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Financial independence and retiring early is simple (although not necessarily easy).

an introductory guide to FIRE

· Money

There are a lot of things in life that aren’t easy to understand when you’re doing them for the first time: US health insurance, picking funds for your very first 401k when you’re 20, or switching from an iPhone to an Android (seriously, why is the learning curve so steep for making that change?!)

Financial independence isn’t one of them. The math is basic. You only need to understand these key points:

  • Your Savings Rate Percentage (%) = Years to Retirement
  • Your Retirement Number = Annual Expenses x 25 
  • A 4% Safe Withdrawal Rate can be used to determine how much of your cushion you can spend annually, without ever running out of money (whether in 10 years or 50 years). The formula is $portfolio amount / 4%

Retiring early is basic middle school math.

This doesn’t make it easy but the concept is simple: The more of your earnings that you invest, the shorter the time that you have to work. Your investments will eventually generate enough to cover your cost of living.

It does not actually matter how much you earn.

The formula works because you can only spend what you’re earning so

earnings – investing = savings rate as a percentage (e.g. Earning 100k and investing 50k = 50% savings rate)


savings rate correlates to years to retirement (savings rate = how long until your portfolio can generate that amount passively).

I tend to focus on maintaining extremely high savings rates (over 50%) for two reasons:

  • It decreases your time to financial independence (more money invested)
  • It decreases how much money you need to live (offering you more flexibility and a smaller required portfolio). 
    • For example, if you make $100,000k and live on $50,000, you can retire in 17 years
    • But if you drop how much you live on (to $40,000) you not only add 10,000 extra dollars to your investments every year, but you’re now required to save less money than someone who spends 50,000. 
      • spending $40,000 / year = $1,000,000 to retire
      • spending $50,000 / year = $1,250,000 to retire

That’s an entire $250k less that you have to save up in order to reach FI.

That drop alone shaves 5 years of your working time to 12.5 years to retirement.

For simplicity, let’s assume an annual salary of $100k.

If you spend 90k and invest 10k, you’ll have to work for about 45 years to build up a portfolio that generates 90k annually.

  • If you spend 80k and invest 20k, you will need to work for 37 years
  • If you spend 70k and invest 30, you will need to work for 28 years
  • If you spend 60k and invest 40k, you will need to work for 22 years        
  • If you spend 50k and invest 50k, you will need to work for 17 years
  • If you spend 40k and invest 60k, you will need to work for 12.5 years
  • If you spend 30k and invest 70k, you will need to work for 8.5 years
  • If you spend 20k and invest 80k, you will need to work for 5.5 years
  • If you spend 10k and invest 90k, you will need to work for less than 3 years

Most of us can aim for 50-50, especially if you’re in a dual-income relationship: live on one person’s salary, and invest the other person salary.

Don't know how to get started investing? Read my post on becoming a millionaire.

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