The Magic Number
One of the hardest parts of retirement planning is the uncertainty. "How much is enough?" feels like a question with no answer.
The 25x Rule changes that. It provides a concrete finish line. It turns a vague dream into a simple math problem.
Once you hit this number, your portfolio should theoretically be able to support you indefinitely through investment growth and dividends alone, without you ever needing to work again.
The Math: Why 25?
The number 25 isn't random. It is the direct inverse of the 4% Rule, a famous concept derived from the "Trinity Study" (a landmark analysis of market returns).
The Trinity Study suggests that a retiree can safely withdraw 4% of their portfolio in the first year of retirement, and adjust that dollar amount for inflation every subsequent year, with a very high probability of not running out of money for at least 30 years.
If you can live on 4% of your portfolio, basic algebra tells us the total portfolio size:
Therefore:
🎯 Key Insight: The 25x Rule and the 4% Rule are two sides of the same coin. One tells you how much you need to save (25x), the other tells you how much you can safely withdraw (4%).
How to Calculate Your FIRE Number
Calculating your target takes three steps. Be honest with your numbers—your financial future depends on accuracy.
1Determine Your Annual Spending
This is not your salary. It is what you actually spend.
Review your bank statements and credit cards for the last 12 months.
- Include: Housing, food, utilities, insurance, travel, entertainment, and irregular expenses (car repairs, holiday gifts).
- Exclude: Savings contributions and taxes on income you won't have in retirement (like payroll taxes).
2Adjust for the Retirement Lifestyle
Your spending today might differ from your spending in retirement.
Subtract costs that will vanish: Commuting costs, work clothes, mortgage (if you plan to pay it off).
Add costs that might appear: Private health insurance (if leaving an employer plan), increased travel budget, new hobbies.
3Multiply by 25
Take that final adjusted annual spending number and multiply it by 25.
That's your FIRE number.
Real-World Examples
| Annual Spending | The Calculation | Your FIRE Number |
|---|---|---|
| $40,000 LeanFIRE | $40,000 × 25 | $1,000,000 |
| $60,000 Standard | $60,000 × 25 | $1,500,000 |
| $100,000 FatFIRE | $100,000 × 25 | $2,500,000 |
The Power of Cutting Expenses
The 25x Rule reveals a powerful secret: Cutting your spending is more effective than increasing your income.
The Multiplier Effect
Every $100 you cut from your monthly budget reduces your annual spending by $1,200.
According to the 25x Rule, that reduces your required nest egg by $30,000 ($1,200 × 25).
You just lowered your retirement target by $4,500.
You just lowered your target by $60,000.
You just lowered your target by $150,000.
This is why FIRE practitioners obsess over optimizing their "big three" expenses: housing, transportation, and food. Small changes in these categories have massive impacts on your retirement timeline.
Is 25x Really Safe?
While the 25x Rule is the standard benchmark, it is not a guarantee. The original study was based on a 30-year retirement. If you are retiring at 35, you might need your money to last 50 or 60 years.
If you are risk-averse or retiring very young, you might consider a safer multiplier to lower your withdrawal rate:
The 25x Rule
4% Withdrawal
Standard for a 30-year retirement. Based on the original Trinity Study.
The 28x Rule
3.5% Withdrawal
Better for early retirees with a 40+ year timeline. Provides extra cushion.
The 33x Rule
3% Withdrawal
Extremely safe. Virtually recession-proof for 50+ year retirements.
💡 Pro Tip: If you're retiring in your 30s or early 40s, consider using the 28x or 30x multiplier for peace of mind. The extra buffer can help you sleep better during market downturns.
✅ Summary: Your Strategy
- Track accurately: You cannot calculate your target if you don't know your expenses.
- Calculate: Multiply annual expenses by 25 (or 28-33 for extra safety).
- Optimize: Lower your expenses to drastically lower your target number.
- Adjust: If you are retiring very early, consider aiming for 28x or 30x for extra safety.
Ready to Calculate Your Exact FIRE Number?
Use our free FIRE calculator to see your personalized retirement target and timeline based on your current income, expenses, and savings rate.
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