Lesson 1 of 6, 4 minutes
Your FIRE number
The amount that lets your investments pay for your life, and what goes into it.
Picture the month after your last salary. The rent or the maintenance bill is still due. Groceries cost what they cost, and the phone bill arrives on its usual date. One thing has changed, which is who pays. From that month on, your investments do.
The amount you need invested on that day, so that every bill is paid for the rest of your life, is your FIRE number. FIRE stands for financial independence, retire early. The number works the same way if you stop at 60.
Three things the number pays for
Most of it pays for living. Say you spend ₹80,000 a month at today's prices, you stop working at 55, and you plan until 90. That is 420 months of spending. You need less than 420 times ₹80,000, because the money you haven't spent yet keeps earning while it waits.
The rest is money you don't plan to spend. An emergency reserve sits outside your investments for the months when something breaks. A legacy is what you leave behind. The legacy is paid 35 years after you retire, so the money set aside for it has 35 years to grow. A legacy of ₹1.00 Cr costs far less than ₹1.00 Cr on the day you retire.
| Living, 35 years | ₹2.47 Cr |
|---|---|
| Legacy, set aside at retirement | ₹51.98 L |
| Emergency reserve | ₹4.80 L |
| FIRE number | ₹3.04 Cr |
Prices will be higher by September 2051. In the money of that month the same total reads ₹13.03 Cr.
Why 25 times your yearly spend is a first guess
You may have seen a shortcut that multiplies a year of spending by 25. For ₹80,000 a month it gives ₹2.40 Cr. The shortcut does not account for how long you'll be retired, what your money earns after inflation, or what you want to leave behind. Someone who retires at 40 needs the money to last 50 years. Someone who retires at 60 needs 30. One multiplier can't fit both of them.
The shortcut comes from research on withdrawals of 4% a year, and that research measured something narrower than most people assume. The 4% rule and what it was measured on goes through it.
Do this week
- Add up what you spent in each of the last three months, from your bank and card statements. Use the average. A guess is usually too low.
- List what would change after you stop working: no commute, more travel, a home loan that is paid off. Write the retirement figure down as its own number.
- Put both figures in the calculator. Note the FIRE number and the date it gives you, so you have something to compare against next year.