Finding Your Retirement Number
The 4% Rule · Trinity Study · Safe Withdrawal Rates
The scariest question in personal finance is: "Do I have enough money to stop working?" Thanks to the FIRE (Financial Independence, Retire Early) movement and the Trinity Study, we now have a mathematical framework to answer that exact question.
What is the 4% Rule?
In the 1990s, three professors at Trinity University looked at historical stock and bond market returns. They wanted to know: how much money can a retiree withdraw from their portfolio every year, adjusting for inflation, without ever running out of money over a 30-year period?
The answer was 4%. If you withdraw 4% of your starting portfolio balance in year one, and then simply adjust that dollar amount for inflation every year after, historical data says you have a near 100% chance of your money surviving a 30-year retirement.
The Impact of Inflation
Do not underestimate inflation. If you want a lifestyle that costs $60,000 a year today, you cannot plan to retire on $60,000 in 20 years. Assuming a 2.5% inflation rate, that same lifestyle will cost nearly $98,000 a year by the time you retire. Our calculator automatically handles this complex inflation math for you.
How to Calculate Your "FIRE Number"
Because of the 4% rule, finding your baseline target number is incredibly easy. You simply take your expected annual expenses and multiply them by 25.
- Need $40,000 a year? You need $1,000,000.
- Need $60,000 a year? You need $1,500,000.
- Need $100,000 a year? You need $2,500,000.
What if I want to retire *very* early?
The Trinity Study only looked at 30-year retirements (e.g., retiring at 65 and living to 95). If you want to retire at age 40, your money needs to last 50+ years. In this case, many experts recommend lowering your Safe Withdrawal Rate (SWR) to 3.5% or even 3.0%.
You can adjust the Safe Withdrawal Rate in the advanced settings of our calculator. Notice that lowering it to 3% drastically increases the amount of money you need to save.