Why your FIRE number may be wrong?

Over the past decade, the FIRE number has gained massive popularity!

Simply put, the FIRE (Financial Independence, Retire Early) number is the amount you need to save to retire comfortably. You might have come across  a lot of wealth advisors and finance gurus using it to scare you—making you feel like you’ll never have enough to retire.

But is it really as haunting as they make it sound? Let’s dig deeper—

How is the FIRE number calculated?

Well, if you just search on the internet you’ll probably come across a ton of FIRE number calculators, but we need to understand how it’s calculated in order to understand the basic flaw in this concept.

By the way—there are 4 types FIRE numbers, so lets break each of them down with an example:

Rahul’s Details

Monthly Income: 66,666

Annual Income: 20 Lakhs

Age: 30 Years

Annual Basic Expense: 8 Lakhs

Inflation: 6%

Planned Retirement Age: 50 Years

1. Lean FIRE

Lean Fire Number is the amount at which you can comfortably retire, if you are willing to cut back a little on your current lifestyle.

Formula:

Annual Expenses (adjusted for inflation for the Planned age) x 15

For Rahul: 

Basic Annual expenses after 20 Years (@ 6%): ₹25,65,708

Lean FIRE number= ₹3,84,85,620 (₹25,65,708 x 15 )

2. Normal FIRE

This is the amount you’d need to retire with, if you want to keep up with your current lifestyle, but remember you still cannot exceed it.

Formula: 

Annual Expenses (adjusted for inflation for the Planned age) x 25

For Rahul: 

Basic Annual expenses after 20 Years (@ 6%): ₹25,65,708

Normal FIRE number= ₹6,41,42,700 (₹25,65,708 x 25 )

3.Fat FIRE

This is your desired corpus value for retirement if you want to live your life king size (spending 2X on your basic expenses as compared to right now)

Formula: 

Annual Expenses (adjusted for inflation for the Planned age) x 50

For Rahul: 

Basic Annual expenses after 20 Years (@ 6%): ₹25,65,708 ‍

Fat fire number=  ₹12,82,85,400 ( ₹25,65,708 x 50 )

4. Coast FIRE

This is the amount you need to have invested today so that you can grow your investment to the value of corpus required under Lean Fire Number by the time you want to retire.

While there’s no fixed formula for calculating this number, the basic flaw is that you already need to have this amount with you or else you cannot work with the Coast FIRE number.

How does FIRE number work?

Your FIRE number (Financial Independence, Retire Early) is the amount you need to retire comfortably. It works on the 4% rule, which suggests you can withdraw 4% of your investments annually without running out of money.

Why is it wrong?

The major flaw in the concept is that Rahul needs ~₹6.41 Cr.  so that he can withdraw 4% (~₹25 Lakhs) till 25 years to sustain. 

What about after 25 years? What about some emergency or desire to spend after retirement? And the biggest question—If you’d have a substantial corpus such as this, why would you let it sit idle? 

Why not invest it somewhere and earn 12% (even most low risk Mutual Funds offer that return, while with 3 Cr. you can make a well diversified portfolio from Equity to FD)

How much would you actually need?

Let's rework the numbers, suppose Rahul’s inflation adjusted annual expenses are ₹30,00,000 per year after 20 years and his investments give him a return of 12%.

He  just needs a Corpus of ₹3 Cr. @ 12% to make his annual expenses of ₹30 Lakhs (~10%) while the corpus of ₹3 Cr. will remain intact and keep on adding 2% annually to it.

So how much does Rahul actually need?

Now that sounds like something achievable right? Rahul just needs to invest ~18% off his income for the next 20 Years to retire peacefully.

Also, if Rahul Keeps on withdrawing 10% every year after 20 years, he’d still be growing his corpus by 2%

His corpus would grow to ~4.45 Cr while taking care of his annual expenses. This can also provide him the cushion to make lifestyle upgrades or make big spends.

Final Takeaway?

The higher you earn, the easier financial independence becomes—but don’t let big numbers overwhelm you. Retirement isn’t just about how much you save, but how you invest and plan. A well-structured portfolio can sustain and grow your wealth, giving you the freedom to retire peacefully without giving up on your dreams.