Retiring early seems complicated. But is it really? The psychological and emotional aspects definitely present considerable challenges, but the math behind early retirement may not be as complex as it first seems. Consider this a primer on FIRE math, including the famous 4% Rule and how to run these numbers for yourself.

What is the 4% Rule?

The 4% Rule is basically an estimate of what you can withdraw from your retirement accounts each year of your retirement. William Bengen shared his safe withdrawal rate findings in 1994. The idea is to use your withdrawals to provide a stream of income for the year. When you pull money from the account, you will, in theory, mostly pull interest or dividends. Ultimately, Bergen concluded, “Assuming a minimum requirement of 30 years of portfolio longevity, a first-year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe.”

Said another way, following the 4% Rule preserves your investment principal by only withdrawing a limited amount. That means that your investment portfolio will continue to grow and produce more income from year to year. The goal, of course, is to keep that stream of income flowing through and from your portfolio for the rest of your life.

How does the 4% Rule hold up in tough times?

When the 4% Rule was first investigated, the original data actually included the most dramatic stock market moments in history up until that point. Bergen calls these the “black hole” events.

He actually explored scenarios for individuals who might have retired in 1932, 1937, 1946, 1969, 1973, and 1974. Bergen found that if clients resisted the temptation to become more conservative after market crashes and perhaps dialed back their spending, the portfolios would have recovered nicely.

What factors can influence the 4% Rule?

There are many factors to consider when you evaluate the 4% Rule. Some of the most important factors include:

Portfolio mix

The original 4% Rule number crunching focused on a portfolio that was almost an even mix of stocks and bonds. Someone who intends to keep a more aggressive portfolio mix in retirement will be more susceptible to market swings. That means there could be times when extreme volatility influences your investment balances more. However, most early retirees include multiple safeguards within their portfolio to balance out some of this risk.


Obviously, the longer you live, the longer you’ll draw from your retirement accounts. The length of your lifespan and the length of your retirement can both impact the 4% Rule. The good news is that most experts estimate that this will support you throughout your golden years. However, it is worth noting that a longer life can sometimes also mean increased medical expenses. Those costs are sometimes hard to predict when you’re young.

Risk tolerance

If you are more risk averse, the 4% Rule might not be enough for you. Instead, you might find yourself intending to only draw 3.5% or 3% from your accounts each year. Later in this post, we feature two ways to add peace of mind to your retirement planning.

What is the Trinity Study?

Another part of early retirement math often refers to the Trinity Study. Here’s the condensed version of what that data shows and why it gives a lot of personal finance people faith in the concept of FIRE.

Shortly after Bergen’s 1994 findings, a study that would eventually be nicknamed The Trinity Study came out of Trinity University in 1998. The Trinity Study was published in the Journal of the American Association of Individual Investors. The authors of the study, Philip L. Cooley, Carl M. Hubbard, and Daniel T. Walz, wanted to explore the concept of portfolio success rates. The authors later updated the Trinity Study using data through 2009.

Unlike a previous study, the Trinity Study looked at bond returns, specifically long-term high-grade corporate bonds, and large-company common stocks . Through all of its number-crunching and analysis, it found that investors who withdrew four percent each year would have a 95% portfolio success rate.

But what does a portfolio success rate mean? It means that your portfolio will outlast you. No one wants to outlive their money, so a successful portfolio is key.

Why do people say multiply by 25?

The 4% Rule outlines how much retirees can withdraw each year, but how do you know how much money you need saved in the first place? When many people in the FIRE community talk about calculating their FIRE number, they use an estimate that is similar, albeit more simplified, than the rule of 4%.

Here’s how the “multiply by 25” math works:

Step 1 - Figure out how much money you expect to spend each year in retirement.

Step 2 - Multiply that amount by 25.

Step 3 - Make sure that total is the amount of money you have invested prior to retirement.

If you expect to spend $50,000 a year in retirement, you should aim to have $50,000 x 25, or $1.25 million in your investment accounts.

So what’s the big difference here? Whereas the 4% rule focuses on how much you can safely withdraw each year in retirement, multiplying by 25 offers a guideline for how much you should save before you retire.

What are my more conservative options?

Personal finance is personal. For some people, the math surrounding your withdrawal rate (The 4% Rule) and your FIRE number (Multiply by 25) feels too risky. Perhaps you’re a bit leery of the markets or of predicting future rates of inflation. Maybe you realize that more conservative investment vehicles like CDs, bonds, or annuities actually don’t tend to earn all that much each year. Or maybe your current medical history forces you to take a more conservative outlook.

Whatever your reasons, these two mathematical substitutions should have you breathing easier.

A More Conservative Withdrawal Rate

The 3% Rule - Instead of using the 4% rule, calculate your withdrawal rate using a 3% rule.

This aligns with the advice in Bergen’s original study for how investors can use reduced spending some years to ensure portfolio success in a market crisis.

A More Conservative FIRE Number

Multiply by 33 - Work your math the same way as you did when you multiplied by 25, but multiply by 33 instead.

By doing this calculation, the nest egg you set aside will be larger, allowing for more cushioning and peace of mind.

Final Thoughts on FIRE Math and The 4% Rule

Planning for early retirement can be complex, but the underlying FIRE math is relatively straightforward. As you progress through your FIRE journey, continue to check your FIRE number and your safe withdrawal amounts. Remember that you can always make adjustments to the 4% Rule to build a retirement plan that feels most comfortable for you.


Mike Kistner