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The Math Behind Early Retirement (FIRE)
By InvestTool Team•Updated: March 2026•4 min read
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Retirement is not an age; it is a mathematical equation. Once your invested assets generate enough passive income to cover your living expenses, you are financially independent.
The 4% Rule Explained
Based on the famous Trinity Study, if you withdraw 4% of your stock market portfolio per year (adjusted for inflation), it has a 95%+ historical chance of never running out over a 30-year period.
This means your "FIRE Target Number" is simply your annual expenses multiplied by 25.
The FIRE Calculation:
- If you spend $40,000 per year: You need $1,000,000.
- If you spend $80,000 per year: You need $2,000,000.
- If you spend $20,000 per year (Lean FIRE): You only need $500,000.
By increasing your Savings Rate (the percentage of your take-home pay you invest), you can drastically reduce the number of years it takes to hit this target.
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