What is FIRE Calculator?
FIRE stands for Financial Independence, Retire Early. It is a plan to save and invest enough that your investments can pay for your living expenses, so working becomes a choice rather than a necessity.
A FIRE calculator estimates the corpus you need to reach financial independence, based on your current expenses, your age, when you want to retire and inflation.
It uses the popular 4% rule: if you withdraw about 4% of your corpus in the first year of retirement, your money should last for decades. That means you need about 25 times your yearly expenses.
Fun fact
At 7% inflation, prices roughly double every 10 years, so the expenses you plan for at retirement can be several times what you spend today.
Types of FIRE
- FIRE: The corpus needed to keep your current lifestyle in retirement.
- Lean FIRE: A frugal retirement, assumed here to need 70% of your current expenses.
- Fat FIRE: A more comfortable retirement, assumed here to need 150% of your current expenses.
- Coast FIRE: The amount you need invested by your Coast FIRE age so that, without adding anything more, it grows to your FIRE corpus by retirement. This assumes a 12% yearly return.
How Does a FIRE Calculator Work?
The FIRE calculator works on the following inputs:
- Monthly Expense (E): What you spend every month today.
- Current Age and Retirement Age: The number of years until you retire (N).
- Assumed Inflation Rate (i): How fast you expect your expenses to rise every year.
- Desired Coast FIRE Age: The age by which you want to reach Coast FIRE.
The FIRE Calculator relies on the following formulas:
Expense at Retirement = E × 12 × (1 + i)^N
FIRE = 25 × Expense at Retirement
Coast FIRE = FIRE ÷ (1 + 12%)^(Retirement Age – Coast FIRE Age)
Let’s work through an example for better understanding.
Calculate FIRE with an Example
Consider an example for a better understanding.
- Monthly Expense: ₹25,000 (₹3,00,000 a year)
- Current Age: 30
- Retirement Age: 50
- Inflation: 7%
- Coast FIRE Age: 40
In 20 years, your yearly expenses will grow to about ₹11,60,905. Your FIRE corpus is 25 times that: ₹2,90,22,633. Lean FIRE needs ₹2,03,15,843 and Fat FIRE ₹4,35,33,950.
To Coast FIRE at 40, you need about ₹93,44,511 invested by then, which would grow to your FIRE corpus by 50 without further investment.
What are the benefits of planning for FIRE?
- A clear target: Know exactly how much you need to save to stop depending on a salary.
- Accounts for inflation: Plan with what your lifestyle will actually cost when you retire, not what it costs today.
- Flexible paths: Compare Lean, Fat and Coast FIRE to find the plan that suits you.