Financial independence (FIRE) in Spain
FIRE stands for Financial Independence, Retire Early. The idea is to build a pot that generates enough to live on without depending on a salary. The maths is simple. What changes in Spain is taxation and some of the products.
The 4% rule and the 25 multiple
The 4% rule comes from a study of US portfolios: someone who withdrew 4% of the pot in the first year and adjusted that figure for inflation afterwards had a very high probability of not running out of money over 30 years.
Turned around, the pot you need is 25 times your annual spending. If you spend €24,000 a year, your FIRE number is €600,000. If you spend €18,000, €450,000.
Annual spending is the variable that weighs most, far more than returns. Cutting spending by €200 a month lowers the FIRE number by €60,000. That is why the first step of any FIRE plan is knowing what you really spend.
How many years are left
It depends on three numbers: what you have, what you save each month, and what return you assume. With €50,000 saved, €1,000 a month and 5% a year, you reach €600,000 in about 22 years.
Raise savings to €1,500 a month and it drops to about 18 years. If the target spending also falls to €20,000 (a FIRE number of €500,000), about 16.
The savings rate is what rules. Saving 20% of income implies about 37 years of work from zero. Saving 50%, about 17. 70%, under 9. No return compensates for a low savings rate.
What changes in Spain: tax on withdrawal
The 4% rule was calculated before tax. Here, when you sell at a gain, you pay tax on the savings base of personal income tax. For 2025 the brackets are 19% up to €6,000, 21% up to €50,000, 23% up to €200,000, 27% up to €300,000 and 30% above that.
Only the gain is taxed, not everything you withdraw. If you sell €24,000 of a fund you bought for €15,000, the gain is €9,000 and the tax is about €1,770. The effective withdrawal is lower than the gross 4%.
A common way to account for it is to calculate the FIRE number on spending plus expected tax. With a 10% effective tax on withdrawals, €24,000 becomes €26,700 and the FIRE number rises to about €667,000.
Investment funds in Spain allow transfers between funds without triggering tax, which helps reshuffle a portfolio without paying along the way. Stocks and ETFs do not have that advantage.
Pension plans: little room
In the United States, tax-advantaged accounts are the backbone of the plan. Here, the contribution limit for individual pension plans has been €1,500 a year since 2022. It is a small help: it reduces your taxable base this year, but you pay tax on it as employment income when you cash out.
For the self-employed there is a simplified employment plan with an extra limit of €4,250, up to €5,750 in total. Still far from what is needed to fund early retirement, so the bulk of a FIRE plan in Spain is built with an ordinary portfolio.
Coast FIRE and Barista FIRE
Not everyone wants to stop working at 45. There are two intermediate variants that make a lot of sense in Spain.
- Coast FIRE: you accumulate just enough that, without contributing more, compound interest carries you to the FIRE number at retirement age. With €150,000 at 35 and 5% a year, you reach about €650,000 at 65 without adding a euro. From then on you work only to cover the month's spending.
- Barista FIRE: you withdraw part of the portfolio and cover the rest with a part-time job. If the job brings in €800 a month, the portfolio only needs to cover €14,400 a year, and the FIRE number drops from €600,000 to €360,000.
What to measure each month
A FIRE plan is a curve, not a date. What is worth looking at every month is net worth with its valuation time, spending over the last twelve months, and the savings rate. With those three numbers the target year recalculates itself.
Frequently asked questions
Does the 4% rule work for a 50-year retirement?
The original study looked at 30 years. For longer horizons many people use 3% or 3.5%, which raises the multiple to 28 or 33 times annual spending.
Do I count my home in the FIRE number?
Your main home does not generate income, so it does not count towards the pot you withdraw from. It does reduce annual spending, because you pay no rent, and that lowers the number you need.
What about the state pension?
If you expect to receive it, it reduces what the portfolio has to cover from 65 or 67. Many plans calculate two phases: up to retirement with the portfolio alone, and afterwards with portfolio plus pension.