Everyone has thought about it right? The magic number. The F U Money. The FIRE number.
This calculator helps you figure out exactly how much money you need to never have to work again.
If you need help figuring out the inputs, please see the usage guide and the discussion further below.
Money to Never Work Again Calculator
Please hit the Calculate button to proceed.
To determine how much money you need to never work again, we’ve developed a calculator that takes into account various key factors. Here is a brief description of the inputs needed:
- Pre-Tax Annual Income Needed: This is the annual income you’d like to generate from your portfolio. Enter the figure in today’s value terms. Inflation is accounted for in the calculations.
- Average Income Tax Rate (%): Your expected average tax rate during retirement. This is optional as it doesn’t affect your portfolio size requirement. The calculator uses this to help understand what your monthly after-tax income would be as this is the true cash on hand that you have to spend.
- Portfolio Withdrawal Rate (%): The percentage of your portfolio you plan to withdraw annually. Typically a safe figure is 4% but you could go as high 5%.
- Inflation Rate (%): The average annual inflation rate. 2% is a safe figure if you live in a developed country.
- Portfolio Growth Rate (%): The expected rate of return from your portfolio. For a balanced portfolio, you could use 6-8%. For a more aggressive return equity portfolio, you could use 8-10%. Remember though that volatility is not taken in to account here.
The calculator presents the results in 4 different ways:
- Descriptive: This section just provides a simple text based summary with the basic numbers on what your portfolio size needs to be and how long you can expect it to last for.
- 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- Chart 2 – Annual Cash Flows & Returns: This chart shows the cash withdrawn from your portfolio in the retirement years. These are in orange. The blue bars show the annual investment income from the portfolio. The black line shows the net cash flow in each year. If the line is above 0, it means that your portfolio is growing even after deductions.
- Table: If you select “Yes” in the dropdown box, the results will be shown in a tabular format for each year.
This calculator is applicable across the world, so whether you are in the US, UK, Canada, or Australia, this calculator will work for you. Just remember to set your currency format properly so your results are shown in the proper format.
What’s Your Number?
If you’ve seen the movie Margin Call, you can just imagine the characters talking about this concept. Picture Sam Rogers (Kevin Spacey) and John Tuld (Jeremy Irons) just talking in the breakfast scene towards the end of the movie.
Scene: A lavish restaurant on the top floor, overlooking the city. John Tuld having breakfast at a table by the window, looking contemplative. Sam Rogers enters the room, his face showing signs of stress and fatigue.
Sam Rogers (Kevin Spacey): “John, with everything that’s been going on, it’s got me thinking… So, what’s your number?”
John Tuld (Jeremy Irons): “Ah, the age-old question. What’s your number? The amount of money you would need to just walk away from it all and live comfortably for the rest of your life.”
Sam: “Exactly. With all the risks, the late nights, the moral dilemmas… At what point is it enough? At what point can we say we’ve won the game and it’s time to step away?”
John: “It’s a question I’ve pondered many times, Sam. For some, it’s a few million. For others, it’s a billion. But the real question is, can we ever truly be satisfied? Or is the chase, the thrill of the game, what keeps us going?”
Sam: “I’ve seen good people lose everything chasing that number. I’ve seen families torn apart, friendships ruined. All for what? A few more zeros in the bank?”
John: “It’s the nature of our business, Sam. Greed. Ambition. The desire for power. But at the end of the day, we all have to decide what’s truly important to us. What’s worth sacrificing and what’s not.”
Sam: “I just wonder if it’s all worth it. The sleepless nights, the constant pressure. There has to be more to life than this!”
John: “Perhaps there is, Sam. Perhaps there is. But until we find that ‘number’, we’ll keep playing the game.”
This dialogue didn’t really happen in the movie, but we can all imagine it could have easily been this conversation! Perhaps $7 million would be a good number for Sam?
The FIRE Number
People often refer to their magic figure as the FIRE number, alluding to the concept of “Financial Independence, Retire Early”. We’ve covered the topic of financial independence extensively on our blog and in fact even have other calculators dedicated to figuring out how to reach FIRE.
But what if you simply want to know the number? Having that “F U money” number in your mind lets you think of a day when you can just up sticks and walk away from your job.
Use this calculator to figure out what exactly that number is for you. This calculator does not help you figure out how much you need to save each month or each year to reach that figure. For that you can use our Coast FIRE Calculator or Fat Fire Calculator. Both are more elaborate versions of this calculator.
This calculator is specifically used to figure out how much money you need so that you never have to work again. It’s focused on the “retirement” side of your life and not on the build-up phase.
