FIRE Methodology — Formulas, Assumptions, Sources

Duc Nguyen X.By Duc Nguyen X.· Founder, worth101.com·Last reviewed:

Every FIRE projection on worth101.com follows the same transparent, deterministic math. This page documents the formulas, the return and inflation assumptions, the IRS limits, and the limitations you should keep in mind when interpreting results. It is educational, not personalized financial advice.

1. The formulas

FIRE number — the portfolio that funds your spending at your safe withdrawal rate (SWR), in today’s dollars. Worth101 estimates this as:

FIRE target = annual spending ÷ SWR + present value of the pre-Medicare healthcare bridge

At a 4% SWR, the spending portion becomes the familiar “25× annual spending” rule of thumb. This is a planning shortcut, not a guarantee — the original 4% framework was based on historical retirement horizons rather than a true perpetual promise. Healthcare is modeled separately as a finite bridge from the retirement age being evaluated until age 65, discounted with the real return.

Annual spending should represent non-healthcare retirement spending, or healthcare should be set to $0 if it is already included in your spending input. Including healthcare costs in both inputs would double-count those expenses. Worth101 models the pre-Medicare healthcare bridge as a separate finite cost from the retirement age being evaluated until age 65.

Coast FIRE — the lump sum you’d need invested today so it grows into your FIRE number by your target retirement age with no further contributions. The default (today’s dollars) discounts with the real return:

r_real = (1 + nominal) / (1 + inflation) − 1
Coast FIRE = FIRE number ÷ (1 + r_real)^years_to_retirement

The future-dollars view inflates the FIRE target to the target retirement age. The Coast FIRE threshold itself remains an amount needed today, so it is compared with today’s current balance. In other words, Coast FIRE answers “how much must be invested now?” even when the destination target is displayed in future dollars. For example, a future-dollars FIRE target of $2,000,000 does not mean you need $2,000,000 invested today — Coast FIRE asks how much must be invested today for compounding alone to reach that future target.

Barista FIRE — the smaller portfolio you need when part-time income covers part of your spending:

Barista FIRE = (annual spending − part-time income) ÷ SWR + present value of the same pre-Medicare healthcare bridge

The healthcare bridge is added on top, not reduced by part-time income — it assumes the same pre-Medicare coverage gap applies whether you are fully retired or semi-retired. Part-time income is treated as annual after-tax income in today’s dollars and is assumed to continue indefinitely for planning purposes, unless otherwise noted.

Research-card formulas (illustrative, never the headline numbers)

Income-durability stress (Barista card) — the portfolio needed if part-time income lasts only T years instead of forever:

target(T) = Barista target + (FIRE target − Barista target) ÷ (1 + r_real)^T

At T = 0 this equals the full FIRE target (income never materializes); as T grows it converges to the Barista target (the calculator’s simplified ongoing-income assumption). The deferred liability is discounted with the same real return used for Coast FIRE.

Spending-flexibility comparison (withdrawal-rate card) — the same target formula evaluated at a reduced spending floor (10% / 20% below your input), holding the withdrawal rate constant. It brackets the portfolio difference between a budget that must never fail and a floor you could fall back to. It is not a dynamic guardrails simulation (e.g. Guyton-Klinger), which adjusts withdrawals by rule and is studied separately.

2. Default assumptions

  • Safe withdrawal rate 4% — the Trinity Study / Bengen “4% rule”. Adjustable; 3.5% is a more conservative choice for very early retirement.
  • Expected return 7% nominal — a simplified planning assumption, not a forecast. Lower it to model fees, a less equity-heavy portfolio, or more conservative expectations.
  • Inflation 3% — a rounded long-term planning assumption informed by U.S. CPI history (BLS), not a forecast. Used to convert between nominal and today’s-dollars (real) values.
  • Pre-Medicare healthcare ~$12,000/year — placeholder ACA Marketplace estimate before subsidies; override with your own quote. Medicare eligibility begins at age 65.

Contributions use end-of-month timing and compound monthly from the annual return input. Taxable gains, Roth balances, and tax-deferred balances are tracked separately for an estimated after-tax spendable value.

