If you worry about how much money you’ll need to retire comfortably, you’re not alone. In fact, there are many people out there who focus on getting out of the working game sooner than they’d usually expect – which is going to mean a lot of investment and careful management!
The FIRE movement centers around being able to retire early and enjoy financial freedom before you’re of retirement age. In this guide, I’ll discuss one type of FIRE planning – FAT FIRE.
If you already understand how FAT FIRE works, then please use this calculator to see how it works for you. If you need more context, keep scrolling further below and we’ll dive in to the details.
Working on your results…this might take a few seconds…Thanks for waiting!
Here’s a quick guide to using the calculator and what each input needs:
- Current Age: Your age today in years.
- Retirement Age: The age at which you wish to begin your retirement. Starting at that age, the calculator will start withdrawing the amount that you specify in the Annual Withdrawal field (adjusted for inflation).
- Current Portfolio Value: Specify the amount of money that you have saved up and that is readily investable in to the markets or other reasonable opportunities.
- Annual Contribution: This is the amount of new money that you expect to be able to contribute each year (without fail) in to your portfolio. This amount is added to your portfolio each year (after inflation adjustment) until the age you specify in the Stop Contribution Age field.
- Stop Contribution Age: This is the age at which you wish to stop contributing to your portfolio. This value can be any year between your Current Age and your Retirement Age.
- Annual Return (%): The annualize rate of return you expect to generate from your portfolio. A comfortable range here would be between 6% to 8%.
- Inflation Rate (%): The expected annual rate of inflation for the long term. If you live in a developed country, you can use 2% as a representative figure here.
- Annual Withdrawal: This is the amount in today’s money that you expect to withdraw in the future. The calculator will automatically adjust for inflation using the Inflation Rate, so please enter a number in current values. If you expect to receive a pension, then you can reduce the expected annual withdrawals. See more below.
- Expected Average Income Tax Rate on Withdrawals (%): This is an optional field. It is for the average income tax that you expect to pay in retirement on the withdrawals from your portfolio. Remember that you will only have the after-tax portion to fund your expenses.
A quick note on the ages: The idea behind any retirement calculator is for you to specify you current age and the retirement age. Our calculator includes an additional input called the Stop Contribution Age. Let’s look at this through an example:
Jon is currently 35 years old and wants to retire at the age of 55. His savings portfolio is currently worth $150,000. He would like to save up front for the next 10 years, so he can contribute $35,000 per year for the next 10 years, or until the age of 47. In this example, Jon would entire his Current Age as 37, the Stop Contribution Age as 47, and Retirement Age is 55.
Jon could alternatively use a Stop Contribution Age of 54, if he intends to keep adding to his portfolio right up till the very end. Alternatively, he could also use 36 if he just wants to contribute for 1 year.
There are many different options! Please do try out a few different options to see what fits best.
The calculator presents the results in 4 different ways:
- Descriptive: This section just provides a simple text based summary with the basic numbers around whether you’ll be able to achieve FAT FIRE or not, based on the inputs that you have entered.
- Chart 1 – Portfolio Value & Annual Investment Income: The black line shows how your portfolio value (left y-axis) will behave over time. The vertical bars show the annual investment income generated by your portfolio. Note that this income will be a combination of capital gains (share prices going up) and dividends.
- Chart 2 – Annual Cash Flows & Returns: This chart shows the cash added to the portfolio during initial years and the cash withdrawn from the portfolio in the retirement years. These are in orange. The blue bars show the annual investment income from the portfolio.
- Table: If you select “Yes” in the dropdown box, the results will be shown in a tabular format for each year.
There’s a convenient button to Share your results too. You can save the link and come back to the calculator to reuse the inputs that you previously entered as well.
What is FAT FIRE?
FAT FIRE is, as many people note, a fairly extreme version of FIRE – in that its purpose is to support luxury living standards while retiring early.
While models such as COAST FIRE allow you to continue living comfortably, FAT FIRE dials things up to 11. In fact, the ideal FAT FIRE system should provide you with $100,000 every year to live on in retirement.
That means, effectively, you’re going to need at least $2.5 million in total investments to generate $100k annually. On top of that, you’ll need to follow a safe withdrawal rate (SWR) of around 4% – meaning you won’t be able to cash in any of your investments beyond 4% on your way to retirement.
What you need to calculate your FAT FIRE
While we’re dealing with a few eye-popping numbers here, there are ways you can calculate your hypothetical FAT FIRE and still enjoy a comfortable lifestyle. You don’t even have to stick to the $100k a year model – it can be whatever you feel is most adequate in line with your income and spending.
Though my FAT FIRE calculator above takes care of the math side of things for you, it’s worth considering what you need to save and spend under this type of FIRE.
Ultimately, you’ll need to know what you want to spend every year once you retire. That means you need to work out living costs, basic expenses, and how much you’d like to spend on luxuries and higher standards of living when you stop working for good.
