When Will I Reach FIRE?

Here’s another post where I don’t know the answer to the question as I’m writing it. Which makes it that much more fun. But here we are. Selenid and I are about 4 years into our FIRE journey from an inauspicious beginning. We certainly seem to be on the right track after addressing our mistakes. But it’s a good time to check in and see when we actually will reach FIRE based on our current trajectory.

Determining your FIRE number

As a matter of quick review, you can start to figure out your FIRE number once you know your goal yearly expenses ($X) and a safe withdrawal rate (4%) for that nest egg in retirement.

Finding your nest egg

The following simple equation will then allow you to compute how much of a nest egg you need:

4% = $X/Nest Egg

So, say you predict your monthly expenses to be $10,000. Your desired yearly withdrawal amount is then $120,000 ($10,000 x 12).

Some back of the envelope math will show you that you then would need a nest egg of $3 million ($120,000/4%).

The passive income caveat

Take again for instance that your expected yearly expenses are $120,000.

However, you have passive income of $2,000/month. That is equal to $24,000 annually.

Therefore, you already are covering $24,000 of your expected yearly expenses in retirement via passive income! Now, you just need to save and invest enough to cover the remaining $96,000/year.

That is a big difference!

But when can you reach FIRE?

Once you know your goal nest egg, you need to convert that into the time is will take you to reach FIRE.

And the main variables in that equation are:

How much you save each year,
Your investment returns, and
How long you work

I’m going to remove investment returns from this list. Just because it is the variable that you have the least control over. And you certainly don’t have any direct control over it.

So let’s focus on what we have absolute control over. Time and savings

On Microsoft Excel, there is a Future Value function that can help predict the growth of your money through savings and investments.

For example, I want to know how much my nest egg will be if I save $50,000/year and expect my investments to grow at a modest 5% after taxes and fees.

I type the following into Excel:

=FV (5%, 30, -50000, 0, 0)

The first value is the interest rate (again, not in our control directly so we assume a conservative 5%)
The second value is the number of years you are contributing/working. Let’s say you plan to retire in 30 years
The next value is the annual contribution amount i.e.savings which must be put in as negative
The first “0” is your current savings. If you have $10,000 already saved, you would put “-10000) in this position
The last value is a “0” if you are contributing at the end of the year, which is default, or a “1” if contributing at the beginning of the year.

So, in this example, we punch this equation in and see that our money would be worth $3.3 million when we retire.

In this example, our doctor would know that they will reach FIRE in 30 years at their current savings rate.

Adjusting the goal nest egg and savings rate will allow them to alter how long it will take them to reach FIRE.

This is a powerful tool!

Because now you know exactly what you need to do in order to reach FIRE on your terms when you want to.

Of course, there are other micro variables that could come into play. But by addressing just the variables we have power over, we take the reins in our financial lives. We gain autonomy and control.

For a more in detail step-by-step guide to these calculation including screenshots, check out this post!

So, back to our original question…

Let’s put all the variables together to start.

Selenid and I have set our target annual expenses in retirement at $200,000. Our main expenses would be our primary home mortgage, kids’ education, and health insurance (all assuming we “retire” before typical retirement age of 65.) This may be a bit of an overestimate but we want to be conservative.

Therefore, our goal nest egg is $5 million ($200,000/4%).

However, we do have passive income

For this calculation, I am only going to count our real estate income as passive income. I’m excluding my blog and other side gig income. Why? Well, because that is kind of like work – work that I enjoy of course. But we are talking true FIRE here. So let’s keep it pure.

We have annual rental income around $120,000. I’m going to reduce this to $100,000 to be conservative again.

Therefore, our annual expenses that need covering via our nest egg goes down to $100,000 ($200,000 – $100,000).

Our goal nest egg therefore becomes $2.5 million ($100,000/4%).

Now let’s plug some numbers into our FIRE calculator

First, we put our current annual savings amount. That comes to $100,351. You can see where that number comes from here.

And our current savings in retirement accounts (not counting equity in real estate etc) is $414,000.

Next, I keep my estimated rate of return at a very conservative 5%. I do to, again, be conservative.

Now, once I have entered those values, I can play with the “Years until retirement” to see how long I need to work to reach our goal nest egg of $2.5 million at our current savings rate.

And the number comes out to 12.8 years. That’s pretty good! And I’d say about on par with a time frame that we had set out, which was to be able to go part time if desired in 10 years. Certainly something we could reach.

Now let’s make some adjustments…

If we increase our savings rate by just 5%, as we plan to do, our time to reach FIRE decreases to 10.5 years.

Or, if we increase our passive income from real estate by $50,000 annually (using our tortoise real estate investing method), our time to reach FIRE decreases to 6.1 years at our original savings rate or 4.9 years at the elevated savings rate.

This is a powerful tool!

If we don’t have a goal, we will never know where we are going. That is what your written financial plan is for. It sets your financial goals and a path to reach them.

But that is not the end of the story.

You still need to check in periodically to make sure you are on the right path. That way, you know where you stand and can make any needed adjustments. It also keeps you humble if any of your circumstances change. You know that variables involved and the allows you to manipulate them to accommodate your new circumstances.

And just like anything else, remember it is about the journey, not the destination

FIRE in itself is not the goal. You need to develop a strong WHY for your goals. Another you become poised for an arrival fallacy.

And you also need to remember (myself especially included) to enjoy the journey there. It’s ok to spend money intentionally on things that make you, your loved ones, or the world happy!