FIRE Calculator: A Quick Guide on How to Plan for an Early Retirement

Do you want to retire at 40?

Retiring early might seem like a pipe dream, but thanks to the FIRE movement, more and more people are retiring at a young age. When you retire younger, you’ll have tons of time and energy to do the things you really want to.

If you’re considering early retirement, there’s plenty of planning that needs to happen so you’re fully prepared. The concept isn’t impossible, but it takes some serious dedication, planning, and hard work so you can reach your goals and achieve your retirement dreams.

Read on to learn more about how you can use a FIRE calculator to help you plan for your early retirement so you can live the life of your dreams.

Adjust Your Budget

Before you can even dream of retiring early, you’ll need to make some changes to your current budget. Whether it means trading in your new car for a used one or canceling a few subscriptions, you have to start saving now if you ever want to retire.

Take a close look at where your money is going every month. If it’s filled with dinners out and trips to the coffee shop every week, start cutting back on those things and put that extra money into savings or investments.

For many people who participate in the FIRE movement, they’ve learned to live on a budget that’s 50-percent of their income or less. Practice cutting back on your spending until you can get to a comfortable level.

In addition to saving money, put your focus on ways you can bring in more income. Whether it’s selling items you no longer use or signing up to be an Uber driver, there’s plenty of ways you can start a side hustle to make your savings grow faster.

A combination of extra income along with less spending should equal some pretty impressive numbers. Put anything you don’t spend or anything extra that you make into savings immediately and dedicate it to your FIRE fund.

Consider a FIRE Calculator for Future Spending

No matter what age you retire, you’ll no doubt have expenses that will need to be taken care of. Before you tell your boss you’re quitting, you need to draft a future spending budget.

Look at your current monthly spending and try to predict what you think will go down, up, or what could be added or completely eliminated. Take your final estimated monthly expenses and add them up and multiply the number by 12.

This number is the annual retirement needs for you and your family. It’s a good idea to take that number and increase by around 10 to 20-percent to serve as a cushion and to account for inflation.

It will probably cost you less to retire young initially, mostly because your health care needs likely aren’t as significant or as frequent as the elderly. However, you should till take health care costs into account for your future retirement plans.

You also need to remember taxes for your FIRE plan and find out how you can minimize them when you take money from your retirement accounts. There are rules in place that may penalize you if you withdraw early, so check with the IRS to find out what they are before you take money out.

Come up with a mock budget that you expect to have in the future. This will help you get a clearer picture of what you might spend on the essentials later down the road.

Don’t Forget Future Savings and Investments

In order to retire successfully, you’ll need to develop a smart savings and investment plan. Do this as early as you can so you’ll have more money when it’s time for your official retirement.

Ideally, you should have around 25 times the amount of your planned annual spending saved. This may seem like a lot of money, but it’s a reasonable amount that will cover all your costs of living, bills, and unexpected expenses later down the line.

In conjunction with your savings, that money should be put into some kind of investment. This will help your money grow faster and might even help you retire sooner than you thought.

There are plenty of ways you can invest your money, and low-cost index funds are a good choice. Since you’re still young, put them toward stocks as long as you can since they have a higher risk, but also a higher potential rate of return.

Money market accounts, IRAs, and high-yield savings are other good ways to invest and save. Talk to a professional who can guide you toward making the best investment decisions for your personal goals.

Of course, after you have your budget, savings, and investments in place, you will want to think about places to retire in the future. Many people opt to live in countries with a lower cost of living such as Mexico. Those savings alone can help you extend your retirement years and allow you to do more with your money.

The key to a successful FIRE life is to save early, spend less, and invest your hard-earned money wisely. As long as you create a budget and stick to it, you should be able to retire earlier than your peers.

Early Retirement Made Easy

With adequate planning and help from a FIRE calculator, you can get prepared for early retirement. Come up with ways you can cut back on spending and create a savings and investment account now.

With a few tweaks to your current lifestyle and some dedication, you can become part of the FIRE movement that’s sweeping the nation.

For more information on how you can build wealth and plan for your future, be sure to visit our website today.

Posted in: Personal Finance

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