Try not to cut your ideal expenses total too short. This is a figure that shouldn’t need you to compromise. The FAT FIRE system demands that you save or invest a little more than expected as it’s the luxury model – so don’t be afraid to go a little higher if you’re just playing around with numbers.
Ideally, your FAT FIRE total should be 33 x the amount you wish to spend each year in retirement. If that’s $75k, you’re looking at a FAT FIRE of $2.475 million. Once you reach this number in capital, you can retire and withdraw up to 4% per year to live comfortably.
From here, you need to consider the potential gap between your savings and investments and your FAT FIRE. If you have an invested portfolio of around $500k, for example, you need to find another $2 million before you retire.
That means you’ll need to work out how much to save and/or invest per year to get to such a number. That should tell you when you can reach FAT FIRE – and again, my calculator at the top of the page should help you reach those dates.
What are the benefits of FAT FIRE?
FAT FIRE is one of the more appealing types of FIRE model around, largely because it boosts your retirement spending potential to the max. Here are a few of the bigger benefits of trying out FAT FIRE for yourself.
It’s complete financial freedom
For many people, the idea of $100k per year is complete financial freedom. Of course, your idea of freedom depends on where you live, and your current tastes and lifestyle. Having passive income of $100k per year puts you in an elite league, as even a household income (active salary income) of $100k per year would put you in the top-20% of US households.
That said, once you reach that magic FAT FIRE total, you are, as they say, “set for life.” Just don’t withdraw more than 4%, and you can keep enjoying your wealth, early, for many years to come.
It’s a new luxurious standard of living
Many of us dream of lavish lifestyles, and for several who have made FAT FIRE work, it’s a huge reward for a life spent working hard and on the breadline.
The transformation in lifestyle may be fairly sudden – meaning that you could go from everyday expenses to luxury yacht vacations in a matter of years. It all depends on what you can save and what you’re able to invest in at short notice.
It’s time for you to do what you want, when you want
The whole idea behind FIRE is that you shouldn’t have to wait until your 60s to really start enjoying the money you make. While the FIRE systems do carry some risks and may not even be feasible in some cases, they’re great for simply opening up a wealth of time and opportunity for you to simply do whatever you wish.
Without work and financial restraints hanging over you, you could take the time to travel the world, try new hobbies, and experience life to the fullest.
We only get one full life (as far as we know for sure), and for that reason, it’s well worth making the most of. That, and – again, as they say – you “can’t take it with you!”
What are the drawbacks of FAT FIRE?
For many of us, FAT FIRE can seem a little extreme, or even fanciful! We all have dreams of living lavish lifestyles, and while this system is great at helping you achieve complete freedom quicker, it’s going to take some work. Here are a few drawbacks to FAT FIRE you’ll need to keep in mind.
It’s going to take time
Even if you have a fairly valuable portfolio, reaching that fabled FAT FIRE number will still likely take you years. Therefore, it’s wise to keep healthy expectations.
There are different versions of FIRE that can help you to retire even earlier, but FAT FIRE focuses entirely on the luxury aspect. That means you may need to spend up to 20 years making shrewd investments and saving meticulously.
For some people, this time spent living semi-frugally and intensively saving may go against the object of retiring for complete financial freedom. The counter-argument may be that saving intensively now is hardly living – and why wait the two decades when you can live happily within your means while you’re young?
It’s going to take millions of dollars
You need to be a millionaire a few times over if you want to make the most of a FAT FIRE system. That’s not unachievable, of course, but for those who work blue collar jobs and who struggle to find well-paying opportunities, earning millions is a bit of a dream scenario.
That said, investing wisely can help you to reach seven-figure sums sooner than you imagine. I never like to say “never” when it comes to savings goals – hence the name of the site, Project Financially Free.
Yes – aiming for FAT FIRE will take huge financial investments on your part – but invest wisely and learn about the markets, and you never know what you might achieve.
Is FAT FIRE worth the risk?
FAT FIRE is only risky if you invest more than you can afford. Even then, depending on how you invest and/or save, it should be simple enough for you to withdraw and back out at any time.
I feel that FAT FIRE is worth trying if you have a very strong portfolio and want to retire sooner rather than later. There’s no telling what you could achieve through this type of system, so why not use my FAT FIRE calculator and start making plans?
Alternatively, there are other FIRE systems that may seem a little more achievable – take a look at my guide to COAST FIRE, for example.
Before You Go…
Hopefully you found this information useful. Please do let me know in the comments if you have any feedback, comments, or questions!
Our whole blog is dedicated to help you get on the path of financial freedom. Feel free to browse around and read through the articles.
In a nutshell, the fastest way to achieving FIRE is to cut your debt, minimize unnecessary expenses, so you can save and invest your money! Do check out our guide to vested balances and 401Ks, should you choose to go that route!
There are plenty of investment books and podcasts that you can use as a learning resource along the way to help you reach your goal faster.
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