Understanding the 4% Rule & Inflation-Adjusted Compound Growth
How the FIRE Target Is Calculated
Your Financial Independence (FIRE) number equals 25 times your expected annual retirement expenses. Once your invested portfolio reaches this threshold, a 4% initial annual withdrawal historically sustains a 30+ year retirement.
Real vs. Nominal Return Formula
To keep all projections in today's purchasing power, this simulator computes Real Return = [ (1 + Nominal Return) / (1 + Inflation Rate) ] – 1. This ensures your future portfolio target reflects actual living standards.
Frequently Asked Questions
Why does the calculator adjust returns for inflation? +
Seeing $2 million in 25 years sounds large, but inflation erodes purchasing power. Modeling in today's currency lets you compare your future portfolio directly against today's living costs.
What is a realistic expected annual return? +
A globally diversified stock/bond portfolio has historically returned 7%–9% nominally before inflation, or roughly 5%–6.5% after accounting for 2.5% inflation.
What if I plan to retire earlier than age 65? +
For 40–50 year retirement horizons, many early retirees adopt a slightly more conservative 3.5% withdrawal rate (roughly 28.5× annual expenses) for added safety.