Our Methodology
Research-based financial principles and conservative calculations for reliable FIRE planning
Core Financial Principles
4% Safe Withdrawal Rate(SWR)
Our primary calculation framework is based on the Trinity Study (1998) and subsequent research showing that a 4% annual withdrawal rate from a diversified portfolio has historically supported 30+ year retirement periods with 95%+ success rates.
FIRE Number Formula
FIRE Number = Annual Expenses × 25
(Inverse of 4% = 1/0.04 = 25)Example: If you need $50,000 per year in retirement, your FIRE number would be $50,000 × 25 = $1,250,000
Historical Market Returns
- • 7% Real Return: Inflation-adjusted S&P 500 average (1926-2023)
- • 10% Nominal Return: Pre-inflation historical stock market average
- • Conservative Approach: We default to 7% real returns for realistic projections
- • Bond Allocation: Lower expected returns (2-4% real) for conservative portfolios
Inflation Adjustment
All calculations account for inflation to maintain purchasing power throughout retirement:
- • Default inflation rate: 2.5% annually (Federal Reserve target + buffer)
- • Real returns = Nominal returns - Inflation rate
- • Future expenses automatically adjusted for inflation
- • FIRE numbers represent today's purchasing power
FIRE Approaches Comparison
| FIRE Type | Definition | Target Amount | Typical Timeline | Best For |
|---|---|---|---|---|
| Traditional FIRE | Financial Independence, Retire Early - Full retirement with comfortable lifestyle | 25× annual expenses | 10-20 years | Balanced approach seekers |
| Lean FIRE | Minimalist early retirement with frugal living ($40K/year or less) | $500K - $1M | 5-15 years | Minimalists, low-cost areas |
| Fat FIRE | Luxury early retirement maintaining high spending ($100K+/year) | $2.5M - $5M+ | 15-30 years | High earners, luxury lifestyle |
| Coast FIRE | Front-load retirement savings then coast to retirement on compound growth | Variable (age-dependent) | 5-10 years to coast | Young professionals, burnout prevention |
| Barista FIRE | Semi-retirement with part-time work for benefits and supplemental income | 50-75% of full FIRE | 7-15 years | Work-life balance, healthcare needs |
Key Insight: Each FIRE approach represents a different balance between time to retirement, required savings, and lifestyle expectations. The "best" approach depends on individual values, income levels, and life goals.
Calculation Framework
Time to FIRE Formula
Years = log(1 + (Goal - Current) / Annual Savings) / log(1 + Return Rate)Compound interest formula solving for time, accounting for existing savings and regular contributions.
Future Value Growth
FV = PV × (1 + r)^t + PMT × [((1 + r)^t - 1) / r]Standard financial formula for present value, periodic payments, and compound growth over time.
Calculator-Specific Adjustments
🌿 Lean FIRE
- • Lower expense targets
- • Geographic arbitrage factor
- • Frugal lifestyle optimization
⛵ Coast FIRE
- • Stop-saving calculation
- • Growth-only projections
- • Traditional retirement age
☕ Barista FIRE
- • Part-time income offset
- • Health insurance value
- • Reduced FIRE number
👑 Fat FIRE
- • Higher expense multiples
- • Luxury lifestyle costs
- • Tax optimization planning
💑 Couples FIRE
- • Dual income optimization
- • Shared expense benefits
- • Staggered retirement options
Complete FIRE Calculation Example
Sarah's Journey to FIRE: A Step-by-Step Calculation
Step 1: Current Situation Assessment
- • Age: 30 years old
- • Annual income: $75,000
- • Annual expenses: $45,000
- • Current savings: $50,000
- • Annual savings: $75,000 - $45,000 = $30,000
- • Savings rate: $30,000 / $75,000 = 40%
Step 2: Calculate FIRE Number
- • Annual retirement expenses: $45,000
- • Safe withdrawal rate: 4%
- • FIRE Number = $45,000 × 25 = $1,125,000
Step 3: Calculate Years to FIRE
Using the compound interest formula with 7% real returns:
Years = log((1,125,000 - 50,000) / 30,000 + 1) / log(1.07)
Years = log(36.83) / log(1.07)
Years ≈ 15.8 yearsSarah can retire at approximately age 46
Step 4: Calculate Coast FIRE Number
If Sarah wants to coast to retirement at age 65 (35 years from now):
Coast FIRE = $1,125,000 / (1.07)^35
Coast FIRE = $1,125,000 / 10.677
Coast FIRE ≈ $105,400Sarah needs just $55,400 more to reach Coast FIRE!
Step 5: Optimization Strategies
- • Increasing savings rate to 50%: Retire in 12.5 years (age 42)
- • Reducing expenses to $40,000: FIRE number drops to $1,000,000
- • Side hustle of $10,000/year: Retire 2 years earlier
- • Geographic arbitrage: Moving to lower cost area could reduce FIRE number by 30%
Key Takeaway: Small changes in savings rate, expenses, or income can significantly impact your FIRE timeline. Sarah's 40% savings rate puts her on track for retirement in under 16 years, demonstrating the power of consistent saving and compound growth.
Data Sources & Research Foundation
Academic Research
- • Trinity Study (1998): University of Trinity analysis of safe withdrawal rates
- • Bengen's Research (1994): Original 4% rule financial planning foundation
- • Shiller CAPE Data: Cyclically adjusted P/E ratios for market valuation context
- • Federal Reserve Economic Data: Interest rates, inflation, and economic indicators
Market Data Sources
- • S&P 500 Returns: 1926-present historical performance data
- • Bond Market Returns: US Treasury and corporate bond historical yields
- • Inflation Data: Consumer Price Index (CPI) from Bureau of Labor Statistics
- • International Markets: MSCI World Index for global diversification context
Conservative Assumptions
Our methodology prioritizes achievability over optimistic projections:
- • Use real (inflation-adjusted) returns rather than nominal returns
- • Account for sequence of returns risk in early retirement
- • Include estimates for taxes, healthcare, and unexpected expenses
- • Provide ranges rather than single-point estimates when appropriate
Methodology Limitations
Important Considerations
- • Past Performance: Historical returns do not guarantee future results
- • Individual Variation: Personal circumstances vary significantly from averages
- • Market Cycles: Sequence of returns risk can impact early retirement timing
- • Expense Changes: Healthcare, family, and lifestyle costs may differ from projections
- • Economic Shifts: Major economic changes could alter fundamental assumptions
These calculators provide educated estimates based on historical data and established financial principles. All projections should be considered starting points for financial planning, not guarantees of specific outcomes.