Tuesday, 17 December 2019

The Magic Number

Hello fellow Fire Fans!

Today I will be going through our FIRE target.

As mentioned in the previous post, at the moment it is going to be Slow FI L.

But without further ado, are you ready to hear about our magic number?

Drum roll please…. 

It’s £1 Million!

Based on the 4% rule this would provide us with £40,000 a year, without ever running out of money.

If you’ve been reading about FIRE online, then I’m pretty sure you would have come across the 4% rule. If not, in a nutshell, the 4% rule is what ‘financial experts and advisers’ (yep, those types of people) recommend is a safe withdrawal rate (SWR).

It allows for a withdrawal of 4% of your investments without ever running out of your funds/principle amount. They say this, as investments in the long run tend to return between 7%-10%, I have even some places quote as high as 12% - but I’m a very conservative person (you’ll see this when I talk numbers throughout this blog) so I’m just going to assume that there’s no way I’ll get even 10% let alone 12%, in fact majority of the time when doing my own FIRE calculations, I only input returns at 5% on calculators, just to be extra sure with my target and goals!

As you would be withdrawing less than the long term returns i.e. 4% withdrawals being less than 5%, 7%, 10% returns etc. you would, as a result, never run out of money and hence be able to retire, knowing money will be coming in whether you choose to work or not! Yeah baby!

So £1 Million x 4% = £40,000. Once we reach our goal of £1m, we would be able to withdraw £40K a year and never having to worry about running out of money.

Let’s go through an example: Say for arguments sake that after achieving the £1m target, the following year we returned 6% on our investments then we would have earned £60K, however we would still have only withdrawn £40K and so would have another £20K cushion added on for following years when the markets might not be doing so well/went down.

So for us, £40K divided by 12 months would give us a monthly income of £3,333.33, which I believe would be way more than enough for us to live on (there’s me being conservative again!). In reality, I believe we wouldn’t need this much to cover our expenses plus for the fun things we’d like to buy and do, however I’d rather aim for a higher number for now and can then always adjust if needed.

When I go through our lifestyle, spending and budget in later blog posts, you’ll probably agree that we are being a little over cautious with this amount and we would not need £40K in retirement but I’d like to aim for this for now, because though we are being more cautious and frugal in our spending at the moment, once we are able to retire… we will and will want to splurge! We will probably go for new cars, have multiple holidays in a year and travel abroad a lot more so better to be conservative right!?

Would love to go to Bora Bora!

Another way to calculate your FIRE target number is with the rule of 25, where you multiply your expenses/spending by 25. e.g. if your expenses/spending would be £25K a year then £25K x 25 = £625,000, so this is what you should aim for in your investments. £30K would be £750K, £35K a year would be £875K and of course our number of £40K x 25 gives us the £1m.

So I’ve told you what me and my wife are aiming for. We believe this will provide us with an excellent life where not only will our essential costs such as household bills will be covered, but will also be able to treat ourselves with latest gadgets, cars and holidays – things which we are limiting on at the moment (though I will have to tell you something about my car in a later post!).

Do let me know in the comments what you guys think about our FIRE target and tell me about yours!


  1. Thanks for the update - what is your main investment strategy? are you planning to split this between pensions/ISA? Good work on getting the blog off the ground!

  2. Hi Ad Otium,

    Thank you for your comment, you're the first!

    Regarding main investment strategy, I'm actually in the middle of writing that post, so it will be up on the site soon.

    But as you've asked I'll provide a few brief details: I do have a personal pension set up (due to being self employed). I did this before I became aware of FIRE and so ended up putting large lump sums in the beginning but now it is only a nominal monthly amount. If I knew about FIRE, I would have held off doing this. The rest goes to an ISA and a few other investment accounts as I can withdraw these before traditional retirement age.

    Thanks again

  3. Have you not thought of the impact of having money tied up in pensions that you won't be able to access for another 20-30 years?
    Just having £1m isn't enough if you can only spend half of it.
    Also, is that £40,000 before or after taxes?
    And will you be raising your £1m target each year with inflation?

    1. Hi Gentleman's Family Finances,

      Regarding the pension, yes I have thought of the impact, like I mentioned in my response on the previous comment – I had set up the pension before I had even heard of FIRE. Now that I have already put large sums into it, I can’t really do anything about it and will just have to wait until I reach an age from when I can withdraw from it. I do put a small amount in still, this is purely because the Government puts in another 25% and those returns are quite good on its own! Plan is at 55 take 25% tax free – which could mean I may not need to do a 4% withdrawal that year.

      The £1m that we are hoping to save wouldn’t include the pension – that will be separate. The majority of the £40K would be after tax as we save into ISAs.

      Not sure we will raise the £1m with inflation YET. The reason is that we may not always end up spending £40K a year, we may have some leftover, and then we could just re-adjust lower withdrawals for the following year, if need be. As mentioned, in the Magic Number post, we may not even need £40K a year, but we are aiming for this right now, to be on the safe side and when the time comes we could lower this amount.


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