FIRE: Save 50% of Salary and Retire in 17 Years

Saving 50% of salary to retire in 17 years: the dividing table

The FIRE movement promises an exit: if you set aside half of what you earn, you stop working in 17 years. The calculation comes from an early retirement calculator that crosses two variables —salary and savings rate— and that, on paper, the thread starter presents as within reach of anyone with a decent salary, between 2,500 and 3,000 euros. The problem starts right there, on paper.

Because the specific case put on the table is that of a childless couple earning 1,500 euros each in 14 installments. They are 39,200 euros net per year between the two, with an estimated expense of 30,000 —2,500 per month— and a savings of 9,200. With an estimated average return of 7% annually, the snowball of compound interest does the rest. Seventeen years later, the paycheck is replaced by income.

What is the 4% rule based on?

The mechanism supporting the entire structure is the 4% rule, known as the Trinity study. You need to accumulate between 25 and 35 times your annual expense to be able to withdraw that percentage each year without running out of funds. The calculation assumes a portfolio split 50% between the S&P 500 and US bonds, and increases the withdrawn amount each year with inflation. Under this configuration, Monte Carlo simulations give a 95% probability of not depleting capital over 25 years.

There are more prudent versions: aiming for 30 or 35 times expenses for European stocks or for those who don't want to bet everything on a fixed percentage. And a more ambitious reading: a couple with 300,000 euros invested per person needs to withdraw only 2% annually to meet the 12,000 euros required by their standard of living.

The 100% savings and real salary hurdle

Over the table looms a recurring objection: the 100% savings row. It reads as an absurdity, when it means the obvious: if your expenses are zero, you no longer need to work. With a 50% savings rate, the horizon is 17 years. With a salary of 1,300 euros and 1,000 in savings, the table's defender reduces the count to seven years. Always, of course, maintaining the same level of spending and without moving to Monaco.

The table is an approximation. The higher the salary, the more years of savings are needed to finance a year without working at the same standard of living. The question is whether the average employee can sustain this pace. In Madrid or Barcelona, the more skeptical warn, half the salary goes to rent; living on 1,500 euros is very tight. Food, however, is cheap for those who move well: meat at 50% when it expires in two days and fish given away in supermarket offers.

How much does the S&P 500 really return?

Here the numbers rule. The original calculation started with an average annual return of 7%, far below the 12.8% that, according to the forum user defending the table, the S&P 500 averages over the last 70 years. In the year this calculation was made, the US index added 13.39% and the 10-year US bond, 9.79%. Two and a half years later, the S&P 500 had accumulated, according to their count, a +40%.

The S&P Global study, cited in the thread, rounds out the picture: over the last ten years, the annualized total return of the S&P 500 reaches 14.17% and the Dow Jones 12.95%; over the last 30, the Dow averages 11.16% and the S&P 10.6%. Figures that invite euphoria… and distrust. Some argue that if the historical average is around 8%, years above necessarily require years below; another forum user replies that this depends on the companies included in the index.

Bricks, gold, or index funds?

The other battle is where to put the money, in bricks or markets. The most conservative view defends housing: the primary residence mortgage is not an expense, it is an investment, and breaks even after about five years, once taxes, notary fees, and the first years of interest are digested. The counterattack is direct: with rent, that capital remains invested and generates income; with a mortgage, the municipal capital gains tax takes its share when sold.

Gold also appears, understood as tangible money outside the banking system and without counterparty risk. A refuge with centuries of history and disputed performance that coexists with index funds, bonds, and even Bitcoin in the same basket. The practical conclusion repeated: saving without investing is useless, and money sitting idle under the mattress is devoured by inflation.

Someone who has been working for 20 years declares having saved and invested the equivalent to 18 years of expenses, with the goal set at 33 years of expenses —a 3% withdrawal rate—. At the other end, the most pessimistic calculations make it clear that two decades of savings amount to 240,000 euros, just enough for an average home plus 10% in taxes. With this range, early retirement ceases to be a formula and becomes a lottery with a variable prize.