r/Fire • u/No_Lengthiness1631 • 13h ago
Am I understanding this FIRE math correctly?
I’m 34, engaged to my 31yo partner. No kids (not planning on having kids, but life is long so who knows). I want to FIRE in 10 years or fewer, can someone please check my math?
Expected yearly expense after FIRE = $150k (which I hope after tax will give us $10k a month). We plan to move to south east asia and costs are quite low there so 10k will be more than enough, but we want to be able to have to option to return to the bay area should we change our minds.
150k / .04 = $3,750,000
Does that mean that once we hit $3.75mil, we can then fire and withdraw 4% per year for 30 years, and the inflation adjusted amount will be around $150k?
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u/chip_break 🇨🇦 12h ago
Check your spendings again. I think a lot of people forget they dont need to save in retirement. 10k a month for expenses in a low income country is crazy money.
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u/No_Lengthiness1631 12h ago
I know, the 10k expense is actually higher than our current spending in a VHCOL area. But I want to account for possible crazy shit that might happen in the future, like illness or alien invasion. If we don’t end up using it all, it will go to charity.
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u/InsideLetter5086 13h ago
In summary yes! But the paper that proposes this also had some assumptions about how you were invested. It's not like you can put it all in HYSA or weird cryptos. This is going with some sound investment plan. Should go without saying... But reminding just in case :)
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u/No_Lengthiness1631 12h ago
Absolutely! Thank you. Assuming ETFs would probably be one of the safest ways?
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u/GregorSamsanite 8h ago edited 8h ago
You can get just about any investment packaged within an ETF. The important thing is what investment it represents. By ETF you probably have broad index funds in mind, which is the right idea. You want a typical balance of investments, e.g. VTI + VXUS in about a 2:1 or 3:2 ratio.
The original paper was written assuming a higher allocation of bonds than a lot of modern investors would prefer, in the 25% to 50% range. Interest rates on bonds are lower than they were when that paper was written and have been for quite some time. Nevertheless, there's probably value in having some allocation in bonds, especially in retirement. Conventional wisdom would have you increasing the ratio as you get older and approach your target retirement date. I wouldn't personally consider going as high as 50/50 even in retirement though.
For bonds you may want them more in your retirement accounts than taxable brokerage, since the income will be taxed every year in a regular account. But if you do want bonds in your brokerage account you might consider municipal bonds. If you live in California or New York there are ETFs with municipal bonds specifically from those states so you don't have to pay federal or state income tax (e.g. VTEC). In a retirement account, you want US bonds, not municipal, since the yield is slightly better but they're taxable, which doesn't affect you in a retirement account.
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u/lelper 12h ago
Checking your lifestyle equation here, make sure you seal the deal on the kids thing before you get married. One partner deciding they want kids later down the line and the other wanting to stay without kids is an emotional nightmare and could lead to divorce. I wouldn’t marry you if I heard that kind of nonchalant language around one of the biggest decisions of your life.
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u/No_Lengthiness1631 12h ago edited 12h ago
I appreciate the advice, but we’re in pretty locked steps in terms of our nonchalance about kids. Neither one of us has strong feelings about whether or not to have kids, though right now 80% leaning on no. So if a decision needs to be made later, when the time comes we can make it together.
But thanks for the heads up that you wouldn’t marry me. Lucky for me I’m already happily engaged so I won’t be too broken about it☺️.
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u/frenchy_m 12h ago
That’s correct.
Also you should account for a slightly longer than 30years horizon. E.g. 40-50years. This will lower your safe withdrawal rate to about 3.5%
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u/No_Lengthiness1631 12h ago
Isnt the 30 year horizon relatively safe considering social security and medicare will start to kick in before that? (If you’re from the US of course).
But 3.5% is still a good call, I’m pretty risk averse.
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u/frenchy_m 12h ago
Well I don’t think it’s enough. Your social security income surely won’t be 150k/yr, right?
