🔥 Financial Independence (FIRE) · Lesson 3 of 7 · 9 min
The 4% Rule & Your FIRE Number
🎯 'How much is enough?' sounds like a question with a thousand answers. It's basically one piece of multiplication. Once you know your number, the fuzzy dream of 'freedom someday' turns into a target you can actually aim at.
💡 Key idea
Your FIRE number ≈ 25× your annual spending — the flip side of withdrawing about 4% a year.
🧠 Why it matters
The classic FIRE math comes from the '4% rule': research suggested that if you withdraw about 4% of your invested portfolio in your first year of retirement, then adjust for inflation each year after, your money has historically had a strong chance of lasting 30+ years. Flip that around and you get your FIRE NUMBER: about 25 times your annual expenses (because 4% is 1/25). Spend $40,000 a year? Your target is roughly $40,000 × 25 = $1,000,000 invested. It's a guideline, not a guarantee — early retirees often use a slightly more conservative 3.25–3.5% and stay flexible — but it turns the vague word 'enough' into a concrete number you can chase.
🌍 In the real world
🧮 Someone spends $50,000 a year, so their FIRE number is about $50,000 × 25 = $1.25 million. Now watch the lever: cut annual spending to $40,000 and the target drops to $1 million — every dollar of yearly spending you cut lowers your finish line by 25 dollars.
📌 Takeaways
- FIRE number ≈ annual expenses × 25
- It's the flip side of the ~4% safe withdrawal rate
- Cutting $1 of yearly spending lowers your target by ~$25
📖 Terms in this lesson
4% rule: You can spend about 4% of your investments a year and likely never run out; so you need 25 times your yearly spending.
✅ Test yourself
How do you estimate your FIRE number?
- Annual expenses × 25
- Salary × 10
- Age × $100,000
- Whatever feels right
Answer: A · Annual expenses × 25
About 25× your yearly spending — the inverse of withdrawing roughly 4% a year.
You spend $40,000/year. Your rough FIRE number is...
- $100,000
- $400,000
- $1,000,000
- $4,000,000
Answer: C · $1,000,000
$40,000 × 25 = $1,000,000 invested.
Why does cutting annual spending help so much?
- It doesn't
- Every $1 of yearly spending cut lowers your target by about $25
- It raises your salary
- It avoids taxes
Answer: B · Every $1 of yearly spending cut lowers your target by about $25
Because the target is 25× expenses, trimming recurring spending shrinks the finish line 25-fold.
Quiz, XP and streaks in the app. No sign-up needed.