{ "media_type": "text", "post_content": "Big picture question: How did you settle on a FIRE number? Originally I did the simple \"estimated annual living expenses divided by 4% rule\", but am now second guessing that for many reasons. For example, if I want to live on 70,000 per year, I'll need 1.75MM... but what if 70,000 in 20 years won't be a ton of money? Also, what about saving up for kid's college funds? How to account for the possibility of tax law changes? So many questions!", "post_id": "60db3b954ae21000284c18f1", "reply_count": 10, "vote_count": 5, "bowl_id": "5b3f7377ab53db00136f7b4c", "bowl_name": "FIRE Financial Independence Retire Early" }

Big picture question: How did you settle on a FIRE number? Originally I did the simple "estimated annual living expenses divided by 4% rule", but am now second guessing that for many reasons. For example, if I want to live on 70,000 per year, I'll need 1.75MM... but what if 70,000 in 20 years won't be a ton of money? Also, what about saving up for kid's college funds? How to account for the possibility of tax law changes? So many questions!

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I believe things like the 4% rule and projecting 7-8% portfolio growth are adjust for inflation. So when you have a FIRE number of 1.75MM, that’s just your number in today’s dollars

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This is accurate. If you read the trinity study, you can confirm. Typical market return is more like 10% historically, but they say to use 7% to account for inflation. Additionally, 4% SWR also accounts for inflation while you’re retired

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In 20 years, inflation will cause $70K to feel like $46K, so you’ll need $105K then to feel the same as $70K today. I got these numbers through an inflation calculator and used 2000–2020 as a guide.

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Before we had our first kid, we'd been naive and based our FIRE number on us retiring in our 40s, but now we've pushed that back to mid-late 50s so we can get the kids through, or at least into, college before retiring. Our initial combined FIRE number was $2.6M, but our current post-kid FIRE number is $1.9M and that includes a significant uptick in annual spending money than the first one. Our standard of living has been effectively the same since I was a SC making $95k and we don't expect it to change significantly in retirement. As such, we've ballparked our net retirement expenses, including medical, at roughly $60k. We added some cushion and pretty conservative investment projections in there, so we should be set. All of that said, we're on track to have ~$6M at retirement, so our FIRE calculation is pretty much just an academic exercise at this point.

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Thanks for the insight, sounds like a very reasonable plan!

$70k is between the 2019 and 2020 median household income. You could always run some math backwards and track the 4% to median household income and go back 20 years to see what amount you think you would have needed to make it to now with median income as your rate.

You can do 3% rule to account for more uncertainty. I did my number based on a future value. I can live off 75k including health insurance and before taxes. But in 20yrs that will be more so 4% applied to the retirement target means saving $3M. I then assume the 4%is a rough calculation of market growth of 7% minus COL high-side of 3% netting out to the 4% rule. That’s not really what it means, but the math effectively works out. College funds should be part of your COL.

You withdraw 4% of the total value. Market returns 10% on average so the 4% includes 3% for inflation and another buffer to weather market turbulence.

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