Your FIRE number explained: the 25× rule and how to adjust it

Your FIRE number is the size of investment portfolio you would need for work to become optional. It sits at the centre of every FIRE plan — Coast FIRE, Barista FIRE, Lean and Fat FIRE all start from it. The most common shortcut is to multiply your annual spending by 25. This guide explains where that shortcut comes from, when it is too optimistic or too cautious, and how to adjust it for other income and taxes.

The basic calculation

FIRE number = (annual spending − other reliable income) ÷ withdrawal rate.

The withdrawal rate is the share of the portfolio you plan to take out in the first year of retirement, with that dollar amount usually raised for inflation afterwards. At 4%, dividing by 0.04 is the same as multiplying by 25 — hence the “25× rule”. At 3.5% the multiple is about 28.6; at 3% it is about 33.3.

Example: you expect to spend $60,000 a year, of which $18,000 will be covered by Social Security in today’s dollars. The portfolio must cover $42,000. At a 3.9% withdrawal rate the FIRE number is $42,000 ÷ 0.039 ≈ $1,076,923. The FIRE number calculator does this and shows the same target at several withdrawal rates.

Where 4% comes from

The 4% rule of thumb is generally traced to financial planner William Bengen’s 1994 research, which used historical U.S. stock and bond returns to find the highest starting withdrawal that, adjusted for inflation each year, would have lasted at least 30 years in every period he examined. Later studies and the FIRE community popularised it as a simple multiple.

Morningstar revisits the question every year using forward-looking estimates of returns and inflation rather than history alone. In its own description of the research, its estimates of a safe starting withdrawal rate for a balanced portfolio over 30 years with a 90% probability of success have been 3.3% (2021), 3.8% (2022), 4.0% (2023) and 3.7% (2024), and its latest estimate is 3.9%. Our safe withdrawal rate guide covers the research in detail.

Choosing your withdrawal rate

Three factors push the sensible rate up or down.

• Length of retirement. The research above mostly assumes 30 years. Someone retiring at 40 may need the money for 50 years or more, which argues for a lower starting rate.
• Flexibility. If you can cut spending after poor market years, you can usually start higher. Morningstar reports that some flexible strategies supported starting rates up to 5.7% in its modelling, at the cost of less predictable income.
• Other income. A pension or Social Security that starts later reduces how long the portfolio must carry the full load.

Many early retirees choose 3.25% to 3.75% as a buffer. Others start at 4% and commit to flexible spending. There is no single right answer; the calculator lets you compare.

Subtracting other income

Only the spending that your portfolio must fund belongs in the numerator. Reliable income streams reduce it:

• Social Security. Use the estimate from your my Social Security account and convert to today’s dollars (the SSA statement already shows estimates in today’s dollars). Full retirement age is 67 for people born in 1960 or later, according to SSA.
• Pensions and annuities. Note whether they are inflation-adjusted. A fixed pension loses purchasing power over time.
• Rental or part-time income. Include only what you are confident will continue.

The catch is timing. If you retire at 45 and Social Security starts at 67, the portfolio must cover full spending for 22 years. A simple FIRE number that subtracts Social Security from day one understates what you need early on. A practical fix is to calculate a “bridge” amount for the gap years separately, or use a year-by-year planner.

Handling taxes

Withdrawals from traditional 401(k)s and IRAs are generally taxed as ordinary income. Qualified Roth withdrawals are generally tax-free, and taxable brokerage accounts are taxed on gains and dividends. The simplest approach is to add your expected tax bill to annual spending. If you expect to pay $5,000 a year in taxes on $50,000 of withdrawals, use $55,000 as spending.

What to include in spending

• Housing: rent or mortgage, property tax, insurance, maintenance (about 1% of home value per year is a common planning placeholder, but use your own history).
• Health insurance and out-of-pocket costs, especially before Medicare at 65.
• Transport, including periodic car replacement.
• Food, utilities, phone, internet, subscriptions.
• Travel, hobbies and gifts.
• Irregular costs averaged per year: roofs, appliances, dental work.

Look at at least 12 months of real statements. Many people underestimate spending by 10–20% when they guess.

Common mistakes

1. Using pre-retirement income instead of spending. Your FIRE number depends on what you spend, not what you earn.
2. Forgetting taxes. Pre-tax balances are not spendable dollars.
3. Counting the house. A home you live in does not produce withdrawable income unless you sell or downsize.
4. Mixing nominal and real figures. Keep spending and returns both in today’s dollars.
5. Treating the number as fixed. Recalculate whenever spending, rules or markets change.

From FIRE number to timeline

Once you have a FIRE number, two questions follow: how long will it take to reach it, and when could you stop contributing? The years to FI calculator answers the first from your savings rate. The Coast FIRE calculator answers the second.

A second example: a couple with a pension

A couple expects to spend $72,000 a year in retirement, including $6,000 for taxes. One partner will receive an inflation-adjusted pension of $12,000 a year from age 60, and both plan to stop full-time work at 55. From 60 onward the portfolio must cover $60,000; from 55 to 60 it must cover the full $72,000. At a 3.5% withdrawal rate, the long-run FIRE number is $60,000 ÷ 0.035 ≈ $1,714,286. The five bridge years need an extra $12,000 a year, or $60,000 in today’s dollars, which they plan to hold in safer assets. Their total target is therefore roughly $1.77 million. Splitting the problem this way is more accurate than a single multiple.

Summary

Your FIRE number is spending the portfolio must cover divided by a withdrawal rate. The 25× rule is a reasonable starting point, but longer retirements, taxes and the timing of other income all deserve adjustment. Use real figures, stress-test the withdrawal rate, and revisit the number each year. This is educational information, not investment or tax advice.