How to calculate FatFI?

To calculate your FatFIRE number, you need to understand the basics of the 4% rule and how your expenses play into it. Brad Barrett explains that the 4% rule is a guideline used to determine how much you need in investments to retire. Here's the step-by-step process:

1. Calculate Your Annual Expenses: Identify what your annual expenses will be in retirement. These expenses might differ from your current expenses, especially if you plan to pay off your mortgage or reduce other expenditures 1.

2. Apply the 4% Rule: The 4% rule suggests you can withdraw 4% of your investment portfolio annually. Thus, to calculate your FatFI number, divide your annual expenses by 0.04. For example, if you expect to need $100,000 annually, you would need $2.5 million in investments ($100,000 / 0.04) 1.

3. Use Reliable Calculators: Tools like Firecalc and Flexible Retirement Planner can help run various scenarios, including different rates of return, inflation, and other variables, to provide a more tailored estimate 2.

4. Consider Taxes and Savings Rates: Remember, your expenses should account for any changes in tax brackets. Additionally, calculate based on your actual expenses and savings rate, not just your income 1.

5. Track Your Finances: Use tools like Quicken, Mint, or Personal Capital to keep track of your expenses and ensure your plan stays on course 2.

Simply put, your FatFIRE number equals your annual expenses divided by 4%. Use online calculators to refine your estimate and keep track of your finances using personal finance tools for the best results.