What this answers
FIRE, financial independence, retire early, rests on one idea: if you take out a fixed share of your capital each year, how large must the capital be to cover your spending? The calculator gives that number, and then counts the months of saving it takes to get there from the capital you have, in today’s money.
Formula
FIRE number = yearly spending / withdrawal rate
Real return = (1 + return) / (1 + inflation) − 1
The months are counted one at a time: the balance grows by the real return and the monthly saving is added at the end of the month, until the balance reaches the FIRE number.
Worked example
Spending 40,000 a year at a 4% withdrawal rate: 40,000 / 0.04 = 1,000,000, 25 times the spending. With 50,000 saved, 1,000 a month and 7% return at 2% inflation the real return is 4.90%, and the target is reached in 358 months, 29 years and 10 months.
The numbers you fill in yourself
The withdrawal rate is yours to choose. 4% is the popular rule of thumb from historical US studies; it promises nothing for another market, period or tax regime, and a lower rate is safer and needs more capital. Return and inflation are assumptions to try in several versions.
What is not included
Tax, fees, pensions and other income. Returns are steady, which markets are not.