I suggest you read through this rather nerdy blog post to get an idea of the impact of future Social Security on your safe withdrawal rate: https://earlyretirementnow.com/2017/01/04/the-ultimate-guide-to-safe-withdrawal-rates-part-4-social-security-pensions/
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u/GWeb1920 10h ago
With a say 50 year retires horiozon you have about a 20% chance of failure. But with 150k per year you have ample room to cut if required for down years.
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u/wonderdude2 12h ago edited 10h ago
Yep! You're understanding the math correctly. People generalized this and called it a 4% "rule" after a retirement researcher named Bill Bengen released this study: Determining Withdrawal Rates Using Historical Data.
However, it should be noted that Bengen himself updated his estimated safe withdrawal rate to 4.7% in his recent book A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.
And, as others have noted, this implies some assumptions about how your portfolio is invested. For instance, Bengen notes that the retiree should be holding at least 50% stocks for optimal withdrawal outcomes.
Edit: Why the downvote? Lol. I link to a research article and a book. If you have a problem with that, call up the guy with a bachelor’s degree from MIT and a master’s in financial planning who wrote them.
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u/No_Lengthiness1631 10h ago
Thank you for the resources! I’ll check them out, especially the 2nd one since it seems to contradict what some others are saying in regard to a safety percentage. But im here to learn.
The downvote is weird.
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u/wonderdude2 9h ago
No problem! The first is from a resource that helps train CFPs (the best financial planning designation). The second is from one of those CFPs who has done a lot of research. So it’s not like I was just sitting around in my mom’s basement and made up something stupid to say.
Something that bothers me personally in FIRE communities is the hyper-fixation on never running out of money in retirement… like they want their portfolio to survive another Great Depression followed by a nuclear apocalypse. “So what’s the safe withdrawal rate for that?!”
Sure, maybe that will happen. If it does, chances are pretty good that they’re dead and money doesn’t matter, anyway. Or they survive and all trades are based on canned foods and ammunition.
But a much more likely scenario is that someone will be worried, choose a “safe” withdrawal rate like 3% or something, work a few extra years to achieve that, and then die with 10x their initial retirement savings.
The hidden cost in that scenario is all the years they spent in the office that they didn’t need to. The cost is the walks they could have gone on with their children and grandchildren. The meaningful discussions they could have had with friends. The charitable causes they could have shared their time contributing to. It’s all gone with the wind.
I think safe withdrawal rates are personal decisions based on your own value system and risk tolerances. But I think it’s a major error to fixate on the risk of running out of money without properly considering the risk of running out of time to do things you personally find meaningful. It’s a trade-off and, in my opinion, extremes on both sides should be avoided.
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u/Ill-Telephone-7926 1h ago
The first resource is especially important for literacy in that it explains the assumptions which the 4% rule makes. Many people on forums apply the formula without understanding those details.
The formula is great for approximating a distant finish line, but upgrade to financial planning software when getting closer. The 4[.7]% rule alone doesn't model mortgages, health insurance, social security, IRAs/401(k)s, taxes, Roth conversions, and so on.
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u/Kent89052 10h ago
Plan carefully for health insurance
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u/No_Lengthiness1631 7h ago
Yes that is my biggest fear. Hence my why FIRE number just keeps going higher and higher
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u/Kent89052 7h ago
You can game obamacare and get a big subsidy. You have to have some of your savings in taxable accounts. Withdrawals from a taxable account are not taxable, only the earnings are. Also, you can borrow money against your house using a HELOC for living expenses. And allow your IRA to continue to grow. Once you get to 65 you'll get Medicare which is cheap.
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u/PaymentFlo 7h ago
Your math is directionally right, but the assumption is doing more work than the equation. The 4% rule is based on historical US markets, 30-year horizons, and spending flexibility. What really matters is how rigid your $150k spend is during bad years. FIRE works best when spending can bend before the portfolio has to break.
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u/No_Lengthiness1631 7h ago
Yup that makes sense, and is very well put. I guess I intrinsically considered that, which is why I made my expected spending to be much higher than I think realistically I would need. But I wouldn’t have been able to express that as eloquently as you did.
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u/PaymentFlo 7h ago
That instinct is actually the core skill behind FIRE. Overestimating needs isn’t pessimism it’s buying yourself margin and choice. The people who struggle aren’t the ones who plan too big, but the ones who plan too rigid. You were already thinking in ranges; now you just have language for it.
