Plain-language definitions for every concept in the BridgeToFI calculator. No jargon walls, no finance degree required.
The total amount of savings you need to retire. The standard formula is 25 times your annual spending. If you spend $60,000/year, your FIRE number is $1,500,000. This is based on the 4% safe withdrawal rate. Some early retirees use a higher multiplier (28x or 30x) because their money needs to last longer.
The years between when you retire early and when your retirement accounts become penalty-free (typically age 59.5). If you retire at 45, your bridge period is roughly 15 years. The central question: do you have enough accessible money to cover expenses during this gap?
P1 (Bridge): Money you can spend right now with no penalties. Brokerage accounts, savings, CDs, crypto, I-bonds. Spend this first. P2 (Reserve): Money with soft restrictions. Roth IRA contributions (not earnings), HSA for medical. Accessible, but better held as backup. P3 (Locked): Money trapped behind penalties until 59.5. Traditional 401k, 403b, IRA, Roth earnings. This is what you're building a bridge over.
The percentage of your portfolio you withdraw in the first year of retirement, then adjust for inflation. The famous 4% rule says a 4% initial withdrawal should last 30 years. But it was built for traditional 30-year retirements. For early retirees with 40-50 year horizons, 3.25% to 3.5% is safer.
How close you are to your FIRE number, shown as a percentage. At 75% you have three-quarters of what you need. At 100%+ you've hit financial independence. But there's a catch: you can be at 100% overall yet still have a bridge gap if most of your money is locked in P3 accounts.
A specific way the IRS measures your income that determines eligibility for ACA subsidies, IRMAA surcharges, Roth IRA contribution limits, and more. Starts with your regular AGI (Adjusted Gross Income), then adds back certain deductions. For most people, MAGI equals AGI. Includes: wages, capital gains, dividends, Roth conversions, Social Security. Does not include: Roth contribution withdrawals, HSA medical distributions.
A regular investment account with no special tax advantages or withdrawal restrictions. You can buy and sell anytime. Gains are taxed as capital gains (lower rate for long-term holdings). This is typically your primary bridge money (P1) because there are no penalties for early access.
Employer-sponsored retirement accounts funded with pre-tax dollars. Contributions reduce your taxable income now, but withdrawals are taxed as ordinary income later. 10% early withdrawal penalty before 59.5 (with some exceptions like Rule of 55 and SEPP). Usually classified as P3 (locked).
An individual retirement account funded with pre-tax or after-tax dollars. Works similarly to a 401k for tax purposes. Withdrawals before 59.5 incur a 10% penalty (with exceptions). Often the source account for a Roth conversion ladder.
A retirement account funded with after-tax dollars. Money grows tax-free, and qualified withdrawals are tax-free. Key feature for early retirees: contributions (not earnings) can be withdrawn at any age without penalty or tax. This makes Roth contribution basis P2 money. Roth earnings are P3 (locked until 59.5 and 5 years).
A 401k funded with after-tax dollars (like a Roth IRA, but through your employer). Contributions and earnings can be withdrawn tax-free in retirement. Unlike a Roth IRA, you generally can't separate contributions from earnings for early withdrawal. Can be rolled to a Roth IRA after leaving your employer.
A triple-tax-advantaged account: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. After 65, non-medical withdrawals are taxed like a Traditional IRA (no penalty). Key perk: HSA medical withdrawals don't count toward MAGI, preserving ACA subsidies.
A strategy where you move money from a Traditional IRA/401k into a Roth IRA each year during early retirement, paying income tax at a low rate. After 5 years, each converted amount becomes available for penalty-free withdrawal. This effectively converts locked P3 money into accessible funds over time, one year's worth at a time.
An IRS rule that lets you take regular withdrawals from retirement accounts at any age without the 10% early penalty. The catch: once you start, you must continue for 5 years or until age 59.5, whichever is longer. The annual amount is calculated from your account balance and life expectancy. Useful when bridge funds are running low.
If you leave your employer during or after the year you turn 55, you can withdraw from that employer's 401k without the 10% penalty. Only applies to your current employer's plan, not previous ones. Lets you access P3 money early without the complexity of SEPP.
A "what if" scenario in BridgeToFI where you redirect monthly contributions from tax-deferred accounts (401k, IRA) into taxable brokerage accounts instead. This builds accessible P1 bridge funds faster at the cost of losing the immediate tax deduction. Useful if your bridge period looks underfunded.
Instead of withdrawing a fixed dollar amount every year, you withdraw a percentage of your portfolio. In the BridgeToFI calculator, this is called "Flexible Spending" and uses three settings: Good Years (the max withdrawal rate when your portfolio is above the line), Tough Years (the min rate when it drops below), and The Line (a percentage of your starting portfolio that triggers the switch). For example, with 5% / 3% / 100%: if your portfolio grows above its starting value, you spend 5% per year. If it drops below, you tighten to 3%, giving it room to recover.
