1. What is the FIRE Calculator?

The FIRE (Financial Independence, Retire Early) calculator estimates the amount of money needed to achieve financial independence based on your annual expenses, expected investment return rate, and inflation rate. This calculation is commonly discussed in Reddit FIRE communities.

2. How Does the Calculator Work?

The calculator uses the FIRE equation:

Where:

• \( expenses \) — Annual living expenses in your local currency
• \( return\_rate \) — Expected annual investment return rate (as decimal)
• \( inflation \) — Expected annual inflation rate (as decimal)

Explanation: This equation calculates the nest egg needed to support your annual expenses indefinitely, accounting for investment returns and inflation.

3. Importance of FIRE Calculation

Details: Calculating your FIRE number is crucial for financial planning and retirement goals. It helps determine how much you need to save and invest to achieve financial independence and potentially retire early.

4. Using the Calculator

Tips: Enter your annual expenses in currency, expected return rate as decimal (e.g., 0.07 for 7%), and expected inflation rate as decimal (e.g., 0.02 for 2%). Ensure return rate is greater than inflation rate for valid results.

5. Frequently Asked Questions (FAQ)

Q1: What is the 4% rule and how does it relate to FIRE?
A: The 4% rule suggests you can safely withdraw 4% of your portfolio annually. The FIRE calculation is essentially the inverse: expenses divided by your safe withdrawal rate.

Q2: How conservative should my return and inflation assumptions be?
A: Most FIRE practitioners use 5-7% for real returns (after inflation). Using conservative estimates provides a safety margin for your calculations.

Q3: Should I include all expenses in my calculation?
A: Yes, include all annual living expenses: housing, food, healthcare, taxes, and discretionary spending. Don't forget to account for healthcare costs if retiring early.

Q4: How does this account for taxes?
A: This calculation doesn't directly account for taxes. You should use after-tax return rates and include expected taxes in your annual expenses.

Q5: Is this calculation safe for early retirement?
A: Many in the FIRE community use a 3-3.5% withdrawal rate for early retirement to account for longer time horizons and sequence of returns risk.