The 4 % rule and your FIRE number
FIRE (Financial Independence, Retire Early) is the idea of building enough invested wealth that its returns cover your expenses. From that point on, working becomes optional.
The big question is: how much is "enough"? The best-known practical answer is your FIRE number.
The FIRE number: 25 times your annual expenses
The basic rule is simple:
FIRE number = annual expenses × 25
If you spend €20,000 a year, your FIRE number is €500,000. If you spend €40,000, it is €1,000,000.
That "×25" is not magic: it is the flip side of the 4 % rule. Withdrawing 4 % of your wealth each year is the same as multiplying it by 25 (because 1 ÷ 0.04 = 25).
Where the 4 % comes from: the safe withdrawal rate
The 4 % rule says that if each year you withdraw 4 % of your starting portfolio (adjusted for inflation), historically the money has lasted at least 30 years in the vast majority of scenarios.
It comes from the Trinity Study (1990s), which analysed stock-and-bond portfolios in the US across many historical periods. The conclusion: a 4 % rate almost always survived 30 years; higher rates (5-6 %) raised the risk of running out of money considerably.
A full example
Suppose you want to spend €24,000 a year (€2,000/month):
| Item | Calculation | Result |
|---|---|---|
| FIRE number | 24,000 × 25 | €600,000 |
| Annual withdrawal (4 %) | 600,000 × 0.04 | €24,000 |
| Monthly withdrawal | 24,000 ÷ 12 | €2,000 |
With €600,000 invested, withdrawing €2,000 a month fits the 4 % rule.
Different rates, different targets
The withdrawal rate and the multiplier are two views of the same thing:
| Withdrawal rate | Multiplier | FIRE number (€24,000 spending) |
|---|---|---|
| 3 % | 33.3× | €800,000 |
| 3.5 % | 28.6× | €685,700 |
| 4 % | 25× | €600,000 |
| 5 % | 20× | €480,000 |
A lower rate (more cautious) requires more wealth but gives more safety margin. A higher rate lowers the target but raises the risk of depleting the portfolio.
Limits worth knowing
- It is a starting point, not a guarantee. It is based on historical US data; the future may differ.
- Very long horizons. If you retire at 40, your portfolio must last 50+ years, not 30. Many people drop to 3-3.5 % for this reason.
- Spanish taxation. When you sell to withdraw money, the profit is a capital gain taxed in the savings tax base (in 2026, from 19 % to 30 % in brackets). The real net FIRE number is somewhat higher.
- Flexibility. In practice, trimming spending in bad market years greatly improves portfolio survival.
What to do with this
Use the ×25 to set a target and gauge how far you are, but don't treat it as a rigid finish line. If you plan to retire young, size it with a 3.25-3.5 % rate and leave room for tax. And before you quit, be clear about your plan for the first few years: that is when a bad market run does the most damage. That risk has its own name and mitigations —sequence-of-returns risk— and the fixed rule can be replaced by a dynamic withdrawal strategy that adapts to markets.
Educational information, not financial advice. The 4 % rule is a historical benchmark, not a guarantee; your case depends on your horizon, your taxes and your markets.