Why the 4% rule fails at 40Converting just enough Traditional IRA money to Roth each year to "fill up" a low tax bracket. In early retirement when your income is low, you can often convert $30,000-$70,000 at the 10% or 12% federal rate. This saves money compared to withdrawing it later at a higher rate when RMDs and Social Security push your bracket up.
Tax on profit when you sell investments. Short-term (held less than 1 year): taxed as ordinary income. Long-term (held 1+ years): taxed at preferential rates of 0%, 15%, or 20% depending on your total income. Many early retirees with low income qualify for the 0% long-term rate, making brokerage withdrawals essentially tax-free.
The IRS requires you to start withdrawing money from Traditional IRAs and 401ks starting at age 73 (as of 2023 SECURE 2.0 Act). The amount is calculated from your account balance and a life expectancy table. These forced withdrawals increase your taxable income, which is one reason early Roth conversions are valuable: convert now at a low rate to avoid larger RMDs later.
The original amount you invested, before any gains. When you sell an investment in a taxable account, you only pay tax on the gain (sale price minus cost basis), not the full amount. A $100,000 brokerage account with a $70,000 cost basis has $30,000 in gains. Only that $30,000 is taxable when sold.
The total amount you have personally contributed to a Roth IRA over the years (not including growth or conversions). This amount can be withdrawn at any time, at any age, without tax or penalty. If you've contributed $50,000 to your Roth over the years, that $50,000 is always accessible. This is why Roth contributions are classified as P2 (reserve) rather than P3 (locked).
An amount of income you don't pay federal tax on. For 2025: $15,000 for single filers, $30,000 for married filing jointly. This means the first $30,000 of a married couple's Roth conversions effectively has a 0% federal tax rate. It's the foundation of the tax bracket filling strategy.
Before age 65, most early retirees buy health insurance through the ACA (Affordable Care Act) marketplace. Subsidies (premium tax credits) reduce your cost based on income. Under cliff rules, the subsidy drops to zero if your MAGI exceeds 400% of the Federal Poverty Level. For a 2-person household in 2026, that threshold is about $81,760. Going $1 over can cost $10,000-$25,000/year in lost subsidies.
A Medicare surcharge for higher-income beneficiaries starting at age 65. If your MAGI from 2 years ago exceeds $109,000 (single) or $218,000 (joint) in 2026, you pay extra for Part B and Part D. Unlike ACA, IRMAA uses a two-year lookback, so income decisions at age 63 determine your Medicare costs at age 65. Surcharges can add up to $578/month per person.
Health insurance expenses from early retirement until age 65, when Medicare eligibility begins. This is often the largest single expense early retirees underestimate. Options include ACA marketplace plans (with potential subsidies), COBRA (temporary extension of employer coverage), health sharing ministries, or private insurance. BridgeToFI models this as a separate expense that ends at your Medicare age.
A method that tests your retirement plan against 1,000+ randomized market scenarios. Instead of assuming "7% returns every year," it models the full range of possible outcomes, including bad sequences of returns early in retirement. Your success rate is the percentage of scenarios where your money lasts. 80%+ is generally considered solid. BridgeToFI lets you test either "does my money last to end of life?" or "do my bridge funds last to unlock age?"
A single scenario test that simulates your plan through a specific market crash, like the 2008 financial crisis, the 2000 dot-com bust, or a custom drawdown you define. Unlike Monte Carlo (which is probabilistic), a stress test asks "what happens to my plan if this specific bad thing occurs right after I retire?"
The danger that poor market performance early in retirement permanently damages your portfolio, even if long-term averages are fine. A 30% crash in year 1 of retirement is far more destructive than a 30% crash in year 15, because you're selling assets at depressed prices to fund spending. This is the core reason Monte Carlo simulations are more meaningful than flat-rate projections.
The basic projection mode where you choose a fixed annual return (like 7%) and the calculator shows one outcome. Simple to understand, but it hides the range of possible results. Think of it as the "average case" that may not match your actual experience. Monte Carlo and Stress Tests are more realistic because they account for market variability.
A movement focused on aggressive saving and investing to reach financial independence decades before the traditional retirement age of 65. The core idea: save 50%+ of your income, invest in low-cost index funds, and retire when your portfolio can sustain your spending indefinitely.
Reaching financial independence on a lean budget, typically under $40,000/year in spending. Requires a smaller portfolio (roughly $1M at 4%) but demands long-term comfort with frugal living. Common in lower cost-of-living areas or for single individuals.
Financial independence with a generous lifestyle budget, typically $100,000+ per year. Requires a larger portfolio ($2.5M+) but allows for travel, dining, hobbies, and a comfortable cushion. The target for higher earners who don't want to dramatically cut spending.
Reaching "enough" savings that a low-stress, part-time job covers the gap. The part-time work often provides health insurance (the "barista" reference), which solves the pre-Medicare coverage problem. You don't need your full FIRE number because the side income supplements your portfolio withdrawals.
The point where your existing investments will grow to your full retirement number by traditional retirement age (60-65) even if you never contribute another dollar. After hitting Coast FIRE, you only need to earn enough to cover current expenses. You can take a lower-paying job, go part-time, or switch careers without worrying about retirement savings.
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