Why I built the Ultimate FIRE Calculator

Why I built the Ultimate FIRE Calculator

I've never thought of myself as being part of the FIRE (Financial Independence, Retire Early) movement.

My focus, both personally and professionally, has been on investing better – how to get a higher return with less risk; building systematic investing strategies; chasing the stock picker's dream of finding a wonderful stock at wonderful prices; investing in the next Amazon.

But when I dug deeper into FIRE, I realized I shared the same core values. It's not about skipping the daily latte (I don't drink coffee), or having enough FU money to quit that shitty job (I'm fortunate to have a great job).

FIRE is about freedom. Freedom to do what you want, when you want, and with whom you want. Now, that I want.

It's also about being conscious about how you spend your money, and the connection between your money and your time.

While I do have a well-paid job that gives me a high level of autonomy and challenge, I'll admit there are days filled with administrative meetings that leave me drained and wondering "what if?".

By my own calculations I've long achieved the FI part of FIRE (the RE part is more complicated, which I'll address in a future post), but I wanted to doublecheck the math and looked at a wide variety of retirement calculators out there.

I did not like what I found. Here are the main issues with the other FIRE calculators out there:

Inability to model the impact of inflation

Most calculators either ignore the impact of inflation altogether or assume that both your income streams and expenses will grow at the same rate (which is usually not true). They might also ask you to input an inflation-adjusted return on investment, which is not easy to do.

Inflation is a relentlessly corrosive force, and one of the biggest threats to your ability to stop working. I wanted a calculator that could model and visualize this.

Defaulting to a 4% withdrawal rate

Thanks to the Trinity Study, the FIRE community has settled on 4% as a safe withdrawal rate. But when you look at the details of that study, you find that the authors are looking at the likelihood of exhausting your portfolio (i.e. going broke) over a less than thirty year period. This might make sense if you're retiring at 65 (you'll be dead before you go broke), but for those looking to retire earlier than that (i.e. most FIRE folk), it's way too risky.

This fixed withdrawal rate also ignores the possibility of emergency expenses such as medical issues or home repairs.

I think the FIRE community has clung to a 4% withdrawal rate because it means they can retire earlier. I get it – we all want to retire earlier. We can make various arguments why a 4% withdrawal rate is okay (e.g. additional streams of income etc.) but I think the whole point of FIRE is to not have to worry about money anymore.

The bottom line is, if you use a 4% withdrawal rate you'll be exposing yourself to a significant chance of running out of money in your retirement.

Personally, I would use a 3% or lower withdrawal rate. It's better to be conservative in this regard. I wanted a calculator that could easily show the impact of using different withdrawal rates on the time needed to reach FIRE.

What happens once you stop working?

I haven't seen a calculator that shows what happens to your cash flows and portfolio value once you stop working, which is strange given that it's the main point of FIRE.

Lack of visualization

Many calculators either have no charts or a single one focusing on your portfolio value over time. I wanted a number of charts to help myself and others visualize the journey towards FIRE.

Charts that would show your Expenses vs. Withdrawals, Portfolio Size at the end of each time period vs. your Target Portfolio, and the percentage progress towards reaching that portfolio.

Other minor gripes

Not worth elaborating too much on, but certain calculators conflate your net worth and your investment portfolio (assets such as your home, car and emergency fund should not be included). Others were too complicated, requiring you to key in too many inputs before you could see any outputs.

I wanted a clear and simple (but not too simple) calculator.

So I built one.

The Ultimate FIRE Calculator

All you have to do is enter some key inputs and it'll immediately spit out when you can expect to reach financial independence (and any warnings if your assumptions are unreasonable).

...and you'll also find some colorful charts to help you visualize the journey.

Looks interesting?

I've also done a writeup of the key assumptions and their definitions in case you're not sure what each of them means.

Try it out for yourself.

Would love to hear your feedback, and any suggestions for improvement.