Our F.I.R.E. target

The most important question - How much do we need to be financially free? Not for 1,2 or 10 years, but throughout our lifetime so that working for money is no longer a necessity. We have the option to take back control of our 'time'.  

In this blog, we share our target number to achieve Financial Independence(FI). Once we achieve FI, we will be in a position to Retire Early(RE). We continue to review our target regularly to adjust it with respect to the change in our income, expenses, assets and liabilities. Thus, you may find a different number than what was 3/6/9 months earlier. There is no universal calculator and every individual or family need to make their own calculations. 

Factors and assumptions for calculations:

– current assets and liabilities
– current and future(post-retirement) expenses, adjusted for inflation
– expected yearly salary increments
– expected returns on current and future investments
– post-retirement lifestyle and cost of living in a tier-3 city.
– estimated yearly inflation at 6%, return on investments at 8%(post-tax)

Calculations(as of November 2021):

*FI target updated to 60X from 47X in Nov2021. 

Instead of exact numbers, we’ll use  an assumption that the yearly expenses in the first year of our retirement is Rs X. Our target to achieve financial freedom is 60 times X or 60X. Below is a break-up of our target.

To cover regular household expenses	30X
To build/buy a home	12X
For daughter’s education	5X
For health related emergency	5X
To start a small business	3X
For travel	2X
To buy a car	2X
For gadgets/appliances	1X
Total target to achieve FI	60X

Retirements corpus of 30X would last around 47-50 years post-retirement which should be good enough for us. Below graph depicts how our post-retirement finances may look like: 

x-axis: years post-retirement, y:axis: assets and expense growth

Safe Withdrawal Rate(SWR)

SWR is a term used globally by F.I.R.E. aspirants. It’s the hypothetical rate at which one can withdraw from his/her retirement corpus without running out of the funds during their lifetime. In many blogs and forums,  the recommended SWR is around 4% or less. The simple formula to calculate FIRE target is to divide the current expenses by the SWR. If X is current yearly expenses then 

FIRE target =  (X/.04) = 25X

Lower the SWR, more is the retirement corpus required. For further details, please read the article.

As it’s impossible to predict the future, factors like inflation and return on investments would determine the actual withdrawal rate in reality. 

In case you are visiting this blog for the first time, please do read the post on why I want to retire early

Do you also have a target for achieving financial freedom? What’s your thought on how much money is required to retire early? Please share your feedback in the comment section.