April 13, 2024 | Approaching FIRE: How much do I need?

Topics: FIRE

Coincidentally, a couple friends who don't know each other, both inquired within the past couple days about my budgeting and planning process. I assume they both know me as an organized, goal-oriented, data-inspired, and systematic/methodical person interested in financial independence and "retiring" early, aka "FIRE".


There are many many resources for learning about retirement, tools, and people who have spent more time researching what is available than me. What I do works for me, and might work for others too, but it isn't the only way to go about building a budgeting process or retirement plan.

In fact, I'm not a financial advisor, and I don't have or give financial advise. Others should definitely consult an expert, which I am not, before making any financial decisions. I'm happy to share my tools and process, but they are not guaranteed to work, be correct, or free of incorrect assumptions. For this type of thing, building one's own tools and process based on inspiration from others is helpful - especially since I am doing this from the perspective of a US-based tech employee with FAANG and Start-up experience.

My Approach to FIRE

Strictly for inspiring others, I'm sharing my own approach which includes:

  1. How I define 'Minimum Viable Retirement' ("MVR") to answer the question 'How much do I need to retire?'
  2. A Forecasting Tool (in Google Sheets) to chart a course and track progress toward MVR
  3. A Budgeting Process and Tool (Google Sheets) to manage, optimize, and accelerate progress toward MVR

This post focuses on the first of the three:

When Can I Retire? How much Do I need? - Defining Minimum Viable Retirement (MVR)

TLDR: The general rule of thumb I've repeatedly come across, and come to use is:

Annual Expenses x 20

So, hypothetically (just picking a round number), if my household's annual expenses were $250,000 per year, it would imply I need $5,000,000 in order to retire: $250,000 * 20 = $5,000,000

However, this is a generalization with a few big assumptions:

This assumes that my annual expenses will stay exactly the same. In reality, my standard of living might change. By being home more with more time on my hands in retirement, I may choose to spend less on certain goods and services and need less than the above hypothetical example. Some people might want to spend more in retirement so they can travel. So if by changing my expectations for standard of living in retirement such that my annual expenses could be just $75,000, then I would need $1,500,000 to retire.

I've known since I was in college that maintaining a humble standard of living was important for character. Later on I also learned that avoiding "lifestyle creep" where one's standard of living increases with increases in income, is important for quickly accumulating enough in my retirement savings that it reduces risk and creates options for how trade of time versus income later in life.

The 'Annual Expenses x 20' formula also assumes that a nest egg will continue to appreciate at least 4% per year in retirement. With the total nest egg invested in accounts earning interest of 4% per year or more, one could hypothetically never run out of money by living only on the appreciation of the investments.

Some consider using 4% as unnecessarily risk-averse, and some think 6% is doable, implying one could get by with less than 20x Annual Expenses. Some think there is no withdrawal rate that is safe, with even 1% being optimistic. I think 4% seems like a sufficiently responsible number to target, but remain open to changing my approach if/when I get new compelling information.

There are also assumptions about the number of years one may live after retirement, what one wishes to leave to their loved ones, the value of collecting Social Security in retirement, how health care costs change as we age, and liabilities remaining in retirement (like mortgages) that this generalization does not consider.

These assumptions are why I think about a retirement number as a bit of a spectrum between the minimum required, and ideal: I've defined a "Minimum Viable Retirement" (MVR) where my standard of living is the minimum for what I could accept. It is a no-frills, move-to-the-cheapest-town, no-extravagances, type of retirement. Although I'd eventually find a way to be satisfied with this type of retirement, the MVR is more of a psychological threshold that when surpassed, allows me to consider other means of income, standards of living in retirement, and flexibility in how I live day to day.

An alternative to full "retirement" is the concept of "Coast FIRE", which is a type of "retirement" where one has enough saved to meet all the regular annual expenses, but chooses to work for fun-money and fulfillment. This is more about "Financial Independence" without the "Retiring Early" part of the FIRE acronym, and can hypothetically make hitting a specific number much easier and earlier in one's working years.

So for me, my retirement number is more a series of thresholds, from a MVR, to Coast FIRE, to "ChubbyFire", to "FatFire", with the primary distinction being the standard of living I have in retirement. In the next post in this series, I intend to share my process / tools to build a plan to get to MVR.