What is my FIRE number as a Late Starter? It is NOT my Net Worth

A new summer day dawns, natural background with the sun just behind

The two most commonly tracked metrics on the way to achieving FIRE (Financial Independence Retire Early) are net worth and that magical FIRE number.

Every time I post about what I include in my net worth calculations on social media, I get comments like – oh I don’t include my house because it doesn’t generate an income.

So I want to clarify here that my net worth is NOT the same as my FIRE number.

Let me show you why.

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What is Net Worth?

I’ve written about net worth before but I’ll recap here.

Net worth is a measure of your financial wellbeing. It captures a moment in time of where you stand financially.

Net worth is calculated as your assets minus your liabilities.

A positive net worth is what we are aiming for.

This means that we own more assets than what we owe to others.

Conversely a negative net worth means that we owe more than we own.

The larger your net worth, the more financially stable you are.

There is much debate among the FIRE community as to what assets to include or exclude in the calculation of net worth.

I like to include all my assets (not furniture or personal belongings) – my paid off home, superannuation (retirement account), investments outside of retirement account and cash in bank accounts or brokerage account.


Because I want to know my TOTAL net worth.

This informs my strategy of how to achieve financial independence.

I’ll explain how later.


What is a FIRE number?

Financial independence is defined as having enough investments that can support your lifestyle for the rest of your life without depending on a wage.

And then you can choose to retire early. Or not.

But how do you calculate that magical FIRE number? The number that signals you’ve reached financial independence and that you don’t have to work for a wage from now on?

Most in the FIRE community define it as 25 x expenses based on the 4% rule. So if your expenses are $40k a year, you’ll need 25 x $40k = $1 million to be financially independent. Or to put it another way, you can draw down your investments by 4% every year (plus inflation thereafter) forever. 

The Trinity Study

The 4% rule is based on a study by 3 researchers from Trinity University, popularly known as the Trinity study in 1998. It confirmed what Bill Bengen found in 1994.

This original study had nothing to do with the FIRE movement. The researchers were looking at what a safe withdrawal rate is for retirees, ranging from 3% to 12% based on a portfolio of stocks and bonds using historical data from 1926 to 1995.

What they found was that based on a 4% withdrawal rate the first year and increased by inflation in years thereafter, on a portfolio of 50% stocks and 50% bonds in the US market,there was a 95% success rate that there was money left in that portfolio after 30 years.

It follows that the lower your withdrawal rate, the longer your money will last.

The good news for late starters is that our years in retirement are a lot closer to the study’s longest time frame ie 30 years. If you retire at 30, your nest egg may have to support you for another 70 years.

If you are interested in more in depth analysis of safe withdrawal rates, please head to the Safe Withdrawal Rate Series from Early Retirement Now.


My FIRE number

For me, the traditional 25x expenses rule is a good place to start; a good guide to aim for, when we are starting out on our FIRE journey.

But I believe our FIRE numbers are more nuanced than that.

For example, are we talking about current expenses? Or projected expenses when we retire?

That is why I started tracking my expenses – firstly to know how much my current lifestyle costs and secondly, so I have an idea of what this amount buys me today. And if I’m happy with what I’m getting now.

Will I be happy with my current lifestyle when I eventually retire? Will I need more? Less? Answering these questions gives me a number to work towards.

Ok, so that’s the expenses part taken care of.

Now on to the 4% draw down strategy –

What if we don’t want to draw down our shares portfolio? What if we want to use the income generated from the portfolio? And what if we use real estate investment to achieve FIRE? We can’t sell 4% of a property each year.

As a late starter, there are added complications.

I have less time to save and invest the amount I need and for compound interest to work its magic and grow that portfolio.

So what are my options?

pie chart of investments
What makes up my net worth in April 2022

Net worth calculation to the rescue

This is where I value calculating my net worth. And tracking it over time.

From the chart above, I note that the largest contributor to my net worth is my paid off home. In second place is my superannuation. And in a far off third place is my investment outside superannuation.


1. Paid off home

One option to reach financial independence is to sell my home and use this equity to invest in a shares portfolio from which I can withdraw 4% for the rest of my life.

Another option is to sell my home and buy a property of lesser value and invest the rest into a shares portfolio.

Or I exclude it from my FIRE number as I don’t want to sell my home. Because I can’t deal with the insecurity of renting for the rest of my life. And because I don’t want the hassle of looking for a smaller property or one that is located further afield. For now.

But I know that if I run out of options, I do have the option of selling my home. Or at the very least, release some equity from it.

Or I could look at ways of generating income from it – renting out rooms either on a more permanent basis such as getting a roommate or renting out rooms on AirBnB.


2. Superannuation

My superannuation is the next biggest portion of my net worth. This was already the case when I first discovered FIRE, thanks to being in the work force for more than 20 years.

