The FIRE Principle
FIRE targets accumulating 25 times your annual expenses. If you spend $40,000 per year, the goal is $1,000,000. Withdrawing 4% annually ($40,000) should sustain the portfolio indefinitely, based on historical market returns.
The 4% Rule
The 4% rule comes from the 1998 Trinity Study, which found that a 50/50 stock-bond portfolio survived 30 years of 4% annual withdrawals about 95% of the time. Some financial planners recommend 3-3.5% for added safety, especially in low-interest-rate environments or for retirements longer than 30 years.
Compounding Makes FIRE Possible
Investing $1,000 per month at 7% for 20 years yields about $520,000, with $280,000 coming from compound growth alone. FIRE adherents typically save 50% or more of their income and start in their 20s to maximize compounding time. A FIRE movement guide provides detailed savings rate and investment strategy frameworks.