The standard early-retirement formula — annual expenses divided by a safe withdrawal rate — has a hidden flaw: it treats every expense as permanent. Your mortgage isn’t. Leave a finite cost like a mortgage inside a “forever” calculation and you overstate your number, sometimes badly. Separate the expenses that end from the ones that don’t, and the real target drops.
There’s a formula almost everyone in the FIRE world runs, and it’s genuinely useful: your annual expenses divided by a safe withdrawal rate gives you the corpus you need. Spend $72,000 a year, assume you can safely draw 4%, and your number is $1.8 million.
Clean. Back of a napkin. I’ve used it for years, and I still do.
But it has a flaw I only caught when I ran my own numbers properly — and fixing it dropped my required corpus meaningfully.
The formula assumes every expense is forever
Look at what “expenses ÷ safe rate” actually does. It takes your current annual spend and assumes you’ll carry every dollar of it for the rest of your life, funded by a corpus that never runs dry.
That’s right for most expenses. Food, utilities, insurance, the ordinary cost of living — those really are perpetual, and they should be funded by a perpetual pot.
But a mortgage isn’t perpetual. It ends. It has a final payment and a date. And if you leave a finite cost inside a forever calculation, you force your corpus to fund something that will stop needing funding — which means you’re telling yourself you need more capital than you actually do.
Fund finite liabilities separately from perpetual ones
The fix is to split your expenses into two buckets before you run the formula.
- Perpetual expenses — the ones that never end. These go into “expenses ÷ safe rate.” They need a corpus behind them, forever.
- Finite liabilities — the ones with an end date. A mortgage, a car loan, a few years of school fees. These don’t need a perpetual corpus. They need a plan to clear them, handled on their own timeline.
Take the mortgage out of the perpetual line and your “forever” number drops, because you’ve stopped asking your retirement corpus to pay a bill that retires itself. The mortgage still has to be paid — but it’s a separate, finite problem, not a permanent drag on the figure that defines your freedom.
What it looks like in numbers
Say you spend $6,000 a month and $2,000 of it is the mortgage. At 4%, the standard formula says $1.8 million.
Now take the mortgage out. The perpetual spend is $4,000 a month, and the number is $1.2 million. The mortgage gets its own plan on its own clock.
That’s $600,000 of target that was never real — on a date you already know.
Why this matters more than it looks
A housing payment is often one of the largest lines in a household budget. Mis-classify it as perpetual and you can inflate your target corpus by a large multiple of it — and a bigger target means more years of work chasing a number that was never real.
This is the lesson under the lesson, and it’s the same one I keep relearning: don’t run a formula without understanding what it assumes. The arithmetic is neutral; the inputs are where you’re right or wrong. “Expenses ÷ rate” is sound. Feeding it a finite cost as if it were permanent is the error.
So before you accept the big, scary corpus number the standard formula hands you: go through your expenses line by line and ask one question of each — does this end, or does it go on forever? Fund the forever ones with the corpus. Handle the finite ones on their own clock. The number that’s left is the real one, and it’s usually smaller than you feared.
Pay it off, or invest the difference?
The arithmetic usually says invest. If the loan costs less than the fund returns, every dollar thrown at the mortgage costs you the gap.
We paid ours off early anyway. Not because the maths said so — because I was building clinics, and a building business has enough variables. A mortgage doesn’t care if a clinic has a quiet quarter. Taking it off the table meant the household floor rested on the pot alone. I bought certainty with return. That’s a trade, not a mistake — price it before you make it.
Run it yourself: the calculator gives you your date with the mortgage in and with it out. The gap between the two dates is what the mortgage is costing you in years.
I’m not a licensed financial advisor — this is my own reasoning on my own numbers, shared so you can run yours. For the full picture this sits inside, start with how to build generational wealth when you weren’t born into it.