In the previous post I discussed what is FIRE and also briefly discussed the formula for FIRE number calculation. Inspired by the post at Firepathlion blog, I’m going to share my FIRE number. I will try to be as realistic about my expenses and FIRE number as possible.

## Why does anyone need a FIRE number?

Often the way to save for retirement has been - save as much as you can until you are working and when you are retired - start using your requirement savings. So if someone retires at the age of 67 and lived until 78, they worked their whole life anxious about retirement and savings and probably didn’t even use all their savings.

Having a FIRE number sets one up for a clear goal that they need to achieve before retiring and start enjoying the fruits of their hard-earned money as soon as they have saved enough. Why work until 65 if you can save enough to achieve financial independence early on?

## What is Safe Withdrawal Rate or 4% rule?

The safe withdrawal rate (SWR) is a method to calculate the percentage someone can withdraw from their portfolio for money to never run out in their retired life. This is based on a stock and bond-based portfolio that has variable returns over time. This number is already adjusted for inflation.

The four percent rule was first articulated by William Bengen and later this rule was again evaluated and published in 1998 Trinity study. So the rule is that you can spend 4% of your retirement saving annually for it to keep growing with the market.

The formula to calculate SWR is:

**SWR = annual withdrawal amount / total savings**

So if you have $1,000,000 saved and your annual expenses are $40,000. The SWR will be:

$40,000/$1,000,000 = 0.04 or 4%

Or let’s say you want to calculate how much savings you will need with a SWR of 4% for your money to never run out, the formula is:

**Portfolio value = Annual expenses x 0.04**

Another easier way is:

**Portfolio value = Annual expenses x 25**

## My FIRE Number

Based on the previous month’s data, my monthly expense has been around $5000/month. I’m single and live on my own in one of the expensive US states with a large tech population. So a decent portion of my monthly expense goes into rent. It is approx. $2000/month. Rest is for my day-to-day expenses, travel, bills, gifts, medical, and parents allowance/care. So based on this, my yearly expense is *$60,000*.

Based on the annual expense, the portfolio amount I need to achieve FIRE is:

$60,000 * 25 = $1,500,000

So my FIRE number is $1.5 million which is pretty high but it does need to last a good 30-40 years depending on when I retire. I’m currently 28 years old and if I retire in my early 40s the money needs to last for at least 35 to 40 years based on average human life expectancy.

## Analyzing My FIRE Number

The 4% rule in the Trinity study is a rule of thumb which assumes a retirement period of 30 years. The failure rate of the 4% rule is 5-10% i.e. you will run out of money in 5-10% cases based on your stock/bond allocation. Rethinking Safe Withdrawal Rates: The Meaning of Failure is an interesting read that does the Monte Carlo simulation of various SWR. TLDR; if you want to reduce your failure rate to almost zero a SWR of 3% is the safest option. See Figure 1

So a SWR of 4% for me is risky and takes my failure rate to higher than 10%. Another factor that I’m considering for a less than 4% withdrawal rate is family responsibility which might require me to allocate some unexpected funds. I also don’t want to compromise on my quality of living.

Considering all these factors, I’m revising my SWR to 3.3%

My new FIRE number is = $60,000 / 0.033 = *$1,801,801*

This number is quite high but takes my failure probability to a low single-digit.

## Conclusion

In this post, I calculated my FIRE number which obviously will be different from yours. Everyone has different targets and goals so while calculating your FIRE number or SWR consider these factors:

- What is your risk appetite? Are you okay with a 5-7% failure rate
- Do you have an inheritance that you will acquire
- Do you wanna leave a chunk of money for your future generations

I will again review this FIRE number as things change on my side. I’m single and based on my spouse and the number of kids I want to have I might have to revise this number but this sets a goal for me to start working towards.

Hope this was helpful for you to start your journey and set a goal. Let’s continue marching towards a FIRE future.