What is FIRE? Financial independence, retire early

Your FIRE number is the amount of invested savings you need to stop depending on a salary. The usual shortcut is 25 times your yearly spending:

If you spend 40,000 a year, that's 1,000,000. The multiple of 25 is the 4% rule turned around: taking 4% a year from 1,000,000 gives 40,000. Pensions lower the number, but often only from your late 60s, so the years before they start still have to be funded from savings.

The shortcut ignores taxes, fees and how long retirement lasts. The FIRE number calculator works it out year by year for your age and pension instead.

The share of your take-home pay that you invest decides how fast you get there, more than income or returns. Saving more does two things at once: it grows your savings faster, and it shows you can live on less, which lowers the number you need.

Starting from nothing, with a 5% return after inflation, retiring at 25 times spending. Worked out with the same maths as the calculator.

Going from 10% to 20% takes about 14 years off; going from 50% to 60% takes about 5. In the calculator, choose "Income − spending" to see your own savings rate and the earliest age that works.

The names describe how much you plan to spend and whether you plan to keep earning.

• Lean FIRE: a small budget, often below the national median. You get there sooner, with less room for surprises.
• Regular FIRE: about the life you live now, without the job.
• Fat FIRE: a generous budget with room for travel, help at home and gifts. It takes longer and usually a high income.
• Coast FIRE: you have enough invested that growth alone will reach your FIRE number by a normal retirement age. You still work to pay the bills, but you can stop saving. Try the Coast FIRE calculator.
• Barista FIRE: you leave your career and earn a smaller income from part-time or easier work, which covers part of your spending until a pension starts. In the calculator, add that work as an income with an end age.

The rule says you can take 4% of your savings in the first year of retirement, raise that amount with inflation every year, and have a high chance of the money lasting 30 years. It comes from studies of US market history in the 1990s.

Three things to know before relying on it:

• Longer retirements need a lower rate. Over 40 to 50 years, 3.25 to 3.5% is a common target.
• The first ten years matter most. A crash just after you stop working does far more damage than one twenty years later.
• Flexibility helps a lot. Spending 10% less after a bad year raises the odds noticeably.

The 4% rule calculator shows how a given rate does with your savings, across random market scenarios and every real period since 1871.

1. Track three months of spending. Your number depends on it, so measure rather than guess.
2. Work out your savings rate. Invested each month divided by take-home pay.
3. Cut the big three first: housing, transport and food usually make up most of a budget.
4. Invest the gap in low-cost, diversified funds. A 1% fee instead of 0.2% can cost years.
5. Run the plan once a year. Update your numbers in the calculator and save a copy to compare with next year.