Twelve Reasons Your FIRE Number is Wrong

You’ve got a target number. When your investments add up to it, eureka! You’ve reached financial independence. Retiring early is a viable option.
FIRE is yours.

Or is it?

Your FIRE number was calculated after you developed a keen understanding of the 4% rule (of thumb) for safe withdrawal rates, and you tracked your family’s spending for five consecutive years. You know how much you need.

And your number is probably way off. Mine was, too. Here are a dozen reasons why your FIRE number may be nebulous.

1. You have kids at home

When I actually tracked my spending for a few years, I had relatively young children, and my FIRE number was based upon our spending as a family of four. That made sense, because I planned on retiring from my doctor job at a time when they’d still be living under our roof for about 10 more years at a minimum.

Now that I’m five years removed from being an anesthesiologist and mostly retired from the blogging business, I’ve realized two things.

One, teenagers are more expensive than grade-schoolers. When my older son got his driver’s license, our auto insurance premiums skyrocketed. Our umbrella insurance cost doubled.

These kids also eat double what they used to, and any museum, buffet, or other venue that offers discounted rates for kids will tend to charge teenagers the same as adults. Cruise lines do, too.

Two, this too shall pass. Or, as my thirteen-year old might say, it’ll buff. Five years from now, we may very well become empty nesters. Yes, we will continue to spend money on them, but to a lesser extent, and five or ten years further down the line, when they have careers of their own, they should (fingers crossed) be able to support themselves.

All this to say that if you have children, and you’ve based your FIRE number on how much you spend as a family, you may be over-saving when you will presumably have many future years where you’ll have the expenses of a one-person or two-person household. Before you get there, expect a passing increase in expenses as you prepare the kids for launch, but eventually, your living expenses will likely cover only one or two of you.

If that’s the case, your FIRE number may be quite a bit higher than it needs to be.

2. You haven’t bought a car in years

My personal expense tracking occurred at a time where we didn’t need to buy a car.

There was a “one-time” expense of a $25,000 retaining wall, but I didn’t include that in the expense tracking, because I figured that was an improvement to the property that would hopefully be reflected in the sale price when we moved.

In hindsight, I don’t think we recouped all that much of the $25,000.

When I look back at my adult years, I realize that “one-time” expenses seem to come up most years. This year, we bought a third family vehicle when we added a third driver. We love the new-to-us EV, but it’s a depreciating asset that set us back about $30,000.

If you tracked your spending at a time when you experienced no major individual expenses like a vehicle or home improvement project, you may be under-projecting your future spending needs. A more sophisticated approach to expense tracking would be to assign slush funds dedicated to home maintenance, home improvement, and major purchases like a vehicle every few years.

Failing to account for these big and all-too-frequent “rare” expenses may lead to a false sense of security in a too-low FIRE number.

3. Your commuting costs plummet and you stop buying work clothes

You’re also not eating lunch out nearly as often. Retirement is saving you more money than you imagined!

There’s a reason the IRS set the mileage reimbursement rate at 67 cents a mile in 2024. That’s about how much, on average, it costs to own and operate a vehicle. If you drive 15 miles each way to work, that’s $20 a day. $100 a week. You might save $5,000 a year by cutting out the commute alone.

Add in the cost savings of eating more meals at home and not having to look like a professional to your patients or clients, and you could be looking at closer to $10,000 in annual savings. Multiply that by 25 (using the 4% rule) and your FIRE number may be off by a quarter of a million dollars.

4. You start traveling more

Oh, snap! You got a little bored with your home and local community. After reading about your friends’ slow travel adventures, you start traveling more. A lot more.

Your work-related expenses went from ten grand to zero, but your travel budget increased from $20,000 to $50,000 a year. That’s a net $20,000 increase in annual spending, which would require a FIRE number $500,000 larger than the original estimate.

Now, I’ve written about how budget travel can be just as enjoyable as luxury travel, and even Disney World can be done on a budget. Some people live a nomadic lifestyle with no home base and associated expenses, and that lifestyle can be cheaper than living at home in the U.S.

However, if you’re like me and most people, travel is an additional expense layered on top of your baseline expenses of maintaining a home, and if you travel more than expected or in a more luxurious manner than anticipated, your FIRE number may be too low.

5. Your taxes go way down

Physicians are used to six-figure tax bills and combined state and federal marginal tax rates in the thirty and forty percent range. Our pattern-matching brains tend to extrapolate these rates into what we’ll pay in retirement.

