Milestones and Metrics on the Path to Financial Independence / FIRE
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it — Albert Einstein
The FIRE (Financial Independence / Retire Early) movement is gaining popularity popularity worldwide as Generation-Z is entering their early career days with a distaste for current capitalist systems of wealth and labour distribution. The current mood is pretty well explained by Scott Galloway’s TED talk:
The FIRE goal is save and invest more of your income than you spend, so that you build enough personal capital that you can leave the labour class and live off of your nest egg.
For more, background on the philosophy and execution, check out:
- https://www.reddit.com/r/financialindependence/
- https://www.bogleheads.org/wiki/Getting_started (for US)
- https://www.bogleheads.org/wiki/Getting_started_for_non-US_investors (for non-US investors)
I would like to just note down a few achievement points on the FIRE journey, based on a US-centric saver. Please note that I will be using a 4% withdrawal rate for convenience; many pages of ink have been spilled on what the perfect number is between 3–5%, but 4% will serve as a general compromise!
Worthless — $0
A typical life-path in the United States involves graduating from High School, leaving home at 18 and attending a 4-year University. The Federal reserve reports that the median student debt for all borrowers in 2023 was between $20,000 and $24,999. In addition to that, new adults may end up with negative liquid net-worth from one-time expenses associated with starting their own life journeys, like credit card balances for furnishings, or a vehicle loan.
So the very first FIRE milestone is when you can kill off all your non-mortgage debt, and have a liquid net worth of zero.
Accomplishing this in your early to mid 20s is a reasonable goal; the median net worth for 20 year olds is $7,467.
Charlie Munger — $200k
Sometime in the 1990s, during a Berkshire-Hathaway shareholder meeting, Charlie Munger famously said:
The first $100,000 is a bitch, but you gotta do it. I don’t care what you have to do — if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.
After inflation, that number is ~$200k today.
Halfway to a Million — $300k
Because of the effects of compounding / exponential growth when investing in equity markets, once you have saved up $300k through market appreciation and your own contributions, you are actually halfway there to a million dollars, in terms of the time it takes to accumulate this capital.
$300k is also enough capital to safely withdraw a thousand dollars a month.
Poverty FIRE —$ 376,500
With ~$375k in the bag, you can now draw $15,060 a year and meet the 2024 Federal Poverty line guideline.
Dos Commas — $1mm
The term “millionaire” is richly entrenched in American culture since the mid-20th century, but this memetic status symbol is mostly meaningless in the fire journey, thanks to inflation. It does give you a nice, albeit, arbitrary milestone to celebrate with extra guac or a cocktail.
New Millionaire — $2mm
It’s fun to plug $1,000,000 into the BLS inflation calculator. Two million now is what one million was in 1996. If you’re an older 1980s millennial, you’ll need to add another million to be an inflation-adjusted millionaire from your birth date.
$1.9mm is also the amount of savings required to withdraw 4% and be at the US median real wage of $74,580.
See also “Is Two Million the new one Million?”
Coast FIRE — Salary / Assets < 10%
Once the ratio of your pre-tax income to your invested assets is lower than the expected long-term market return, your money is making more money for you than working. If you include tax differentials, such as the fact that income is taxed progressively and aggressively while capital gains are not, that 10% looks more like a 12% ratio.
FIRE — 25x Expenses
Once you have invested 25x your anticipated expenses in retirement, you’ve won the game, you now have enough money to stop working. I said I wouldn’t discuss withdrawal rates beyond using 4% generically, and I won’t, but if you want more nuance, check out https://www.madfientist.com/safe-withdrawal-rate/ and https://www.kitces.com/wp-content/uploads/2014/11/Kitces-Report-March-2012-20-Years-Of-Safe-Withdrawal-Rate-Research.pdf
Subreddits to Follow
If you’re interested in the topic of Financial Independence, Reddit hosts a thriving multiverse of forums, including:
