Calculating This One Number Set Me on a Path to Financial Freedom. Here’s The Formula

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I didn’t start thinking about retirement until I was 33 years old. 

I was unemployed, married with two children, renting in a high-cost living area, and experiencing a global pandemic. Fortunately, I had some money invested in retirement accounts with previous employers from my twenties. But my husband? Well, he was 32 years old without a dollar in a 401(k) or an IRA. 

Less than a year later, we’re now on track to become work optional at 47. That’s how quickly a FIRE number can change your life. 

What Is a FIRE Number, and Why I’m on This Journey 

FIRE stands for financial independence, retire early.  It’s a movement that encourages people to live below their means so they have more money to invest towards early retirement or part-time work. The higher your savings rate and the percentage of income you don’t spend, the faster you can become work optional. 

Before learning about FIRE, I thought retirement was something that only people with pensions could do at the age of 65.

Now, I know that retirement doesn’t magically occur at a certain age, but rather when we can afford to pay our annual expenses with passive income.

Simply put, your FIRE number is the amount of money you need to have invested in order to live off those returns and quit working. 

On the one hand, knowing this number left me and my husband  worried. I was scared, wondering whether we would ever be able to retire since we didn’t start investing consistently until our thirties.  But, at the same time, it was empowering. 

As I calculated how much we would need to invest to retire early, my husband and I started to view FIRE as a game that would make planning for retirement fun. We realized that even if we did not reach our early retirement goal, we would still be on track to retiring at some point—and considering we had loved ones who could not say the same, we were eager to at least start. 

How to Calculate Your FIRE Number

As soon as I learned that retirement could happen at any age, I needed to determine our personal FIRE number: the total value of assets we would need to accumulate in order to live off passive investment income. As I researched the best way to calculate this number, I came across the Trinity Study, the source of the well-known 4% rule, and this simple formula for calculating your FIRE number: 

Annual Expenses x 25 = FIRE number  

So for example, if your living expenses are $4,000 per month, your annual expenses are $48,000 and your FIRE number is $48,000 times 25, or $1.2 million.

However, after some additional digging, I felt more comfortable with a different withdrawal rate and chose to calculate my FIRE number based on this formula: 

Annual Expenses ÷ 0.03 = FIRE number 

In this case, $4,000 in monthly expenses would equate to a FIRE number of $48,000 divided by .03, or $1.6 million. (If you need help tracking expenses, check out this Google spreadsheet. It can help you calculate your monthly and yearly spending.)

This second formula is based on a more recent study from Trinity University. Professors used historical market data to study sustainable withdrawal rates based on various stock and bond allocations for different retirement horizons. The researchers found a 100% chance that someone with a portfolio with at least 50% in stocks could safely withdraw 3% of their investments for 40 years without depleting their investments, which is why we divide by 0.03. 

Once I had a FIRE number formula, I calculated our expected annual expenses at retirement by listing our current monthly expenses. I looked at the amount my family currently spent on household expenses, meals, personal care, healthcare, transportation and community care. 

To calculate my FIRE number, I included the following expenses:

  • Household expenses: mortgage/rent, utilities, cable, internet, general maintenance, household supplies, property tax & insurance, credit card payments.
  • Meals: groceries, beverages, dining out.
  • Personal care: clothing, products, hobbies, subscriptions, childcare, pet care.
  • Healthcare expenses: health insurance, out-of-pocket payments, dental, glasses/contact lenses, life insurance.
  • Transportation: auto insurance, maintenance, fuel, registration.
  • Community Care: gifts, charitable donations, remittances, et cetera.

Once I found our monthly expenses, I multiplied them by 12 to see our annual expenses. 

To feel less overwhelmed by such a large number, I decided to calculate a FIRE number range. On the low end, if my husband and I move to a less expensive area with $60k in annual expenses, our FIRE number is $1.5 million. On the higher end, if my husband and I stay living in a high-cost living area with $120K in annual expenses, our FIRE number is $3 million.

We are investing this money for early retirement in both tax-advantaged accounts and a taxable brokerage account. In order to reduce our current tax liability, we contribute the maximum amount in our 401(k) accounts and Individual Retirement Accounts. However, since we will need access to our money before the age of 59 ½ and want to avoid paying penalties for early withdrawals, we are also investing in low-cost index funds within a taxable brokerage account. 

Others on Their FIRE Journey

Your reason for pursuing FIRE, your FIRE number, and your path to FIRE will reflect your values and wealth-building preferences. The Zeledon family, known online as @ourjourneywithless, have a more adventurous approach to investing. They decided to pursue FIRE because they want to maximize their time together. Instead of investing in the stock market, they invest predominantly in real estate to generate semi-passive income during retirement. 

“We plan to have enough cash-producing real estate in Mexico and the United States so we don’t have to trade dollars for work hours” said Victor Zeledon, a FIRE enthusiast who coaches others on how to secure their own short-term rentals. “Ideally, we will have four to five rentals that we will live in and also rent out so we can fund our early retirement.” 

By being very intentional with their purchases, the Zeledons are now a one-income family since Adriana retired from her 9-5 job to homeschool their 9-year-old son. Victor plans to retire in the next five years at 40. By moving to Mexico and using their long-term and short-term rentals to cover their annual expenses of $36,000, the Zeledons are another example of how being purposeful with your income can lead to early retirement. 


Know that you can retire at any age as long as you have the income to do so. Calculate your FIRE number and create a plan to generate different passive income streams that can subsidize a work-optional lifestyle. If it feels overwhelming, consider creating a FIRE number range. Make sure your goal is reflective of your values and lifestyle preferences. Ultimately, even if you don’t retire at an early age, calculating your FIRE number is a great way to start planning for retirement.