In our Facebook group, one doc estimated that he’d be spending about $120,000 in retirement plus another $40,000 in taxes. I did my best to point out the absurdity of a 33% effective tax rate on $120,000 in spending money.

The true tax rate on that spending level would be much closer to zero, probably a single digit number. I’ve shown how one can have a six-figure annual spend in retirement without paying any income tax, and it only gets easier as the tax brackets are pushed to the right each year.

For most of us, some of the spending money will come from qualified dividends, which are taxed at a favorable rate and not taxed at all for those in the 0% QD / LTCG bracket (which goes up to nearly $100,000 these days). Some of it may come from selling stocks and funds where you only pay taxes on the gains (if you pay any tax at all).

The standard deduction is approaching $30,000 per year for married couples. Some spending money may come tax-free from a Roth IRA.

It all adds up to an effective tax rate in the single digits or teens for most retirees, even wealthy ones spending well into the six figures annually.

Now if you’re in your seventies with many millions in tax-deferred accounts, and you’ve done nothing to mitigate RMDs in the preceding decades, you may be looking at physician-level income and taxation. The rest of us may be overestimating the cost of taxes in retirement and setting our FIRE number too high as a result.

6. Economic Outpatient Care

Remember when I said we might be empty nesters in five years? Well, we might not be. Some kids launch more successfully than others.

Additionally, even after launch, they may return for frequent refueling. Two of our favorite economists, Drs. Stanley and Danko, coined the term “economic outpatient care (EOC)” in The Millionaire Next Door to describe large payments some parents regularly make to their adult children to allow them to maintain their lifestyles.

EOC can add up to tens of thousands of dollars per year, and the expectation of it (or the withdrawal of it) can strain family relationships or even permanently damage them.

The best way to avoid this trap is by not falling into it in the first place. Helping with tuition or contributing to a down payment on a first home is one thing. Acquiescing to a request for their latest bathroom renovation, plastic surgery, or trip to Bora Bora is another.

It’s okay for kids to struggle a bit. If you bail them out time and time again, they may never learn to be self-sufficient. Unanticipated EOC can wreck a well-intentioned FIRE plan.

7. You Make Your Final Mortgage Payment

Without checking, do you know what month and year your mortgage will be fully paid off?

I didn’t think so.

Your expenses can and will change for all sorts of reasons after retirement, but if you have a mortgage, I doubt you’ll ever see such a drastic change as when that mortgage payment goes away.

You may currently be paying $3,000 to $5,000 or more a month to buy the home in which you live. That’s $36,000 to $60,000 a year, a number that’s often the largest line-item expense in one’s budget.

I’ll give you credit for being smart enough to have factored in the fact that it’s not a forever cost, but modeling your future needs when you’ll have some number of early years with that massive expense followed by decades without it is not simple.

This is no longer back-of-the-envelope math. It’s a job best suited to a customizable calculator if you want to hone in on a more accurate number.

Otherwise, you can do what most people do and aim for a FIRE number that’s artificially higher than it actually needs to be, or you can aim to pay off the mortgage before retiring so you don’t have to factor it in at all.

8. Inflation wreaks havoc

It doesn’t seem like long ago that a value meal was $5 or $6. A beer at the bar was $3 or $4. You could even get a halfway decent steak for under $20 at many places.

Double each of the above, and that’s what it costs today in a lower cost of living area. You might have to triple or quadruple those numbers if you live in Miami, San Francisco, or New York City.

For most of my adult life, inflation was all but imperceptible, humming along between 1% and 2% for much of this millennium. Then came the pandemic, the stimmies, short supplies, increased demand, and a population that quickly became accustomed to paying higher prices.

Thankfully for most working folks, wages have caught up to inflation, and for my retired peeps, the stock market has performed admirably these past few years, so most of us aren’t hurting so much.

Still, if your FIRE number was based upon the historical average of 3% inflation, your number may have to be adjusted upwards another 10% to 20% to match the reality of the past few years.

The further out your future retirement date is, the more of a role inflation will pay. If you want $5 million in today’s dollars, but you plan to work another 20-plus years, I’d aim for at least $10 million. We know from the Rule of 72 that 3% inflation will cut our spending power in half over a 24-year timeframe.

9. Your Safe Withdrawal Rate is pretty darned conservative

You’re a prudent individual, preparing for an early retirement that will succeed in market conditions that equal the worst we’ve seen in a century.

