Calculating your FIRE (Financial Independence, Retire Early) number is a key step in planning for early retirement. Here's a simple way to do it:
1. Estimate Your Annual Expenses:
Determine how much money you will need each year in retirement. This includes all living expenses, such as housing, food, healthcare, travel, and any other costs.
2. Apply the Rule of 25:
Multiply your estimated annual expenses by 25. This rule is based on the assumption that you can safely withdraw 4% of your savings each year without depleting your nest egg too quickly. This is known as the 4% rule.
3. Adjust for Inflation and Lifestyle Changes: Consider any potential changes in your lifestyle or inflation that might affect your annual expenses over time.
4. Use a FIRE Calculator:
There are various online calculators that can help you refine your FIRE number by taking into account factors like investment returns, savings rate, and additional income sources²⁶.
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