Destination Unknown: How to calculate your FIRE number if you have no idea what your future expenses will be

We all know the basic math behind FIRE – you take your annual living expenses, multiply the number by 25 and voilà – you have your target FIRE number.

But what if you have no idea what your future living expenses will look like? Wouldn’t it be good to get a general idea of how much a typical person or couple can expect to spend in (early) retirement?

How to calculate your FIRE number without knowing what your life will look like in the future

I would like to share a nice shortcut that helped us determine our FIRE number.

It has always been clear to us that our current spending is not a reasonable basis for calculating our required FI nest egg. We currently live in Sydney but will likely move to a cheaper location (interstate or even overseas) once reach Flamingo FI. In addition, we currently rent but want to buy a home at some point in the future. Long story short, we find it really difficult to estimate what our future expenses will look like.

But we have found a way to figure out a target number to aim for that we would like to share. Enter the ASFA Retirement Standard. The ASFA Retirement Standard is published (and adjusted for inflation) quarterly and shows annual budgets required by Australian households in retirement:

From the ASFA website:

“One of the most important steps in planning to save for your retirement is figuring how much you will need to spend each year to live a comfortable lifestyle. However, many people struggle when it comes to developing a budget for their future needs, particularly when their retirement is many years away.

The ASFA Retirement Standard has been developed to help solve this problem by objectively outlining the annual budget needed by the average Australian to fund a comfortable standard of living in their post-work years. It provides benchmarks for both a comfortable and modest standard of living, for both singles and couples, and is updated quarterly to reflect changes to the Consumer Price Index (CPI).”

The ASFA numbers are helpful for those trying to come up with a realistic target FI number without knowing what their longer-term future expenses in retirement will look like. Keep in mind that these numbers are for actual retirees without dependents, so while they are a good baseline for a single or couple, you might have to build in (very) generous buffers and additional funds depending on your situation – this is what we’ve done anyway.

Note: For all the calculations below, I’ve used the budgets for those around 65 (as the numbers include travel, etc.).

Different budgets for different FI lifestyles

Since ASFA provides budgets for those who aim for a “modest” retirement lifestyle as well as those who want a “comfortable” retirement, we can use these numbers to calculate target nest egg sizes for “standard” FIRE and Fat FIRE. In addition, we’ll use the current age pension rates to calculate a Lean FIRE target nest egg. Here is an overview of how ASFA defines the different lifestyles:

Now, let’s have a look at the budget numbers. [Note from the future: Just a few years after the publication of this article, the numbers below seem laughably small, which shows how important it is that we update our FI numbers regularly. However, the same principles still apply and you can find the latest ASFA estimates for whatever year it is when you read this on their website.]

• “Standard” FIRE: To calculate this, we can use the “modest lifestyle” numbers. For a couple, the annual budget required is $39,666. $39,666 multiplied by 25 is $991,650, so we could use that as our target FIRE number! Not surprisingly, this is also extremely close to the $1,000,000 plus a paid-off house target that so many people in the Australian FIRE community target.
• Fat FIRE: We can use the “comfortable lifestyle” figures for this calculation. Again, I’ll use the numbers for a couple. The annual budget required is $60,843, so the target Fat FIRE number would be $1,521,075. Sounds pretty realistic to me.
• Bonus – Lean FIRE: For this calculation, I use the current Age Pension rates. A couple living together currently receives $35,916.40 annually. The target Lean FIRE number would be $897,910.

Are these target numbers accurate? Absolutely not. But if you don’t know what your future expenses will look like, they can definitely be used as a guideline.

Here are the different targets based on the current ASFA numbers:

All of the budgets on the ASFA site assume that you own your own home. If you don’t own a home or are not planning to buy one in the future, you could just add the expected rent to the annual budget, of course. The same is true if you have kids (as mentioned above), expensive hobbies or anything else that is not included in a standard retirement budget.

Also, note that the numbers on the ASFA site are updated quarterly, so your FIRE number will be a moving target (but this would be the case with any target number you choose, of course).

What if I want to go down the Flamingo FI path instead?

Too easy – if you want to calculate your Flamingo FI number, you just divide the target number for your desired FIRE lifestyle by 2:

So what do you think? Do you find these numbers valid as a rough guideline? And if you already have your target FI nest egg figured out – are the numbers above close at all?