More and more people now want to retire early but very few of them know what it will take and if they are ready to do so. Financial Independence, Retire Early (FIRE) has gained a lot of popularity among the younger generation, especially Gen Z. It is a concept that helps people plan early retirement, as opposed to the conventional retirement age of 60 years.
Today’s younger generation is very different from their parents’ generation in how they spend money, how they view their jobs and how they build their lives around work. The age-old idea of retiring when you reach the age of 60 years doesn’t sit well with many people. As a result, they are constantly looking for ways to achieve financial independence much earlier in life. Many people want to accumulate a decent amount of money by the age of 40 or 50 and enjoy the rest of their lives on their own terms.
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An interesting thing to note is that FIRE may be achievable for people who earn exceptionally high incomes early in their careers. For others, such as those with modest incomes, higher responsibilities or slower income growth, early retirement may still feel like a distant dream.
Let’s understand how much money you need to be financially independent.
What is the 25× rule?A thumb rule of personal finance states that you can aim to achieve financial independence by building a corpus that is 25 times your annual expenses.
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So, if you spend about Rs 8 lakh a year, you would need around Rs 2 crore to live comfortably. If your expenses rise to Rs 10 lakh, your target amount increases to Rs 2.5 crore.
The main logic behind this rule is that you can withdraw around 4% of this corpus each year and still give your investments a reasonable chance of lasting long enough, especially if part of the money is invested in equities.
Why FIRE followers swear by the 25× ruleEssentially, FIRE isn’t about quitting work young. It’s about reaching a point where work becomes a choice, not a compulsion.
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The 25× rule helps you focus on expenses rather than income. You can earn more, but if you control your expenses, you may reach your target faster. Cutting your annual expenses by even Rs 2 lakh can reduce the required corpus by Rs 50 lakh.
How can you use the 25× rule?Many investors use their current expenses and lifestyle as a benchmark to extrapolate their future needs. However, expenses after retirement may not remain the same, as new costs such as healthcare, insurance or travel can emerge.
That’s why many FIRE planners quietly upgrade the rule to 27× or even 30×, especially if they plan to retire early and live off their corpus for decades. Think of the 25× rule as a threshold, not a hard-and-fast number.
Drawbacks of the 25× ruleThe 25× rule is a useful guide, but it isn’t a guarantee. A prolonged market downturn, an unexpected medical expense or a sharp rise in inflation can put even well-planned finances under pressure.
That’s why FIRE isn’t really about quitting work overnight. It’s about giving yourself the freedom to slow down, take a break, switch careers or work less, without constantly worrying about money.
Another idea that is gaining traction among Gen Z alongside FIRE is micro-retirement. Instead of waiting decades to retire permanently, micro-retirement encourages people to take planned breaks from work at different stages of life, whether to travel, upskill, spend time with family or simply recharge before returning to work.
The 25× rule can also support this approach. By building a financial cushion early, individuals can fund short career breaks without dipping into long-term retirement savings or taking on debt. In essence, FIRE doesn’t always have to mean retiring early forever, it could also mean buying time and flexibility along the way.
The 25× rule cannot tell you exactly when to retire. But it can give you a ball park figure of what your retirement corpus should look like. When used with sincerity, it helps you work steadily towards financial independence by consistently saving for a single, well-defined goal.