Want to retire at the age of 40? So, understand what your FIRE number is for a monthly expenditure of ₹50,000, life will be spent in fun.

If you want to retire at the age of 40, then it is necessary to achieve a FIRE number of ₹3.60 crores. For this, start investing early, control expenses and choose high-return options. This goal is completely possible with disciplined investment.

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 should 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 it may seem very strange. But with the right planning it is possible. So let's find out how much you need to save to retire at the age of 40 at a monthly expense 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 stands for 'Financial Independence, Retire Early'. It 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 do a job 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), your monthly expenditure after retirement will be around ₹50,000.

Calculation of FIRE number

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

Part 1: Estimating 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 amount every year, then that fund can continue for a lifetime. Yes, by 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% to get 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 crores by the age of 40.

How to reach this goal?

The goal of ₹3.60 crores may sound very big, but it is easy if one makes disciplined investments. If you want to accumulate this amount in 15 years, then you will have to invest a fixed amount every month.

Monthly investment

If you invest through SIP, let's assume that you get an average annual return of 12%, then you will have to invest about ₹ 80,000 every month for 15 years. However, if you assume a return of 15% (which is more risky), then the amount of monthly investment 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 largest 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 need to focus on ways to increase your income, such as side hustles, learning extra skills or finding a better job or doing a part-time job.

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

3. Whether the market goes up or down, you should continue your monthly investments. This is the most important key to reach your target.

4. Review your financial plan and investment portfolio every year and make changes as needed.

FAQ

1. Question: What is FIRE number and why is it important?

Answer: FIRE number is the amount you need to meet your post-retirement needs, it is calculated by dividing your annual needs by 4%.

2. Question: Is it possible to retire at the age of 40?

Answer: Yes, it is possible to retire at the age of 40 if you start investing early, control expenses and invest in high return options in a disciplined manner.

3. Question: How to calculate FIRE number?

Answer: Divide your annual expenses by 4%, Example: If the annual expense is ₹14.40 lakh, then the FIRE number will be ₹14.40 lakh ÷ 0.04 = ₹3.60 crore.

4. Question: How soon should one start investing to achieve FIRE goal?

Answer: The sooner you start investing, the more you will benefit from compound returns, it is best to invest in SIP or mutual funds from the early 20s.

5. Question: Which investment options are better for FIRE?

Answer: Long term investments with high returns like mutual fund SIP, index funds, PPF, and stocks can be helpful in achieving FIRE goal.