3. Money basis — today’s vs future dollars

By default the FIRE number and Coast FIRE are shown in today’s dollars so they are comparable to your current balance. The “future dollars” toggle inflates the target and plots the nominal spendable portfolio path. Projected FIRE age uses after-tax spendable value and is unchanged by the display basis.

4. Tax / account assumptions (2026)

Account guidance references the 2026 IRS contribution limits: $7,500 for an IRA/Roth IRA and $24,500 for a 401(k). Standard age-50+ catch-ups are $1,100 for IRAs and $8,000 for 401(k)-style plans, with a higher $11,250 catch-up for eligible participants ages 60–63 where applicable. Tax treatment is modeled at a high level — for projection purposes only, the projection uses a simplified, fixed liquidation order: taxable assets first, then Roth, then tax-deferred assets. This is not a recommended withdrawal order, nor a tax-optimization engine; a real withdrawal order may differ based on ACA MAGI, Roth conversions, RMDs, capital-gains brackets, Social Security, and IRMAA. Effective capital-gains and ordinary-income rates are editable planning assumptions. Early-access penalties and conversion-ladder waiting periods are not modeled. This is not tax advice and rules may change.

5. Limitations — what this model does not know

A calculator is only as honest as its blind spots. These are the real-world factors the FIRE projection deliberately simplifies or excludes — each one is a question worth answering separately before acting on any number above.

  • Sequence of returns. The projection is deterministic — a fixed annual return, not year-to-year volatility. Two retirements with the same average return can end very differently depending on when the bad years land. There is no Monte Carlo simulation in this calculator. See how sequence of returns risk affects FIRE, then compare whether the 4% rule is still safe.
  • State taxes. Tax treatment uses flat effective federal-style rates you enter. State income tax, local tax, and the Net Investment Income Tax are not modeled.
  • ACA subsidy mechanics. The healthcare bridge uses the flat annual cost you enter. In practice, ACA subsidies can materially reduce pre-Medicare healthcare costs for some early retirees, depending on MAGI, household size, county, and plan choice — see ACA subsidies for FIRE and how ACA MAGI is calculated. A triple-tax-free HSA can also pay those pre-Medicare costs without raising your MAGI.
  • Spending shocks. The model assumes smooth inflation-adjusted spending. One-off costs — a roof, a car, long-term care, supporting family — sit outside the formula. See the biggest FIRE planning mistakes.
  • Future law changes. IRS contribution limits, tax brackets, ACA rules, and Social Security formulas all change. Figures here reflect 2026 rules.
  • Social Security. Benefits are excluded from the headline FIRE number. For most people they meaningfully reduce the load on the portfolio later in retirement — see the Social Security bridge strategy and use SSA.gov for your own estimate.
  • Medicare premiums and IRMAA. The healthcare bridge ends at 65, but Medicare is not free — Part B/D premiums and income-related surcharges (IRMAA) continue and are not modeled.
  • Investment fees. Fund expense ratios and advisory fees are not subtracted from the headline return unless you lower the input rate yourself (e.g. enter 6.5% to model a 0.5% fee drag on a 7% gross return).
  • This calculator is designed for planning and education. Small changes in return assumptions, inflation, spending, taxes, or retirement age can materially change the result. Past performance does not guarantee future results. Educational use only — not personalized financial advice.

6. Assumptions changelog

  • 2026-06-12 — Documented the research-card formulas (income-durability discounting; spending-flexibility comparison), expanded the limitations list, and clarified wording around the 4% rule, the healthcare/spending input boundary (including the double-counting note), Coast FIRE’s today’s-dollars basis (with a worked example), part-time income basis (including the indefinite-duration assumption), return/inflation framing, the age 60–63 catch-up limit, the withdrawal-order simplification, ACA subsidy impact, and a sensitivity disclaimer. No change to calculator defaults, formulas, or results.
  • 2026-06-10 — Initial publication. 2026 IRS limits ($7,500 IRA / $24,500 401(k)); SWR 4%, return 7%, inflation 3%; deterministic projection (no Monte Carlo).

7. Sources

Sources cited

Worth101 cites public-domain government data (IRS, Federal Reserve FRED, BLS CPI, SEC) on every calculator page. We do not cite paywalled research or vendor whitepapers as primary sources.