Unlock Early Retirement: The Best Methods to Calculate Your FIRE Number
Episode 35: Ronin is on FIRE … Again!
“Sounds like a monster rollercoaster at Six Flags.”
Ronin
Episode 35: Ronin is on FIRE … Again!
Primer:
Ronin: Sifu, what is this “ Number” I’m hearing about? Isn’t that 911, the number to call if I accidentally set my kitchen on fire from forgetting to turn off the stove when I’m making my five-star ramen recipes?
Sifu: Don’t be a dumbass, Ronin! This magic number has nothing to do with the fire department. The FIRE Number refers to the amount of money you’ll need saved and invested in order to retire early and sustain your lifestyle for the rest of your days, with no need to work again.
Ronin: Oh! That makes sense. But do I need my wizard stick to conjure up this magic number, Dumbledore?
Sifu: Ha! The only magic you’ll need is from your trusty dollar store calculator, that is if your basic arithmetic skills have gone to shit, #1.
Ronin: Doh!
The 4% Rule
Sifu: The 4% Rule is a simple yet powerful method. It states that you can withdraw 4% of your investment portfolio annually without running out of money. To find your FIRE number, you multiply your annual expenses by 25.
Ronin: So, if I spend $40,000 a year on pizza and video games, I need a million bucks? Easy peasy, lemon squeezy! I might get that just by selling my collection of rare action figures!
Sifu: Really, #1? I thought those dust collectors were worth a c-note at best — the whole lot of ‘em.
Ronin: Hey hey. Easy there, Darth Disrespect. I have plenty of time and money invested there. You just watch when this biz goes viral and the value sky-rockets to Mars!
Sifu: Ok, if you say so, Toy Raider. Trust you know more than me about such business. Hope so anyways. Now, the 4% Rule assumes a balanced portfolio and a long-term investment strategy. It is not a get-rich-quick scheme.
Ronin: Ok ok, got it. No buying lottery tickets and calling it a day. Check.
Sifu: Next, we have . Lean FIRE is for those who wish to retire with a minimalist lifestyle, while Fat FIRE is for those who desire a more luxurious retirement.
Ronin: So, Lean FIRE is like living off white rice and biking 15 miles each way to work every day, and Fat FIRE is like retiring in Monaco with a personal Michelin Star chef?
Sifu: Hahaha. Maybe! Lean FIRE requires a smaller FIRE number because your expenses are lower. Fat FIRE, on the other hand, requires a larger FIRE number to support a more extravagant lifestyle.
Ronin: Hmm, I think I’ll aim for Medium FIRE. Enough to afford avocado toast but not so much that I need a butler to serve it.
Sifu: Wise choice, #1. Balance is key in all things, including financial independence.
The Variable Withdrawal Strategy
Sifu: Lastly, we have the Variable Withdrawal Strategy. This method adjusts your withdrawals based on market performance. In good years, you withdraw more; in bad years, you withdraw less. Follow me, Junior Jedi?
Ronin: Roger that, Troop Leader! So, it’s like dieting. Feast during the holidays, starve in January. This variable option sounds like my mortgage — I like that versatility.
Sifu: Indeed, #1. This strategy requires flexibility and a keen understanding of market trends. It can help extend the life of your portfolio during economic downturns.
Ronin: Sounds like a monster rollercoaster at Six Flags. But hey, if it means I can retire early and still afford my comic book addiction, I’m in.
Sifu: Remember, #1, the path to FIRE is not just about the destination but the journey. Each method has its own merits and challenges. Choose the one that aligns with your goals and lifestyle.
Ronin: Yeah, my realistic goal is Medium FIRE and maybe throw in the variable option. Not sure if that aligns to beachfront living though …
Sifu: Ye of little faith. You need to believe in yourself and have the fortitude and confidence to know that you can take it further, to your real goals.
Ronin: Roger that, Space Cowboy! I’m all aboard the positivity train. You’ve lit that FIRE under my ass, boss.
Sifu: Go forth, Ronin, and may the FIRE be with you.
Ronin: Hee-hee.
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Originally published at on September 19, 2024.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.
