
• • Emergency fund maintained

Personal Factors

• • Clear vision of post-FIRE life
• • Partner alignment on goals
• • Flexibility to adjust plans
• • Continuous learning mindset
• • Strong support network