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The FIRE number calculation is rooted in the so-called “4% rule,” which was popularized in an influential 1998 research report known as the “Trinity study.” Included in the research was an examination of past market performance to determine a safe withdrawal rate in retirement.
The conclusion: In 99% of cases, retirees could withdraw 4% per year, adjusted for inflation, from a portfolio of stocks and bonds without running out of money.
When calculating your FIRE number, remember that the multiple of 25 is really just an easier way of dividing by a 4% withdrawal rate. Returning to to Sabatier’s earlier example, if you intend to spend $40,000 a year in retirement, divide by 0.04 to get to your million dollars.
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MORE IDEAS ON THIS
As with any other one-step financial calculation, the FIRE number math is based on several assumptions and will vary based on your financial situation. Here’s what retirement experts say you need to know to figure out how much money you’ll need to retire.
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For adherents to the financial independence, retire early , or FIRE, movement, that figure is much more concrete. “Your FIRE number is the amount of money you need to live on for th...
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As Sabatier points out, some more recent studies suggest it may be wiser to aim for a lower withdrawal rate if you’re hoping for an extended retirement. Researchers at Morningstar p...
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How much money would you need to retire today and never have to work again?
If you’re planning to retire at 65, that figure may seem distant and amorphous. You’re saving as much as you can today so that you can enjoy life as much as possible when you eventually leave your job.
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CURATED FROM
cnbc.com
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Be prepared for retirement with this simple formula
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Other curated ideas on this topic:
Based on a series of papers known as the Trinity Studies, you need to save 25-30 times your expected annual expenses to have enough money to last you for the rest of your life.
This multiple is based on the percentage of your investment growth that you would be able to wit...
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