FIRE Explained: How to Retire by 40 (or 50, or 55)
Financial Independence Retire Early is not about being rich. It is about spending less than you earn and investing the difference aggressively.
The FIRE formula: save 25 times your annual expenses. If you spend $40,000 per year, your FIRE number is $1,000,000. At a 4% withdrawal rate, a $1,000,000 portfolio generates $40,000 per year indefinitely (historically lasting 30+ years 96% of the time). The key variable is not income — it is savings rate.
Savings Rate → Years to FIRE
Saving 10% of income: 51 years to FIRE. Saving 25%: 32 years. Saving 50%: 17 years. Saving 70%: 8.5 years. The relationship is exponential because every dollar you save does double duty — it increases your investment balance AND proves you can live on less (reducing the target you need to hit).
Is FIRE Realistic?
For a dual-income household earning $120,000 combined, saving 40% ($48,000/year) and starting at age 28 with $50,000 already saved: FIRE at approximately age 45. That requires living on $72,000/year (comfortable but not lavish) and investing in low-cost index funds. The math works. The discipline is the hard part.