To calculate your retirement number, you need to estimate your annual expenses in retirement and adjust for any part-time income or other sources of income. The 25x rule (save 25 times your annual expenses) is a commonly used guideline, but this can be adjusted based on individual circumstances. For example, if you plan to spend $30,000 per year in retirement, your retirement number would be $750,000 (25 x $30,000).
Calculating Retirement Number at Different Spend Levels
Let's calculate the retirement number for three different spend levels: $30,000, $50,000, and $70,000 per year. We will assume a 4% withdrawal rate (4% rule) and no part-time income.
- For a $30,000 per year spend level: $30,000 / 0.04 = $750,000
- For a $50,000 per year spend level: $50,000 / 0.04 = $1,250,000
- For a $70,000 per year spend level: $70,000 / 0.04 = $1,750,000
Adjusting for Part-Time Income
If you plan to work part-time in retirement, you can adjust your retirement number accordingly. For example, if you plan to earn $20,000 per year from a part-time job, you can reduce your retirement number by $500,000 (25 x $20,000). Let's recalculate the retirement numbers for the three spend levels, assuming $20,000 per year in part-time income.
- For a $30,000 per year spend level: $30,000 - $20,000 = $10,000 per year. $10,000 / 0.04 = $250,000
- For a $50,000 per year spend level: $50,000 - $20,000 = $30,000 per year. $30,000 / 0.04 = $750,000
- For a $70,000 per year spend level: $70,000 - $20,000 = $50,000 per year. $50,000 / 0.04 = $1,250,000
As you can see, having part-time income in retirement can significantly reduce your retirement number.
Considering Inflation and Investment Returns
Inflation and investment returns can also impact your retirement number. The 4% rule assumes a certain level of investment returns and inflation. If you expect higher or lower returns, you may need to adjust your retirement number accordingly. For example, if you expect a 5% real return (return above inflation) on your investments, you may be able to withdraw 4.5% of your portfolio per year, which would reduce your retirement number.
Let's calculate the retirement number for the three spend levels, assuming a 5% real return and $20,000 per year in part-time income.
- For a $30,000 per year spend level: $10,000 per year (after part-time income). $10,000 / 0.045 = $222,222
- For a $50,000 per year spend level: $30,000 per year (after part-time income). $30,000 / 0.045 = $666,667
- For a $70,000 per year spend level: $50,000 per year (after part-time income). $50,000 / 0.045 = $1,111,111
As you can see, having a higher expected real return can reduce your retirement number.
Once you have estimated your annual expenses, adjusted for part-time income, and considered inflation and investment returns, you can use the Freedom Calculator to calculate your retirement number. This tool allows you to input your expenses, income, and investment returns to get a more accurate estimate of your retirement number.
For example, if you input $40,000 in annual expenses, $10,000 in part-time income, and a 4% real return, the calculator may estimate that you need to save $833,333 to achieve financial independence (FIRE, Financial Independence, Retire Early), using the 25x rule ($30,000 per year / 0.04 = $750,000, adjusted for part-time income and investment returns).
New to FIRE? See our primer at https://freedomcalc.app/what-is-fire.
By following these steps and using the right tools, you can get a clear picture of your retirement number and create a plan to achieve financial independence. For instance, if you start saving $5,000 per month at age 30, and expect a 7% annual return, you can estimate that you will reach your retirement number in approximately 20 years, assuming a 4% withdrawal rate and 3% inflation.
Tools worth looking at
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- Empower — Free net worth tracking, portfolio analysis, and retirement planner. The dashboard serious FIRE chasers actually use.
- Acorns — Round-ups that invest your spare change automatically. The lowest-friction way to start investing if you have been putting it off.
- Wealthfront — Tax-loss harvesting, a 5% cash account, and direct indexing once you cross $100k. Solid robo for the set-and-forget crowd.