How To Calculate Your FIRE Number (Step by Step)

Your FIRE number is the amount of money you need invested so that you can live off the returns indefinitely — without ever touching a paycheck again. It sounds complicated, but the core calculation fits on a napkin. Once you know it, every financial decision you make gets simpler.

The Formula: Annual Expenses × 25

The FIRE number formula is:

That's it. If you spend $66,000 a year, your FIRE number is $1,650,000. If you spend $40,000 a year, it's $1,000,000. If you spend $100,000, it's $2,500,000. The number scales perfectly with your lifestyle.

Why 25x? The 4% Rule Explained

The "25x" multiplier derives from a landmark 1994 academic study by William Bengen, later expanded by researchers at Trinity University, known as the Trinity Study. They analyzed U.S. stock and bond market data going back to 1926 and asked a simple question: what's the highest percentage of a portfolio you can withdraw each year without running out of money over a 30-year retirement?

The answer was 4% — a portfolio split roughly 60% stocks / 40% bonds survived every historical 30-year window they tested. Since 4% = 1/25, you need 25 times your annual spending. The math is clean and the research is solid.

For early retirees with longer time horizons — say, a 40-year or 50-year retirement — many FIRE planners use 3.5% (28.5x) or even 3.3% (30x) to add a safety margin. The full breakdown of the 4% rule explores this in detail.

Step-by-Step Walkthrough: The $5,500/Month Example

Let's work through a realistic example. Meet Priya: she's 32, earns $95,000/year, and spends about $5,500/month. Here's how she calculates her FIRE number:

Step 1: Add up annual expenses

Priya's $5,500/month breaks down as follows:

• Rent/housing: $1,800/month ($21,600/year)
• Food & groceries: $700/month ($8,400/year)
• Transportation: $450/month ($5,400/year)
• Healthcare & insurance: $400/month ($4,800/year)
• Travel & vacation: $600/month ($7,200/year)
• Entertainment & fun: $300/month ($3,600/year)
• Utilities, subscriptions, misc: $250/month ($3,000/year)

Total: $5,500/month = $66,000/year

Step 2: Apply the formula

$66,000 × 25 = $1,650,000

That's Priya's FIRE number. When her investment portfolio reaches $1.65 million, she can withdraw $66,000/year at a 4% rate and — based on historical data — the money should last forever.

Step 3: Adjust for inflation

The good news: you don't need to manually inflate your expenses. The 4% rule already accounts for inflation. It assumes you increase your annual withdrawal by CPI each year. So if inflation runs at 3%, in year two you'd withdraw $67,980. The 25x calculation handles this automatically.

What to Include in Your Annual Expenses

Many people undercount their expenses when first calculating their FIRE number. Be honest and thorough. Include:

• Housing: rent or mortgage + property taxes + insurance + maintenance (budget 1% of home value per year for repairs)
• Food: groceries + restaurants + coffee + work lunches
• Transportation: car payment + gas + insurance + registration + occasional Uber/Lyft
• Healthcare: this is critical for early retirees — budget $400–$600/month per person for premiums + out-of-pocket costs before Medicare
• Travel: include annual vacations, not just everyday spending
• Fun & hobbies: gym, streaming, golf, books, concerts
• Gifts & special occasions: holidays, birthdays, weddings
• One-time irregular costs: car replacement every 8–10 years, home renovations — amortize these into annual figures

FIRE Numbers at Different Spending Levels

Here's the full picture across common monthly spending levels:

Monthly Spending	Annual Spending	FIRE Number (25x)	FIRE Type
$2,000	$24,000	$600,000	Lean FIRE
$3,000	$36,000	$900,000	Lean FIRE
$4,000	$48,000	$1,200,000	Regular FIRE
$5,000	$60,000	$1,500,000	Regular FIRE
$6,000	$72,000	$1,800,000	Regular FIRE
$7,000	$84,000	$2,100,000	Fat FIRE
$8,000	$96,000	$2,400,000	Fat FIRE
$10,000	$120,000	$3,000,000	Fat FIRE

Notice how a $1,000/month lifestyle change — from $5,000 to $4,000/month — reduces your FIRE number by $300,000. That's why your spending level is the most powerful lever in FIRE math, more impactful than almost any investment decision.

How Social Security Reduces Your FIRE Number

If you're planning to retire at 50 or 55, you'll eventually receive Social Security benefits starting at age 62 (reduced) or 67 (full). This dramatically changes your calculation for the later decades of retirement.

Here's how to factor it in: subtract your expected Social Security income from your annual expenses, then apply the 25x multiplier to the remainder.

Example: Priya expects $18,000/year from Social Security at 67. Her current annual expenses are $66,000. Adjusted for Social Security: $66,000 - $18,000 = $48,000 still needs to come from the portfolio. New FIRE number: $48,000 × 25 = $1,200,000 instead of $1,650,000. That's $450,000 less to save.

The catch: you have to fund the gap years before Social Security kicks in. If Priya retires at 50 and Social Security starts at 67, she needs 17 years of full $66,000 withdrawals from her portfolio, then the load lightens significantly. Tools like MyFIRE's planner model this two-phase retirement automatically.

Adjusting for Retirement Spending Changes

Research consistently shows that retirement spending follows a "smile" pattern: higher in the active early years (travel, hobbies), lower in the middle years, then higher again at the end (healthcare). Some FIRE planners use slightly different expense estimates for each phase:

• Ages 50–65 (go-go years): 100% of estimated expenses (travel, activity)
• Ages 65–75 (slow-go years): 80–85% of peak spending
• Ages 75+ (no-go years): 70% of peak, but healthcare rises sharply

For a simple calculation, using your current spending is perfectly reasonable. Just make sure your healthcare line is realistic — it's the most underestimated expense for early retirees.

Why Most People Overestimate Their Expenses

Here's the paradox: while people often miss irregular costs, they consistently overestimate the expenses that will disappear in retirement. Think about what goes away when you stop working:

• Work clothing, commuting costs, lunches out
• Childcare and school expenses (if kids are grown)
• Mortgage payments (if paid off by retirement)
• The expensive "stress spending" — the Friday wine, the takeout because you're too tired to cook

Many FIRE retirees find they're genuinely happy spending $10,000–$20,000 less per year than they did while working, because time replaces money as the primary resource for enjoyment. You can cook instead of ordering in. You can travel slowly and cheaply instead of taking expensive rushed vacations.

The practical upshot: run your calculation with your current spending, then mentally test whether that number would still feel right if you had complete time freedom. Many people discover their "actual" FIRE number is 10–20% lower than their working-life spending implies.