Frugalosophy, Start Here

How Much Money Do I Need to Retire?

You have now decided that you want to retire early.  Maybe to you, retirement means having more time to spend with your partner and children.  Or rather, you may want to go hiking through a national forest.  Either way, you want the freedom that being retired allows.  That’s great!

Now you have to figure out how much money to save up before you reach that financial freedom. This will give us our goal to work toward.  We will call it our ‘FIRE Figure’.

Hang on to your hats.  While this post might sound boring, it will be some of the most useful information I give you.

The 4% Rule

Thankfully, all of the difficult data-crunching has been done for us.

Some really smart financial guys have completed tons of research, referred to as the Trinity Study, and come up with what is known as the ‘safe withdrawal rate’ or SWR.  It is the rate at which you can withdraw money from your savings without running out of money.

They did a bunch of calculations over consecutive historical periods and determined that 4% is a very conservative level for safe withdrawal.  This 4% is a worst case scenario answer for the SWR, assuming a mix of stocks and bonds.

What this basically means is that if you only withdraw 4% of your savings each year, your money will not run out.

But that still does not quite tell us how much money we will need saved before we can retire.  The only information we still need is how much money we typically spend per year.

Tracking your Spending

Have you started tracking your spending yet?  If so, great!

If not, get an account at (it’s free!) and get to tracking!

In Mint, you can tell how much you spend each month and each year.  You can even see pie charts and graphs for each category of spending you set up.

Calculating your FIRE Figure

Now we are finally ready to determine our FIRE Figure!

When setting our FIRE Figure, we will make a few assumptions.

  • You will never want to work to earn another penny for the rest of your life.
  • You will have the ability to go back to work, even part time, if something major happens, like the stock market crashes big time (like dead as a doornail) or a family member has significant medical bills.
  • Your spending will decrease as you get older, as seen in historical assessments.

We are also building a safety net in our savings.

  • We know that our house mortgage will get paid off some 10-30 years in the future.  Our spending will decrease at that time.
  • In all likelihood, we will have some type of income in the future from social security or a pension plan.  We are not counting on this in our FIRE Figure.
  • This is the real world.  We can change our spending habits or earning potential if we notice unfavorable fluctuations with our net worth.

So, you have your SWR and your annual spending.  Now it’s time to break out the calculator!

Your FIRE Figure is your annual spending divided by the SWR.

If you typically spend $50,000 per year, you would calculate your FIRE Figure as follows: $50,000 / 0.04 = $1,250,000

At a spending rate of $40,000 per year, you would need just: $40,000 / 0.04 = $1,000,000

If you can stretch your frugal goodness and get your spending down to $30,000, your FIRE Figure would be an impressive: $30,000 / 0.04 = $750,000

To become financially independent, you want to get your net worth up to your FIRE Figure.  For Richard and I, we will not be counting the value of our primary residence in our net worth because we will not want to sell our house late in life if we need that money to live off of.

Where Being Frugal Helps

Looking at the calculations above, you can start to see how beneficial it is to be frugal.  If you can decrease your spending, even by a little, your total spending level is permanently lower, greatly reducing the amount of money you need to retire.

It is beneficial to recalculate your FIRE Figure every so often if your spending changes so you can track your progress and see how being frugal is helping you reach your goal.

Make sure you do not get obsessive about this number.  There is no need to calculate it every week.


As with any big life decision, there are many ‘what ifs’.  And the future can be unpredictable.  But we have to face that fear and rely on our safety net that we have in place for these uncertainties.

Because we are retiring early, we are young enough and have enough time to go back to work and recover from the unexpected.

I highly recommend clicking on the links below to read more about the 4% rule from other reputable advocates.

Have you calculated what your ‘FIRE Figure’ is?  How do you plan to work toward that number?

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