FIRE basics
Your FIRE number depends on spending, withdrawal rate and the German framework. This article shows the rough formula and its limits.
The basic question
Financial independence, or FIRE, means that invested assets generate enough income to cover living costs without requiring work. The key input is annual spending, not income. Someone who spends less needs less capital, whatever their salary.
The rough calculation uses annual spending and a withdrawal rate: the share of assets you withdraw each year without exhausting the portfolio.
Core formula
The common rule assumes a 4% annual withdrawal rate. Because 1 / 0.04 = 25:
This is a useful starting point, not a complete plan. Withdrawal rate is ultimately a risk parameter: how much can your assets support without putting the long-term plan at risk?
German specifics
The formula is a good starting point. Without these adjustments it will usually understate what you need.
The limit of the rule
The 25-times rule assumes an average market path. Returns vary widely, and poor years shortly after retirement are particularly dangerous. One formula cannot honestly answer the probability that your money will last.
The FIRE calculator simulates thousands of possible paths and gives a success probability instead of one average. The article Retirement ruin risk explains the approach.
Worked example
Suppose monthly spending is €2,500, or €30,000 per year. The rule of thumb gives €750,000. If statutory pension of €800 per month begins at 67, the portfolio requirement after that point falls because part of spending is already covered.
Your personal number depends on spending, pension entitlements, tax status and planned retirement age. There is no one figure for everyone.
Next step
The calculator combines saving phase, withdrawal rate and German taxes, simulates possible market paths and gives a concrete success probability.
Spending
The largest error often lies in spending, not the formula. Add insurance, repairs, holidays, gifts, dental care, technology and other irregular items. Separate essential costs such as housing, food and insurance from flexible spending that could be postponed in a bad market.
Time path
FIRE does not have to be one day when all employment income drops to zero. You might work less at first, earn side income or receive a state pension later. Your portfolio then does not need to carry the same amount in every year.
A FIRE number stays useful only if the spending assumptions are updated regularly. Rent, insurance and lifestyle may not look the same later.
Reality check
At €750,000, a 4% rule gives an initial annual withdrawal of €30,000. That says nothing about a weak market at the start. Selling units at low prices while withdrawing money is exactly why sequence risk matters.
Test higher spending, a lower withdrawal rate and a later retirement date. If a small change moves the plan from stable to failure, the buffer is too small. Save more, retire later or make part of spending flexible.
Enter saving phase, withdrawal rate and taxes, then see your personal success probability.
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