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FAT FIRE Payout Equation:
| From: | To: |
FAT FIRE (Financial Independence, Retire Early) refers to achieving financial independence with a luxurious lifestyle. The payout represents the annual withdrawal amount calculated as 2.5% of your net worth, providing sustainable income while preserving capital.
The calculator uses the FAT FIRE equation:
Where:
Explanation: This conservative 2.5% withdrawal rate is designed to provide sustainable income while maintaining principal for FAT FIRE lifestyle expenses.
Details: Proper FAT FIRE planning ensures you can maintain your desired lifestyle in retirement without depleting your wealth. The 2.5% rule provides an extra safety margin compared to traditional 4% withdrawal strategies.
Tips: Enter your total net worth in dollars. The value must be positive and represent your actual net worth including all assets and liabilities.
Q1: Why 2.5% instead of the traditional 4% rule?
A: FAT FIRE uses a more conservative withdrawal rate to account for higher lifestyle expenses and provide greater financial security over a potentially longer retirement period.
Q2: What should be included in net worth calculation?
A: Include all liquid assets, real estate (minus mortgages), investments, retirement accounts, and subtract all debts and liabilities.
Q3: Is this withdrawal rate inflation-adjusted?
A: The 2.5% rate is typically applied to the initial portfolio value, with annual adjustments for inflation to maintain purchasing power.
Q4: How does this compare to regular FIRE?
A: Regular FIRE often uses a 4% withdrawal rate for more modest lifestyles, while FAT FIRE uses 2.5-3.5% for more luxurious retirement spending.
Q5: What investment return assumptions underlie this strategy?
A: This approach assumes a balanced portfolio that can generate returns exceeding the withdrawal rate plus inflation over the long term.