FIRE Calculation Method Overview
Understanding how we calculate your time to financial freedom
FIRE (Financial Independence, Retire Early) is a financial strategy to achieve financial independence through high savings rates and investing. Our calculator is based on classic FIRE formulas with inflation adjustments to provide accurate predictions.
Core Calculation Formulas
1. Annual Savings Calculation
Annual Savings = Annual Income - Annual Expenses
This is the amount you can invest each year. If negative, it means expenses exceed income and FIRE goals cannot be achieved.
2. FIRE Target Assets
Target Assets = Annual Expenses ÷ Safe Withdrawal Rate
Based on the 4% rule (or your set withdrawal rate), calculate how much assets needed to maintain current lifestyle.
3. Asset Evolution
A(t+1) = (A(t) + Annual Savings) × (1 + Annual Return Rate)
Each year's assets equal previous year's assets plus new savings, then grown by investment returns.
4. Inflation Adjustment
Real Purchasing Power = Nominal Assets ÷ (1 + Inflation Rate)^t
Adjusted Target = Target Assets × (1 + Inflation Rate)^t
Expected annual inflation rate
5. Achievement Criteria
When A(t) ≥ Target Assets × (1 + Inflation Rate)^t, record t as achievement year
When assets in any year reach or exceed inflation-adjusted target assets, FIRE goal is achieved.
Parameter Ranges
| Parameter | Range | Description |
|---|---|---|
| Annual Income | 0 - 1 billion USD | Pre-tax total income including salary, bonus, investment income, etc. |
| Annual Expenses | 0 - 1 billion USD | Annual expenses to maintain current lifestyle |
| Current Assets | 0 - 1 billion USD | Total existing assets available for investment |
| Expected Annual Return | -20% - 20% | Expected annual return rate of investment portfolio |
| Annual Inflation Rate | 0% - 15% | Expected annual inflation rate |
| Safe Withdrawal Rate | 2% - 6% | Proportion of assets that can be safely withdrawn after retirement |
Preset Scenarios
Pessimistic Scenario
• Annual return: 4%
• Inflation rate: 4%
• Suitable for: Risk-averse investors
• Features: Conservative estimate, high safety margin
Neutral Scenario
• Annual return: 7%
• Inflation rate: 2.5%
• Suitable for: Balanced investors
• Features: Based on historical averages
Optimistic Scenario
• Annual return: 10%
• Inflation rate: 2%
• Suitable for: Aggressive investors
• Features: Higher return expectations
Calculation Limitations
Important Reminders
- • This calculation is based on idealized assumptions, actual investing involves volatility
- • Income and expenses may change in reality
- • Does not consider complex factors like taxes and inflation fluctuations
- • Recommend regular reassessment and plan adjustments
- • Investment involves risks, please make decisions based on personal circumstances