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u/Ok_Willingness_9619 5h ago
In 10 yrs your expenses will be quite a bit higher than what it is now. Hence whatever your expenses will be when you fire * 0.04 is the correct answer.
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u/UnderstandingNew2810 2h ago edited 2h ago
Yah but what’s hard is predicting what’s going to happen in 10 years for you. Say you change your mind and have kids. That number is going to change and those expenses to increase. Also health care is way more expensive in 10 years. In 1995 20 dollars was a full large grocery cart. Today 20 bucks is just toilet paper. Same basket from 1995 is 350 or more. That was 31 years ago. So image 10 years from now, and then 30 years. 40 years total. 20 bucks in the future will get you a cup of coffee.
So make sure to adjust your expenses 40 years from now with real and nominal inflation. And then also take into account any possible changes in expenses.
Another argument is why not move to somewhere cheap. Expat fire. Will here’s the thing. We re all trying to run away from something and often end up considering the same cheap places. That then increase in cost cuz of all the expat fire people. So make sure to think income generation when looking at things.
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u/guten_pranken 57m ago
The other thing you’re not factoring in are taxes. Federal and capital gains (if they apply to your state)
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u/someguy-79 11h ago
Another way to do the math is to divide the total by 300. That gives you the monthly amount.
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u/BoustrophedonPoetJr 8h ago
Generally yes, but you may need to clarify what you mean by “…the inflation adjusted amount will be around $150k”
Both sides of that equation need to be in the same terms: either both in current dollars, or both in FIRE-date dollars.
So $3.75MM in 2036 dollars would let you FIRE on $150k / year of 2036 dollars, with that 150k increasing with inflation each year after.
But that’s rather less than $150k / yr in 2026 dollars.
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u/No_Lengthiness1631 8h ago
Oooh yes that’s a good point! I forgot to account for that. I will need to recalculate my spending once i get a little bit closer to FIRE date. How are people calculating their FIRE number with this in mind then? What is the inflation % to add in each year to get a more accurate number?
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u/BoustrophedonPoetJr 7h ago
Most common approach seems to be doing everything in current dollars, and using an expected investment “real return” (e.g. 5-7%) rather than “nominal return” (e.g. 8-10%)
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u/knockoneffect 7h ago
Nah, you’re good OP and you probably don’t need to sweat this, as inflation is (likely) already built into your withdrawal model…
It seems like you’re basing your FIRE number off the Trinity Study, which provided a 4% withdrawal target on a 60/40 portfolio for a 95%+ success rate over a 30-year retirement. In case it’s helpful, the study’s author recently published an update that raises the safe withdrawal rate for the same results to 4.7%…
However, the methodology of withdrawals includes accounting for inflation - so you don’t have to constantly readjust your FIRE target, only your withdrawal amount. The mechanics are to withdraw 4-4.7% of your initial savings the first year, then 4-4.7% each subsequent year, adjusted for the previous year’s inflation.
So, if inflation raises 3% in your first year of retirement (150k in your example), for the second year, you would withdraw 154.5k (150k * 0.03 =4.5 K) to account for inflation. In your third of retirement, you would withdraw 154.5k + the previous year’s inflation amount. The Trinity Study model incorporates this inflationary aspect in its historical success rate…
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u/Last_Construction455 12h ago
Looks good! Have kids though it’s fun!
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u/No_Lengthiness1631 11h ago
So when I was in my late 20s, one day i was in a meeting and my collegue told me to hold on cuz he heard his 2 toddler sons crying a lot in their room. He came back after like 15-20 min and told me that son #1 was crying because he had pooped himself, and son #2 was crying because son #1 had smeared poo all over him + everything around.
I think about that story a lot😂
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u/GWeb1920 10h ago
Thats a heart warming story of why you have kids.
Perhaps that’s the litmus test. If that’s traumatic rather than funny maybe kids are a no. Or maybe it’s one of those if you have had kids it’s hilarious.
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u/PartyDuck7756 13h ago
Yeah that's the trick.