So my strategy was to make use of generous tax concessions to invest the maximum allowed into superannuation and grow this portion of the pie.

The complication here is that I cannot access my superannuation until my preservation age – 60 for me as I am born after July 1, 1964.

I knew this and still chose to focus on investing the maximum into my superannuation until I reached Coast FI (not that I knew that was what I was aiming for when I first started pursuing FIRE). Because I wanted the security of knowing that from aged 60, I’ll be taken care of financially.

My reaching Coast FI as a late starter is totally based on how much is in my retirement account.

I used the 4% rule as a guide here. And worked out 25 x my projected retirement expenses. This was my target number for aged 60 when I can access my superannuation.

I discovered I was half way there last year because I was tracking my net worth. Using the rule of 72, I worked out that the annual return on investment has to be 7.2% every year for this balance to double to my target number in 10 years.

I felt this was possible based on historic returns but it’s not a guarantee. Knowing that even if I never contribute another cent to my superannuation, it should grow to the amount I need at 60 has been freeing.

3. Bridge the Gap fund

But if I want to retire before 60, I will need extra funds outside of superannuation to support me.

This is what I’m building right now – my bridge the gap fund. According to my net worth calculations, this fund comes third overall – my cash and shares portfolio.

It is entirely appropriate as this fund has to support me for 5 years only.

Back to my FIRE number

If my FIRE number is not my net worth, then is it my net worth minus the value of my house? We’ve established that I don’t want to sell the house in the foreseeable future and you can’t sell 4% of a property.

So that works out to be the total of my superannuation balance, shares portfolio and cash minus liabilities (which for me is monthly credit card bills). But a large portion of this is in my superannuation which is not available until I’m 60. Therefore even if this number equals 25x expenses now, I still can’t retire early.

Therefore is my FIRE number the value of my bridge the gap fund?

Right now, because I plan to retire at 55, my bridge the gap fund is intended to support me for 5 years. If the fund grows to the desired amount tomorrow, I can’t retire because it can’t support me for 9 years until I can access superannuation.

In other words, I need to reach my target number at the 5 year mark, not before or after. Argghhhh!

To add another spanner into the works, I now don’t want to draw down from the shares portfolio if I can help it. This will help ensure I don’t totally rely on my superannuation being able to double in 10 years (from last year’s Coast FI value).

So I’m now planning to live on dividends and cash during the 5 year gap. And preserve as much of my portfolio as I can until I access superannuation.

However I’m not sure how much my portfolio needs to be in order to generate the amount of dividends I need. Therefore I’m just investing as much as I can including reinvesting my dividends to grow this portfolio. Dividends is now my favourite metric to track.

My current plan is that I’ll stop investing when my dividends can support half my annual expenses. I’ll then switch to saving as much cash as possible to make up the difference. Because I just don’t have enough time to grow the portfolio to be able to generate enough dividends to pay for ALL my expenses.

Did I tell you that my FIRE number is complicated? 🤣


Final thoughts

Aiming for a FIRE number as 25x expenses and living off it forever with a 4% withdrawal rate is a good guide. And if you don’t own a house or if you live in the US, with ways to access your retirement account before traditional retirement age, then yes, your net worth can be your FIRE number.

Unfortunately as a late starter, I have no choice but to depend on superannuation because I don’t have time to build up a substantial shares portfolio outside superannuation. And in Australia, there is no backdoor method to accessing it any earlier.

Therefore my FIRE number is a tad complicated and does not equal my net worth.

But I am grateful I took action back in 2018 as I now have options even though they are not as straightforward as those of the youngsters. It is the inevitable complication of starting later.

I will continue to track my net worth every month to be aware of where I’m at financially (specifically – is my strategy working?) and to inform me of my options. I’ll also track dividends to see how soon I can retire.

How do you calculate your FIRE number? Have I over complicated my calculation? 🤣

2 Replies to “What is my FIRE number as a Late Starter? It is NOT my Net Worth”

  1. If you are retiring in two years then you can probably ignore inflation but if you are retiring in ten years then you need to factor in that you’ll possibly need way more than 25 times current expenses. That’s because inflation will jack up your expenses by nearly 50% over the next ten years. That’s using 4% inflation, Canada’s inflation rate right now is nearly 7%. Of course that may be offset by increases in income due to merit and cost of living pay raises which would allow you to invest more than you are doing now. Inflation could also go away as quickly as it appeared, who knows? It just gets even more complicated, as you said, the further into the future you look. In your case your intensity and intentional attitude and practices are going to set you in a good place I am sure. You’ll be anywhere from having more than you need to having a lot more than you need I bet. Great post, good food for thought.

    1. The future is hard to predict 🙂 And I’m sure my target numbers will change a few times before I finally retire. I guess it’s important for me to set the right foundation and be flexible – it I need to pivot, so be it!

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