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Retiring multiple times is an ambitious financial goal that requires careful planning. One key concept to help you achieve this is your FIRE number—the amount of savings needed to support your lifestyle without active work. Calculating your FIRE number becomes more complex when you plan to retire and re-enter the workforce multiple times. This article guides you through the process of determining your FIRE number for multiple retirements.
Understanding the Basics of the FIRE Number
The FIRE (Financial Independence, Retire Early) number is the amount of money you need saved to cover your expenses during retirement. Typically, it is calculated based on your annual expenses and a safe withdrawal rate, often 4%. The formula is:
FIRE Number = Annual Expenses ÷ Withdrawal Rate
Adjusting for Multiple Retirements
When planning for multiple retirements, consider that your expenses and income sources may change over time. You might retire with a certain amount, re-enter the workforce, then retire again. To account for this, you need to estimate:
- Expected expenses during each retirement phase
- The duration of each retirement period
- Possible income streams between retirements
Step-by-Step Calculation
Follow these steps to calculate your FIRE number for multiple retirements:
- Estimate Expenses: Determine your annual expenses for each retirement phase.
- Determine Duration: Decide how long each retirement period might last.
- Calculate Total Needed: For each phase, multiply expenses by the duration to find total required savings.
- Adjust for Income: Subtract expected income or pensions from each phase’s expenses.
- Sum the Totals: Add all the adjusted totals to find the overall amount needed across all retirements.
- Apply Withdrawal Rate: Divide the total by your safe withdrawal rate to find your overall FIRE number.
Example Calculation
Suppose you plan to retire twice. Your estimated expenses are $40,000 annually during each retirement. You expect to be retired for 10 years each time, with some income from part-time work or pensions covering $10,000 annually. Using a 4% withdrawal rate:
First, calculate the net expenses for each phase: $40,000 – $10,000 = $30,000.
Next, multiply by the number of years: $30,000 × 10 = $300,000 per phase.
Since there are two phases, total needed savings are $300,000 × 2 = $600,000.
Finally, divide by 0.04: $600,000 ÷ 0.04 = $15,000,000.
Your FIRE number for this plan is approximately $15 million to comfortably support multiple retirements.