How Much Money Do I Need to Retire? The FIRE Number Formula Explained

To find out how much money you need to retire, multiply your expected annual spending by 25. Spend $50,000 a year? You need roughly $1.25 million invested. Spend $70,000? About $1.75 million. This is the FIRE number formula — the inverse of the 4% withdrawal rule — and it gives you a concrete, defensible target in about two minutes. Below, we'll walk through the formula with a full worked example, show how Canadians should adjust it for taxes and registered accounts, and cover the three situations where 25x is the wrong multiplier.

The FIRE number formula

The formula is one line:

Retirement target = annual spending × 25

The "25" comes from the 4% rule. If a portfolio can sustainably fund a 4% withdrawal each year, then the portfolio must be 25 times the annual amount you need (1 ÷ 0.04 = 25). It's the same math as yesterday's FIRE number — today we go deeper on the worked examples and the adjustments that make the number real for a Canadian.

A quick table of what the formula produces:

• $30,000/year spending → $750,000
• $45,000/year spending → $1,125,000
• $60,000/year spending → $1,500,000
• $80,000/year spending → $2,000,000
• $100,000/year spending → $2,500,000

One insight falls straight out of this table: cutting $5,000 from your annual spending doesn't save you $5,000 — it cuts $125,000 off your retirement target. Spending is a 25x lever on your finish line. That's why the frugality side of FIRE gets so much attention: it's not moralizing, it's arithmetic.

Worked example: Maya, Toronto, age 38

Let's make this concrete. Maya earns $95,000 in Toronto and wants to know her number. Here's the step-by-step:

Step 1: Estimate actual annual spending. Not income — spending. Maya's paycheques total about $66,000 after tax. She saves $18,000 a year (RRSP + TFSA), so she spends roughly $48,000/year. Note the trick: mortgage principal payments and savings aren't spending. What leaves your account and never comes back — that's spending.

Step 2: Adjust for retirement changes. Maya's $48,000 includes $19,200 in mortgage payments. Her mortgage will be paid off by retirement age, so her true retirement spending is closer to $40,000/year — she adds back $3,000 for property tax increases and travel she wants to do, landing at $43,000/year.

Step 3: Multiply by 25. $43,000 × 25 = $1,075,000. That's Maya's baseline number.

Step 4: Layer in government benefits. A Canadian retiring at 60 can reasonably expect combined CPP and OAS of roughly $20,000–$25,000/year at 65 (varies with contribution history). If Maya's number is partially covered by $22,000 in benefits, her portfolio only needs to cover $21,000/year → $525,000 for those years, plus a bridge for ages 60–65. You can model this exact tradeoff in FIRE Lab — it's free, runs entirely in your browser, and your numbers never leave your device.

The three adjustments most people skip

The raw 25x number is a starting point, not a plan. Three adjustments separate a back-of-napkin figure from a number you can trust:

1. Taxes on withdrawal. Your spending number is after-tax; your portfolio is (partly) before-tax. RRSP withdrawals are fully taxable as income, while TFSA withdrawals are tax-free. A Canadian with a $1.5M portfolio split 60% RRSP / 40% TFSA has materially more spendable dollars than someone with $1.5M all in an RRSP. When you calculate, discount your RRSP by your expected marginal tax rate in retirement — roughly 20–30% for most middle-income Canadians — or just be conservative and add 15–20% to your 25x target.

2. Inflation and healthcare. The 4% rule is inflation-adjusted, so the 25x already handles general inflation — but not personal inflation. Dental work, prescriptions, and long-term care costs rise faster than CPI and aren't covered by provincial health plans the way hospital visits are. Budget a specific health line item rather than hoping it averages out. Before deciding what counts, run your own numbers through FIRE Lab's free scenario modeler — no signup, nothing leaves your device.

3. Sequence and longevity. The 4% rule was tested over 30-year retirements. Retiring at 45 means planning for 40–45 years, and early bad market years hurt more than late ones (sequence-of-returns risk). Early retirees commonly use 30–33x spending (a ~3–3.3% withdrawal rate) instead of 25x. That's not pessimism — it's matching the multiplier to the time horizon.

When 25x is the wrong multiplier

• Retiring very early (40s): use 30–33x. A 45-year horizon needs a lower withdrawal rate.
• Heavy fixed costs you can't flex: if 80%+ of your spending is non-negotiable (mortgage, support payments), use a more conservative multiplier or build a bigger cash buffer for down years.
• Big pensions coming: if you have a defined-benefit pension, subtract its annual payout from your spending before multiplying. A $30,000/year pension on $60,000 of spending means you multiply $30,000, not $60,000 — your number drops from $1.5M to $750,000.

How to track your progress toward the number

Once you have your target, progress becomes a simple ratio: invested assets ÷ target = % of the way there. Maya's $1,075,000 target against her current $260,000 in investments puts her at 24%. That single percentage is the most motivating number in personal finance — it moves every month and it only moves in one direction if you keep contributing.

Recalculate the target once a year. Spending drifts, markets move, and life changes the plan (kids, a move, a career break). An annual 15-minute review keeps the number honest without turning it into an obsession.

Frequently asked questions

Is the 25x rule the same as the 4% rule?
Yes — they're the same math expressed two ways. The 4% rule says you can withdraw 4% of your portfolio per year; 25x says your portfolio must be 25 times your annual spending. 1 ÷ 0.04 = 25.

Does the number include my house?
No. Your FIRE number counts invested, income-producing assets — stocks, bonds, ETFs. Home equity you live in doesn't pay your grocery bill. (We'll cover the house question in detail on Day 15.)

Should I use gross income or spending in the formula?
Spending — always spending. Basing the number on income overstates the target, because you won't be paying income tax on money you save, commuting costs, or professional expenses in retirement. Maya's example shows the difference: $95,000 income became a $43,000 spending base.

What if I want to retire at 55 instead of 65?
Use a higher multiplier (30x+) and plan a bridge: CPP and OAS don't start until 60–65, so the decade before benefits kick in must be fully funded by your portfolio. Many Canadians underestimate this bridge cost.

Is $1 million enough to retire in Canada?
It depends entirely on spending. $1M supports about $40,000/year at a 4% withdrawal rate — comfortable in a low-cost city with a paid-off home and CPP/OAS on top, tight in Toronto or Vancouver with rent. The spending number decides, not the round figure.

Tomorrow: What Is the FIRE Movement? A Beginner's Guide to Financial Independence.