That’s essentially what the 4% rule does, but it only looked at a 30 year retirement. Nevermind that the median outcome is to end up with nearly 3 times as much money after 30 years.

Wade Pfau says 2.8% is a safer number, and he’s got a Ph.D. in retirement research. Nevermind that he assumes investment fees exceeding 1% (or greater than 25% of our 4%).

The fact is that unless you have terrible luck and timing, you won’t face a disastrous drawdown in your portfolio in the first five years of retirement.

As long as you manage to avoid a particularly poisonous sequence of returns shortly after retiring (or just before), a withdrawal rate that exceeds 4% of your initial portfolio will be more than sustainable for the long haul.

If you can avoid terrible investment returns as you enter retirement, you can rest assured that, in hindsight, your FIRE number was too high.

10. You didn’t buy the right insurance

My heart goes out to the millions who found out they were underinsured or completely uninsured against the unlikely event of an inland hurricane and massive flooding.

Natural disasters have become so commonplace that the “Storm of the Century of the Week” is basically a meme.

Entire neighborhoods and cities have been wiped out by wildfires. Would you want to rebuild in a community that no longer exists?

It’s not just nature’s fury that shows us that we’re not well covered against adverse events. Medical debt is a leading cause of bankruptcy. Long-term care and memory care are expensive; insurance exists for these scenarios, but it’s costly and not necessarily a good value or choice for many.

Insurance is a way of transforming potentially astronomical rare expenses into fixed, recurring expenses. If you don’t get it right, though, life could become a lot more expensive than you envisioned, invalidating your FIRE number.

11. You get a part-time “retirement job”

Guess what? I’m getting paid to write this article. I’m also going to be a mountain host at a local ski hill, a volunteer job that comes with nice perks, like unlimited free skiing for my family.

Some people travel more and need more money in retirement. Others would rather stay closer to home and do something more productive with their time, and that may mean newfound, unexpected income in retirement.

I see no point in quarreling over whether or not someone can be retired and working at the same time. The fact is that a lot of people choose to work in some capacity, paid or unpaid, after leaving their primary careers behind.

If you become one of those people and you either earn some income or get perks that save you thousands of dollars per year, you’ll realize that your targeted FIRE number was probably too high.

12. Your parents run out of money

You’re really good with money, and by the time you turn 50, you could easily afford to retire. The same may not be true of your parents or in-laws.

While this has not been an issue for me personally, it’s a recurring theme and source of frustration in our fatFIRE and Physicians on FIRE Facebook groups.

In many cultures, it’s expected that sons and daughters will return the favor of being cared for in their youth by taking care of their parents in their later years. That care can include co-living or full financial support, and if it comes at a price you weren’t expecting to pay, it can completely derail a fine FIRE plan.

Earlier, we talked about the transition from a family of four or more to paying for a household of one or two. Imagine if, later in life, you were put in a position where you’re supporting four or even six people.

Your FIRE number, whatever it was, was too small. With any luck, you survived the initial years where sequence of returns can really bite you, and you’ve got enough to make it work.

What to Do About It

There’s bound to be plenty of good news and bad news scenarios that present themselves. I alternated them in the narrative above, and it wouldn’t be difficult to come up with a dozen more.

What’s a guy or gal to do amid so much uncertainty?

Don’t Sweat the Specifics

Whether you choose 2.8%, 3.3%, or 4.15% as your safe withdrawal rate, accept the fact that you chose wrong, and precisely hitting a target number is unimportant. Being in the right ballpark is.

Be Flexible

An ability and willingness to adjust your spending with changing times is key to surviving the downside scenarios discussed above. The more “fluff” you have in your budget, meaning costs that could be cut if deemed necessary, the easier it will be to make meaningful adjustments on the fly.

Protect Against Sequence of Return Risk

Particularly lousy stock market returns in your first few years of retirement are bad for your portfolio. It’s the reason the 4% rule is the 4% rule and not the 5% or 6% rule.

There are ways to protect yourself and your money from such a calamity. These include setting up a bond or CD tent, a heavy cash allocation early in retirement, and a willingness to return to some paid work.

Focus on Happiness and Life Satisfaction

Some call it contentment.

With your financial future relatively secure and with so much beyond your control, don’t spend a lot of time and mental energy on optimizing for money. Optimize for the life you want to live.

Your living expenses will go up some. Other expenses will go away. Your investments will lose money in down years, and you’ll get that money back in the really good years.

One thing you’ll never get back is your time.

Make the most of it!