Here are a few things to keep in mind as you use this calculator
The 4% Rule is a widely recognized guideline used in retirement planning. It suggests that if retirees withdraw 4% of their initial retirement savings, adjusted annually for inflation, there’s a high likelihood their funds will last for a very long period of time. This rule is based on historical data on stock and bond returns.
It assumes a diversified portfolio, typically split between stocks and bonds. Often such a portfolio is referred to as a balanced portfolio, which consists of 60% in equities and 40% in bonds. A typical suggested range of return for such a portfolio is 6% to 8%, meaning that you can easily withdraw 4% from your portfolio even in bad years.
While the 4% Rule provides a starting point, it’s essential to consider individual circumstances, market conditions, and life expectancy when determining an appropriate withdrawal rate.
We’ve all become too familiar with inflation lately and its ability to really eat away at your spending power. While high inflation is not expected to last forever, it nevertheless is a persistent force to reckon with.
Central banks in developed countries often target a 2% inflation rate. This means that if something cost $100 today, it will cost you $102 to buy next year, and $104.04 in the year after.
Naturally to maintain your spending power, the amount of money that you withdraw from your portfolio needs to keep pace with the average value of inflation over time.
This means that each year the amount of money that you withdraw from the portfolio will need to increase over time. Your portfolio therefore also needs to grow to support your inflation-adjusted withdrawal rate.
Portfolio Growth Rate
If you’ve read this far, it should be apparent that your portfolio will need to generate far more then just what you need to withdraw annually. Your portfolio returns should account for market volatility and inflation.
So for example, if you stick to the 4% rule for your withdrawal and use a 2% long-term inflation figure, your portfolio should generate 6% at the minimum to sustain you in the long run.
Of course your personal needs and targets may be different. Perhaps you believe in the Die With Zero concept and don’t need your portfolio to exist in to perpetuity. If that’s the case, then you can go one of two ways: draw more money from your portfolio (i.e. use a 5% or 6% withdrawal rate), or you could stick to the 4% rule and simply use a more conservative portfolio growth rate.
The calculator will help you figure out for how long your money will last. It will even let you know in which year your withdrawal rate exceeds the portfolio’s ability to grow.
Portfolio volatility refers to the fluctuations in the value of an investment portfolio over time. In the context of retirement planning, understanding this volatility is crucial.
While an investment might have an attractive average return over the long term, it’s essential to remember that these are only averages. Yearly returns can deviate significantly from this average, leading to periods of both substantial gains and losses.
For example, balanced portfolios had their worst year on record in 2022. These portfolios had an approximately -18% return in USD terms, as both bonds and stocks went down at the same time. For someone who then withdraws their regular 4% from this portfolio, simplistically speaking, would have a portfolio return of -22%!
Try using the calculator with a 22% diminished portfolio and see how far that gets you! For this reason, high volatility can be particularly concerning for retirees, especially if significant downturns occur early in retirement when withdrawals are being made.
A sequence of negative-return years can severely deplete a portfolio more rapidly than anticipated, even if the long-term average return remains positive.
Thankfully 2023 has been more benign with most balance portfolios recovering by around 11% in the first three quarters of the year. On a 3-year basis however, compounded returns are still only 4% though, which means a balanced portfolio investor has actually lost purchasing power.
Therefore, when planning for retirement, it’s not just about aiming for a high average return but also about managing and understanding the potential volatility to ensure the sustainability of retirement funds.
Build in buffers in to your planning – whether it’s opting for the Barista FIRE lifestyle, or alternatively, just retiring with a bigger pot of money than just the bare minimums suggested by the calculator.
If you don’t want to work at all in your retirement years, hopefully I’ve built the case up for you to at least have an emergency fund. Think about it as a pot of cash you could use not just for life emergencies, but also for portfolio emergencies.
If you have 6-months of cash on hand, it could substantially cushion the blow on your portfolio in a down-year.
You could opt to have this cash up front when you begin your retirement. Or alternatively you could build it up with excess returns in the good years. Sell down some of your investments and move to cash when the portfolio delivers above-average returns.
Before You Go…
I hope you find this calculator useful. Our team works hard to get your the best and most accurate information. If you do spot any errors, please do not hesitate to leave a comment here or send us an email at email@example.com.
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!
Please also do check out the various other calculators that we’ve built.
How much money would you need to live off interest?
It is entirely possible to live off interest. You just have to keep in mind that you can’t draw the full interest amount for living expenses as you have to pay income tax on the interest and you have to factor in inflation. With today’s high interest rates and high inflation rates, at best you could draw on 2% from your portfolio if you want your money to last forever. Try using that figure in our calculator to see what figure works for you.
by Andrew Garcia
Andrew, an alumnus of South Florida State College, loves finance, fintech, and coding. When he’s not crunching numbers at the bank, he’s passionately writing about personal finance and building calculators for PFF. See more.