FIRE Calculator

What is a FIRE Calculator?

FIRE, or Financial Independence Retire Early, is a financial concept that helps you estimate the amount required to retire at a certain age based on your current monthly expenses, age, retirement age and assumed inflation rate. We have made the assumption that your investments continue to grow at 10% annually. The FIRE calculator is a financial tool that makes this process of calculating FIRE numbers, i.e., the amount required to retire at a certain age, easy and quick.

To use Pocketful’s FIRE calculator, one needs to enter the following inputs:

1. Monthly Expenses
2. Current Age
3. Retirement Age
4. Assumed Inflation Rate
5. Desired Coast FIRE Age

The FIRE calculator will use these inputs and provide you with results in the form of the following:

1. Expenses Today (Yearly)
2. Expenses at retirement age (Yearly)
3. Lean FIRE number
4. FIRE number
5. FAT FIRE number
6. Coast FIRE number

Let’s understand how to interpret the FIRE numbers.

1. Lean FIRE Number: If you accumulate this amount by retirement age, you can retire but have to be extremely careful with spending and have strict budgets. You can also work part-time to supplement the income generated by your retirement fund.
2. FIRE Number: If you have an amount equivalent to the FIRE number at your retirement age, then you can spend 4% of your retirement funds and never run out of money.
3. FAT FIRE Number: This number represents the amount of money you require to retire to have a luxurious lifestyle. You can spend freely and reinvest the rest.
4. Coast FIRE Number: It is the amount of money you require at the desired Coast FIRE age, after which your investments grow at 10% annually and reach the FIRE number at the retirement age automatically, without requiring additional investments.

How Can a FIRE Number Calculator Help You?

The FIRE calculator can help you in the following manner:

1. Retirement Goal: This calculator helps you estimate the amount you will need to retire based on current expenses and future expenditures adjusted for the assumed inflation rate.
2. Retirement Age: The FIRE calculator helps you estimate the retirement age. You can analyze your current savings and investments and judge the time required to reach the FIRE number.
3. Inflation: The FIRE calculator includes the impact of inflation, which helps in ensuring the exact amount required at the time of retirement.
4. Discipline: The FIRE calculator helps maintain financial discipline and promotes savings and investments.

How Does a FIRE Number Calculator Work?

The process through which a FIRE calculator works is as follows:

1. Input Field: When you open a FIRE calculator, you will find an input field in which you have to enter a few details, such as your current age, desired retirement age, current monthly expenses, assumed inflation rate, and the desired Coast FIRE age.
2. Implementation of Formula: Once the details are entered, you are required to apply the formula used to derive the FIRE value.
3. Result: You will get the final values on the screen, which reflects the total amount required to retire peacefully.

Formula to Calculate FIRE Number

There are certain rules related to FIRE number calculation, and the formula to calculate the same is mentioned below:

1. The current age should be less than the desired Coast FIRE age.
2. The Coast FIRE age should always be less than the Retirement age.

The formulas used by the calculator are:

• Expenses Today = Monthly Expenses * 12
• Expenses At Retirement Age = Expenses Today * [(1+Inflation)^(Retirement Age – Current Age)]
• Lean FIRE = (Expenses At Retirement Age) * 15
• FIRE = (Expenses At Retirement Age) * 25
• FAT FIRE = (Expenses At Retirement Age) * 50
• Coast FIRE = (FIRE) / [(1 + Growth Rate) ^ (Retirement Age – Coast FIRE Age)]

Note: Growth Rate in the above calculator is fixed at 10%.

Example of FIRE Calculation

Let’s understand the FIRE calculation with an example:

Mr A is currently 25 years of age, and his current monthly expenses are ₹50,000. He wishes to retire at 45, and he has the desired Coast FIRE age of 40 years; inflation in the economy is expected to be around 7%. To calculate the FIRE number, he uses Pocketful’s calculator

Based on the above scenario, he entered all the details in Pocketful’s FIRE number calculator and got the desired result as mentioned below:

Expense Today = ₹50,000 * 12 = ₹6,00,000 annually
Expenses at the Age 45 = ₹6,00,000 * [( 1+ 7%) ^ (45 – 25)] = ₹23,21,811 annually
Lean FIRE = ₹23,21,811 * 15 = ₹3,48,27,160
FIRE = ₹23,21,811 * 25 = ₹5,80,45,275
FAT FIRE = ₹23,21,811 * 50 = ₹11,60,90,550
Coast FIRE = ₹5,80,45,275 / [(1 + 10%) ^ (45 – 40)] = ₹3,60,41,549

Hence, based on the above output, Mr A can choose their future lifestyle and retirement corpus and plan accordingly.

How to Use Pocketful’s FIRE Calculator?

The steps to use the Pocketful FIRE calculator are as follows:

1. Visit the Pocketful website and scroll down to the bottom of the page.
2. There is a section called Tools; just click on it..
3. On the next page, you will find a tab named “Financial Calculators”; just click on it.
4. There, you can see the FIRE calculator.
5. To use it, you are required to enter a few details such as your current age, expected retirement age, current monthly expenses, etc.
6. Once you enter the details, you will get the desired result: Lean FIRE, FIRE, Fat FIRE and Coast FIRE numbers.

Benefits of Using the FIRE Number Calculator

There are several benefits of using a FIRE number calculator; a few of such benefits are mentioned below:

• Target Amount: Through the FIRE calculator, one can easily get to know about the target amount required at the time of retirement.
• Investment Strategy: One can plan their retirement efficiently through the FIRE calculator and choose the suitable asset class based on the expected returns.
• Inflation: Due to inflation, the value of your retirement corpus decreases over time; hence, including the same in calculations will help you plan your retirement efficiently.
• Comparison: There are various FIRE numbers, such as Lean FIRE, Fat FIRE, and Coast FIRE, allowing you to compare different FIRE numbers based on your retirement lifestyle.
• Peace of Mind: The FIRE calculator helps you plan your retirement, as the amount calculated will take care of your expenses after retirement.