FIRE simulator guide

The Custom (Monte Carlo) mode generates random returns based on mathematical probability (Bell Curve) and assumes static inflation. The Historical Mode (Block Sampling) is the institutional standard: it uses real macroeconomic data from the Jordà-Schularick-Taylor database. For this simulator, we have narrowed the data to the "Modern Era" (1950-2020). The period before 1950 has been excluded because it was a time marked by world wars and post-war periods with extreme volatility and atypical returns (especially in Europe), which would distort long-term projections. Instead of generating random numbers, the engine extracts real years from this modern period (1950-2020), applying the exact stock market returns, bond yields, and real inflation of that time. This guarantees that the real correlation between markets and the cost of living is maintained.

To offer long-term simulations (since 1950), we use Germany as a proxy for the years prior to 1999. From the creation of the single currency in 1999 onwards, the simulator uses a GDP-weighted average of the top 10 Eurozone economies (Germany, France, Italy, Spain, Netherlands, Belgium, Austria, Portugal, Ireland, and Finland). This ensures highly accurate and representative simulations of the real European macroeconomic environment.

We use Modern Portfolio Theory (Markowitz). Internally, we assign historical expected returns and volatility to each asset class (e.g., Stocks 9%/15%, Bonds 4%/5%, Bitcoin 40%/75%). When you adjust the sliders, the calculator automatically computes your weighted return and the volatility reduction due to asset correlation.

The Base Scenario (P50) is the statistical median, representing a normal market environment. The Optimistic Scenario (P90) reflects a very bullish market. The most critical is the Pessimistic Scenario (P10): it represents a lost decade of crises. If your retirement plan survives the P10 scenario, it is exceptionally robust.

By enabling Advanced Mode, you can change how you react to crises to avoid running out of money.

• The Classic Rule assumes you will always withdraw the same purchasing power (your initial withdrawal increasing every year with inflation), risking depleting your account if there is a crash.
• The Guyton Rule protects you by freezing your income if the stock market drops. Additionally, it applies "guardrails": if the market falls critically, it slightly cuts your withdrawal to save your capital; and if there is a great boom cycle, it raises your income so you can enjoy the gains.
• Variable Percentage (VPW) is mathematically the safest: it converts your withdrawal into a fixed % of your current portfolio. This forces you to tighten your belt by spending less in bad years, but allows you to spend much more in good years.

The "4% Rule" states that you can safely withdraw 4% of your portfolio per year. However, if the stock market suffers a severe Crash in the first two years of your retirement, withdrawing money will accelerate the depletion of your account. This is called Sequence Risk. In our tool, you can add "Stress Events" to simulate these crises. If the chart reaches 0, an alert will appear indicating your probability of bankruptcy (Risk of Ruin).

Traditionally, retirement calculators assume you will maintain the same asset allocation (e.g., 80% Stocks / 20% Bonds) throughout your life. However, this is financially dangerous. If you keep 80% in stocks and the market crashes the exact year you retire, Sequence of Returns Risk could ruin your plan.

Our Dynamic Portfolio (Glidepath) feature solves this by allowing you to schedule risk transitions based on your age. The strategy most recommended by advanced financial planners is the "Bond Tent":

• Accumulation Phase: You maintain an aggressive profile while young (e.g., 90% stocks) to maximize growth.
• The Shield (Retirement): You reduce risk to a conservative profile right in your retirement year (e.g., 60% stocks / 40% bonds). If a market crash happens in those early years, your bonds will cushion the blow.
• Recovery Phase: You gradually increase your stock exposure again during retirement so inflation doesn't eat your savings by age 85.

The simulator engine doesn't make sudden "jumps": it mathematically interpolates your portfolio continuously, month by month, crossing your exact age in the simulation with the actual market volatility at that time.

For those who don't want to wait for full retirement to improve their lifestyle, there are variations of the FIRE movement that you can simulate using our quick presets:

• Coast FIRE: This involves saving and investing aggressively during your early working years. Once your portfolio reaches a critical mass, you stop contributing money entirely ("coasting"). Compound interest will multiply that capital until your traditional retirement age, allowing you to spend 100% of your current income without worrying about saving.
• Barista FIRE: Ideal for those tired of corporate stress. You save enough so your portfolio covers a portion of your expenses, allowing you to quit your main job and take a part-time role (less stressful or a passion project, hence "Barista"). Your new salary covers basic expenses, and your portfolio covers the rest.
• Flamingo FIRE: A middle ground. It consists of working intensely until you accumulate exactly half (50%) of your FIRE goal. At that point, you stop contributing and transition to a more relaxed job. Mathematically, thanks to the rule of 72, your portfolio will double on its own in about 10 years, reaching 100% of your goal with no additional effort.

Instead of relying on the generic 4% rule, the SWR button uses a binary search algorithm in your browser (WebAssembly). It runs multiple Monte Carlo simulations locally to find the initial withdrawal percentage with about a 95% success rate.

• What IS included: Your initial capital, simulation years (life expectancy), portfolio allocation (expected return and volatility), inflation, broker fees, progressive tax brackets, and initial unrealized capital gains.
• What is NOT included: Manual cash flows, extraordinary extra income, real estate, or public pensions. The SWR assumes a pure scenario: you retire today and live solely off withdrawing that inflation-adjusted percentage annually.