FIRE Calculator: How to retire early | Lightyear (2024)

FIRE stands for Financial Independence Retire Early 🔥 The basic principle of FIRE is to think carefully about how you earn, save and invest while working, to bring forward the point that you’re financially independent and able to retire if you choose to.

It’s not a new idea - it came to the fore way back in 1992 in the popular financial planning book Your Money or Your Life. Over the years, FIRE as a financial management approach has become more well known, particularly since blogs, vlogs, social media and the internet as a whole have allowed proponents to share ideas and form common interest groups.

If you’re considering exploring FIRE, our FIRE calculator can help. Join us as we walk through how FIRE works, how smart investing with tools like Lightyear can help, and how our early retirement calculator can make your planning that bit easier.

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At the heart of FIRE lies financial independence. Once you reach financial independence you’ll no longer be reliant on a job for income. For many people, FIRE is about retiring early - but for others it may simply be about having the option to slow the pace of life and drop to a less demanding job before reaching normal retirement age.

To achieve FIRE, you’ll generally find people taking some or all of the following actions:

FIRE has made headlines in recent years, and there’s a huge FIRE community around the world, often connected through popular websites, social media and offline meetups. However, as with any financial decision, one person’s view of FIRE may not be the same as another’s. For that reason several different versions of FIRE are commonly talked about - and in reality, of course, there are as many types of FIRE as there are individuals interested in the topic.

Here are some FIRE variants you may come across:

When setting a FIRE target, you’ll have a few decisions to make. One important consideration is the withdrawal rate (also known as a safe withdrawal rate - SWR) you use for your retirement calculations.

As you might expect, the withdrawal rate is the rate at which you intend to withdraw funds from your savings once you’re retired. Picking the right rate is essential to make sure you don’t run out of money or face financial hardship once you’ve stopped or reduced your work. This means that FIRE proponents often suggest picking a withdrawal rate which is likely to sit around the same rate as you might expect your investments to earn income or interest. That means you can mainly spend the income from your investments, without depleting the principal too early.

So - what is the best SWR for your FIRE calculations? There’s no absolute right answer here, but generally it’s suggested that investing conservatively during your retirement years, and setting a withdrawal rate of about 3% or 4% of your starting balance should mean you can continue to draw on your funds for many years to come. Not only that, a 4% annual withdrawal rate means that with careful management, your total savings could last for a 25-30 year retirement.

Naturally, there are drawbacks to using the SWR method of FIRE planning. This approach is based on average growth expectations in your portfolio - but investment growth tends not to be linear. There may be good years and bad years in terms of your investment performance - and other factors also apply, such as your own changing financial needs and changes in the costs of living. Playing around with different withdrawal rates can help you model different retirement outcomes - which is where our FIRE calculator can be a huge help.

Rather than setting a percentage-based withdrawal rate, you can instead work around your planned retirement length. If you plan to retire at age 60, for example, a 4% withdrawal rate may work well for you. But if you’re hoping to retire at a younger age - say at 50, or earlier - and you intend to enjoy a lengthy retirement, then you’ll need to adjust your plans and save more.

Thankfully, our calculator has an experimental ‘Life Expectancy’ mode! While this isn’t a topic that many people enjoy contemplating too often, it can help to give a clearer idea of how long you need to plan for.

Ready to get started? Here’s how to use our FIRE calculator to model possible scenarios for your financial independence goals:

Add some information about yourself today:

Enter information about your retirement goals:

Configure your investment strategy:

Based on this information, the FIRE calculator will give you:

You’ll also be able to explore your projections in a chart and a table, based on the assumptions and estimates you’ve entered into the calculator. You can then play with different rates of savings, investment return and withdrawal, to see how your potential retirement age might change in different circ*mstances.

Using a financial independence calculator is a good start on your FIRE journey - but the more you learn, the more you’ll see other options which can also help move you forward, fast.

There’s no single FIRE method, but common approaches include structuring your investment portfolio optimally to improve returns, while keeping an acceptable balance of risk. In broad terms, you’ll be able to build a balanced investment portfolio by splitting your savings across stocks, fixed income savings or bonds, and cash. It’s generally considered that the potential returns of stock based investment are the highest - but so is the risk. Fixed income options have a more stable return, which could be lower than you may achieve from stocks. Holding cash is important to cover any immediate and unexpected expenses - but this can have a lower return still.

The balance of splitting your savings across these three categories is a personal decision, and may also vary depending on your planned timescales. Having a higher proportion of your money in riskier investments could be a more attractive option if you’re many years off retirement, as you’d have time to regain any losses incurred due to market fluctuations. Closer to retirement, you may prefer stability, shifting more of your money into more stable investments, even if the potential returns are lower - a process known as lifestyling.

The good news is that building a balanced investment portfolio is made easier with tools like Lightyear which allow you to build a diverse investment portfolio of global stocks, ETFs, and money market funds. Whatever tools you use to build your investment portfolio, be aware of your broker’s fees - if you’re aiming for an early retirement, you definitely don’t want hidden fees eating into your returns. Take a look at Lightyear’s pricing, or sign up for free today.

Being financially secure is a dream for most people - and it can be easier to achieve financial independence if you plan carefully using popular FIRE methods and tools. Our early retirement calculator can help you figure out your possible savings over time, your potential investment returns, and how much you’ll need to have saved to safely withdraw enough to live on in retirement. Use our calculator to model a few different scenarios - and then check out Lightyear for ways to best invest your funds for optimal growth across a balanced portfolio.