How to Calculate Your FIRE Number in Australia

16 June 2026  ·  7 min read

FIRE — Financial Independence, Retire Early — has a single number at its heart. It's the amount of invested wealth at which your money could, in principle, cover your living costs for the rest of your life without you needing to work. Some people call it their freedom number. Here's how it's usually estimated, and why the Australian version has a few twists worth understanding.

The back-of-envelope formula

The most widely cited rule of thumb is simple arithmetic:

Freedom number ≈ your annual spending × 25

So a household that spends $70,000 a year would land on a figure of around $1.75 million. Spend $50,000? About $1.25 million. Spend $100,000? Around $2.5 million.

The "× 25" comes from research into historical portfolio outcomes, often summarised as the idea that withdrawing roughly 4% of a balanced portfolio in the first year (then adjusting for inflation) has historically lasted a long retirement in many scenarios. It's the inverse of 4% — 1 ÷ 0.04 = 25.

Treat this as a starting estimate, not a promise. Past performance is not a reliable indicator of future results, real returns aren't guaranteed, and the original studies were based on specific markets, time periods and assumptions that may not match your future. It's a useful first target to aim at, not a prediction of what will happen.

Why your spending number is the real input

Notice what drives the formula: not your income, your spending. The freedom number is built entirely on what your life costs. That has two implications:

• A clear picture of your genuine annual spending is the single most important input. Guess high and you'll over-shoot; guess low and you'll fall short.
• Every dollar you can sustainably trim from annual spending lowers the target by about $25. Reduce spending by $4,000 a year and the goal drops by roughly $100,000.

This is why two people on the same salary can have wildly different freedom numbers — it's a function of the life they want to fund, not the pay slip.

The Australian details that change the answer

The 25× rule was popularised overseas. In Australia, a few local realities reshape it:

• Superannuation is locked until preservation age. A large slice of most Australians' wealth sits in super, which generally can't be accessed until your late 50s or 60s. If you want to stop working before then, you need enough wealth outside super to bridge the gap — sometimes called "the bridge." Your total might hit the number while your accessible wealth doesn't.
• The family home is usually excluded. Most people don't count the home they live in toward the freedom number, because you still need somewhere to live. It's part of your net worth, but not part of the pool that funds your spending. (We unpack this in net worth vs usable equity.)
• The Age Pension exists. For many households it forms part of the long-term picture once eligible, which can mean the privately funded portion doesn't have to cover everything forever.
• Tax and franking credits make the Australian investing landscape genuinely different from the US studies the rule came from.

None of this breaks the formula — it just means the headline number is the beginning of the conversation, not the end of it.

A worked example (illustrative only)

Say a household spends $80,000 a year and wants the option to stop working at 50.

• Headline freedom number: $80,000 × 25 = $2,000,000.
• But super can't be touched until their late 50s. So they'd also think about how much needs to sit outside super to cover roughly the years between 50 and preservation age.

Same target, two different pools to fill. This is exactly the kind of thing a single number hides and a clear view of your finances reveals. (These figures are purely illustrative and not a recommendation.)

From a number to a trajectory

Calculating the number is the easy part. The useful part is watching the distance between where you are and where you're going — and seeing how a change in saving, spending or asset mix moves your projected year of independence.

That's the core of what Compound is built to do: pull your whole financial picture — property, super, shares, cash, crypto, business — into one view, separate what's accessible from what's locked away, and show the year you could reach your number at your current trajectory. The formula gives you a target. Seeing your real position is how you actually close the gap.

If you're curious how your starting point compares, average net worth by age in Australia is a useful reference — just remember a benchmark is a mirror, not a finish line.