Do you want to retire at the age of 40? So understand what is your FIRE number for a monthly expenditure of ₹50,000..

Everyone dreams of retiring at the age of 55 to 60 and living a comfortable life, but now a new trend is growing rapidly - FIRE (Financial Independence, Retire Early). This means that you become so financially independent that you do not need to work, and you can retire at the age of your choice.

If a 25-year-old youth targets to retire at the age of 40, i.e., in 15 years, then this may seem very strange. But with the right planning, it is possible. So then let us know how much you will have to save to retire at the age of 40 on a monthly expenditure of ₹ 50,000, starting at the age of 25, and what is your 'FIRE number'?

What is FIRE, and what is your plan?

Meaning of FIRE: FIRE means 'Financial Independence, Retire Early'. This simply means that you should accumulate such a corpus that the income from your investments can cover all your expenses. After this, you will not need to work at all to earn money.

Your goal: So if you are 25 years old and want to retire after 15 years (at the age of 40). After retirement, your monthly expenditure will be around ₹ 50,000.

Calculation of FIRE number

Your FIRE number is the amount that you will have to accumulate by the age of 40. Its calculation is done in 3 easy parts.

Part 1: Estimation of your monthly expenditure after 15 years

If today's expenditure of ₹ 50,000 will increase a lot due to inflation after 15 years, then if we assume an average inflation rate of 6%, then after 15 years, your monthly expenditure will be around ₹ 1.20 lakh.
Calculation: ₹50,000 * (1.06)^15 = ₹1,19,828

That is, if you invest ₹50,000 at 6% annual interest for 15 years, after 15 years it will grow to around ₹1,19,828. So, at the age of 40, you will need around ₹1.20 lakh every month.

Part 2: 4% withdrawal rule
This is a famous rule of FIRE. According to this, if you do not withdraw more than 4% of your total savings every year, then that fund can last for a lifetime. Yes, using this rule, we can find out how much total amount you will need to meet your expenses.

Part 3: Your FIRE number

So first of all, calculate your annual expenses after retirement.

Monthly expenses x 12 = ₹1,20,000 x 12 = around ₹14.40 lakhs

Now divide this annual expenditure by 4% and find your FIRE number-

FIRE number = ₹14.40 lakhs / 0.04 = around ₹3.60 crores

That means your FIRE number is ₹3.60 crores. This means that you will have to accumulate a corpus of around ₹3.60 crore by the age of 40.

How to reach this goal?

A goal of ₹3.60 crore may sound huge, but it is easy if one invests in a disciplined manner. If you want to accumulate this amount in 15 years, you will have to invest a fixed amount every month.

Monthly investment
If you invest through SIP, assuming you get an average annual return of 12%, then you will have to invest around ₹80,000 every month for 15 years. However, if you assume a return of 15% (which is more risky), then your monthly investment amount may be slightly less.

Investment options

Now, to deposit such a large amount, you will have to go for equity-based investments, because only these can beat inflation in the long term and give high returns. Yes, you can invest in large-cap, mid-cap, and flexi-cap funds through SIP. These will be the biggest part of your portfolio. PPF is a safe and tax-free investment, which will bring stability to your portfolio. Apart from this, if you have a good understanding of the stock market, then you can directly invest in the shares of good companies.

Some important tips

1. It may be very difficult for you to invest ₹ 80,000 every month. So, you also need to pay full attention to ways to increase your income, such as a side hustle, learning extra skills, finding a better job or doing a part-time job etc.

2. Keep your lifestyle under control and avoid 'lifestyle inflation'.

3. By the way, whether the market goes up or down, you should continue your monthly investment. This is the most important key to reaching your targets.
4. Review your financial plan and investment portfolio every year and make changes as needed.

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