The FIRE movement (Financial Independence, Retire Early) has been gaining tremendous popularity in recent years. The core concept is quite simple – save and invest an extremely large nest egg to cover your living expenses for life without needing to work for income. This allows you to “retire” from traditional employment at a much earlier age than the standard retirement age of the late 60s.
A critical number to calculate on your FIRE journey is your “FU Number” or “FU Money”. This represents the specific amount of money that will provide you with enough investment income to cover your annual expenses indefinitely using the 4% safe withdrawal rate. Having truly “FU Money” means you have complete freedom and flexibility – the ability to say “F*** You” to any job or situation you’re unhappy with and walk away.
Calculating Your FU Number
To calculate your FU Number, you first need to estimate your annual expenses in retirement. Let’s use the example of a single person looking to achieve FIRE while living in the North Bay region of the San Francisco Bay Area.
According to recent cost of living data, a single person can expect to need around $45,000 per year to live a relatively modest lifestyle in cities like Santa Rosa or Petaluma when factoring in costs like housing, transportation, food, utilities and other expenses. This assumes renting rather than a mortgage payment.
Using the 4% withdrawal rate as a general benchmark, you would need a portfolio of $45,000 / 0.04 = $1,125,000 to provide enough investment income to cover that $45,000 annual budget based on historical returns.
Therefore, $1,125,000 would be the FU Number for a single person looking to FIRE with a $45,000/year spending level in the North Bay.
What if $45k/year seems too low or high for your desired lifestyle? You can adjust the FU Number calculation accordingly:
- $35k annual expenses = $875,000 FU Number
- $55k annual expenses = $1,375,000 FU Number
- $70k annual expenses = $1,750,000 FU Number
The higher your desired annual spending, the higher the FU Number portfolio is required.
Building Towards Your FU Number
Once you’ve calculated your FU Number goal, the work begins on achieving it through consistent saving, investing, and disciplined spending below your means over many working years.
Factors like investment returns, time horizon until retirement, tax minimization strategies, and changes in your annual spending needs can all impact how much you truly need to save to reach your FU Number. Running detailed calculations using FIRECalc or similar tools can help refine your target number.
Additionally, many in the FIRE community explore ways to earn income streams during retirement/financial independence to reduce the total portfolio required up front. Earning just $10k-$20k in side income can dramatically lower your FU Number.
The path to FIRE isn’t easy, but hitting your FU Number provides an incredible amount of personal and financial freedom. With diligent planning and execution, achieving your FU Number to FIRE comfortably in the North Bay could be a realistic dream!
