Your FIRE Number: How the 4% Rule Works, and Its Limits

FIRE stands for "financial independence, retire early". Your FIRE number is the size of the portfolio that could pay for your life indefinitely, so that working becomes optional.

The usual shortcut is to multiply your yearly spending by 25.

Spend 40,000 a year and your FIRE number is 1,000,000. At 24,000, it's 600,000. The currency doesn't matter for the maths.

Where "times 25" comes from

Multiplying by 25 is the same as assuming you can withdraw 4% of your portfolio each year. The idea goes back to a 1994 paper by financial planner William Bengen, who tested withdrawal rates against historical US stock and bond returns. He found that starting at about 4% and then raising the amount with inflation each year would have lasted at least 30 years in every historical period he looked at.

A few years later, three professors at Trinity University ran a similar study (often called the Trinity study) and reached broadly similar conclusions for 30-year retirements with a stock-heavy portfolio.

So the 4% rule is a historical backtest. Future returns can be worse than anything in the data.

Three limits worth knowing

It was built for 30 years

A traditional retirement at 65 might last 25 to 30 years. Retire at 40 and your money may need to last 50. Longer horizons leave more room for a bad sequence of returns, which is why many people aiming for early retirement plan with 3% to 3.5%. At 3.5%, multiply your spending by about 28.6 instead of 25. At 3%, by about 33.

It's based on US history

The US had one of the strongest stock markets of the past century. Investors in other countries, or with portfolios concentrated in their home market, didn't always do as well.

Your spending isn't fixed

In practice people adjust. Being able to cut spending by 10% in a bad year makes a slightly higher withdrawal rate much safer. If you can't cut back, plan more conservatively.

Working out your own number

1. Find your real annual spending. Bank statements will give you the real figure. Include irregular costs like car repairs, holidays and annual insurance.
2. Adjust for retirement. Some costs disappear (commuting, pension contributions). Others appear (private health insurance in some countries, more travel).
3. Subtract other income. If you expect a state or company pension of 12,000 a year from age 67, you need less from your portfolio after that point. Many people plan in two phases: before the pension starts, and after.
4. Divide by your withdrawal rate. 4% for a standard horizon, 3 to 3.5% if you want more margin.

Example

Say you spend 36,000 a year and want to stop working at 45, with no pension until 67.

• At 4%: 36,000 × 25 = 900,000
• At 3.5%: 36,000 ÷ 0.035 ≈ 1,028,600
• At 3%: 36,000 ÷ 0.03 = 1,200,000

That spread is why the choice of rate matters more than people expect.

What counts toward the number

Count invested assets you could actually draw from: brokerage accounts, ETFs, retirement accounts (keeping in mind the age you can access them), and cash beyond your emergency fund. Your home usually doesn't count unless you plan to sell or rent it out. This post goes into why.

How close are you?

Compare your invested net worth with your FIRE number. If the number is 900,000 and you have 180,000 invested, you're 20% of the way there. The net worth calculator is a quick way to get that first figure.

NetWorthy's Pro plan includes a FIRE planner that runs these numbers from your real portfolio, liabilities and currency, and shows how different withdrawal rates and savings levels change the timeline. It's a planning tool, not financial advice. If you're making big decisions, like quitting a job, speak to a qualified adviser.