FIRE Index: A Test When You Can Be "FIRE Financially Free"

In recent years, the "FIRE Financial Freedom" movement has become a trend, and its full English name is Financial Independence Retire Early, which means "financial independence, early retirement". "FIRE financial freedom" has been blown from Europe and the United States to Taiwan. The younger generation is eager to get rid of the 9-to-5 work pattern in their 30s and 40s, retire early, and live the life they want.

Everyone is asking: How much money does it take to be "FIRE financially free"?

According to the most common "FIRE financial freedom" formula, you need to have at least "annual expenditure X 25" of net assets (note: the amount of debt must be deducted).

The 25x algorithm comes from the "4% Safe Withdrawal Rate" proposed by American financial expert William Bengen in the 1990s. According to his research, in the absence of working income and proper financial planning, retirees only withdraw 4% from their retirement accounts as living expenses every year, so that the pension can maintain a certain amount and continue to generate income. With more than 90% experience, the pension will last for more than 30 years.

Simply put, annual spending ÷ 4% (= annual spending X 25) is exactly what you need to put into your retirement account .

Here comes the question. According to this formula, how much money does your retirement account need to achieve "FIRE financial freedom" in Taiwan?

If calculated according to the 110-year basic living expenses of NT$192,000 announced by the Accounting Office of the Executive Yuan in August this year, to achieve "FIRE financial freedom" in Taiwan, you need to deposit NT$4.8 million in your retirement account (= annual Expenses of 192,000 yuan X 25).

If it is calculated according to the 109-year Taiwan Household Income and Expenditure Survey published by the Accounting Office of the Executive Yuan, the average annual consumption expenditure per person is NT$280,000 after rounding up, and you need to deposit NT$7 million in your retirement account. Yuan (= annual expenditure of 280,000 yuan X 25).

Seeing this, you will be wise to find that the amount of annual expenditure affects the number of retirement accounts you need in your pursuit of "FIRE financial freedom". Therefore, figuring out your annual living expenses is a step towards The preparations that need to be done before "FIRE financial freedom".

Figuring out how much you need in your FIRE retirement account isn't enough, you also need to check your FIRE index regularly. For the FIRE family, the most important thing is to "save money" and continue to "money begets money". From the two key points of "saving money" and "money generates money", we have derived two FIRE index calculation formulas for your reference.

1. "FIRE Independence Index": Check your "FIRE Retirement Account" achievement rate

"FIRE Independence Index" = Existing savings ÷ Retirement account required amount. The "FIRE Independence Index" focuses on your "saved money".

For those who have just embarked on the road of "FIRE Financial Freedom", the "FIRE Independence Index" is used to check whether they have saved enough money for the "FIRE Retirement Account"? How much is left?

We calculated according to the 109-year Taiwan Household Income and Expenditure Survey published by the Accounting Office of the Executive Yuan. The average annual savings amount per person was rounded to NT$90,000. If a person has worked for ten years and accumulated a deposit of 900,000 yuan, the person’s The "FIRE Independence Index" is 18.75% (= 900,000 yuan in existing deposits ÷ 4.8 million yuan), and there is still a lot of room for efforts to achieve 100% "FIRE financial freedom".

The "FIRE Independence Index" helps FIRE families who are just starting out to take a good look at their "saved money" and manage their spending more proactively. When the numbers required by the "FIRE Retirement Account" are gradually accumulating, the "FIRE Independence Index" also helps the FIRE family to stabilize their mood (we know that most people don't want to go to work), and continue to make a profit before completing the goal. The late-five's primary income, or, try to add some slash income to accelerate the achievement of the "FIRE retirement account" target amount.

2. "FIRE Freedom Index": Check your "FIRE Early Retirement" degrees of freedom

"FIRE Freedom Index" = Annual Passive Income ÷ Annual Expenses. The focus of the "FIRE Freedom Index" is whether you have "money makes money".

When your "FIRE Independence Index" reaches a certain level, that is to say, your "FIRE retirement account" has accumulated a certain amount of funds (note: it is your own deposit, not a loan, and liabilities must be deducted), at this time, you Can you earn passive income of "money generates money" (mainly referring to interest, dividends, dividends, rent, etc.) through proper financial planning to support your current life?

We also use the data published by the Accounting and Accounting Office of the Executive Yuan as the benchmark. Assuming that a person’s annual passive income is NT$18,000 (= deposit principal of 900,000 yuan X fixed deposit interest rate of 2%), the annual expenditure is calculated based on the basic living expenses. The resulting "FIRE Freedom Index" is 9.375% (= annual passive income of 18,000 yuan ÷ annual expenditure of 192,000 yuan). It means that if this person does not work today (no salary and slash income), his passive income can only maintain 9.375% of his living expenses, which means that this person has hardly got rid of the 9 to 5 work now, saying that he will not do it. freedom to do.

Looking positively, if a person wants to improve his "FIRE Freedom Index", so that his passive income can gradually cover daily consumption, or even achieve 100% or higher degrees of freedom, now, this person must examine the passive income structure more comprehensively , including principal growth rate, investment portfolio (taking into account principal safety), etc. The higher your FIRE Freedom Index, the less you need to see work as your only livelihood, and the more opportunity you have to retire early and focus your energy and time on what you find meaningful.

For all FIRE families, "FIRE Financial Freedom" is an ongoing journey, not an overnight one. The "FIRE Independence Index" and "FIRE Freedom Index" can help us regularly review and refine our FIRE plan during this journey, so that we can live the life we want faster.

Focus on:

Three FIRE formulas to help you achieve "FIRE financial freedom" faster:

1. "FIRE retirement account" = annual expenditure X 25.

2. "FIRE Independence Index" = Existing savings ÷ Retirement account required amount.

3. "FIRE Freedom Index" = Annual Passive Income ÷ Annual Expenses.