FI Series #3 How to Calculate Your FI Number
What Is Your FI Number?
Now that you understand what financial independence (FI) means and how flexible it can be, the next question is: How much do I actually need to retire or make work optional?
That number is often called your FI Number. It represents the amount of invested assets needed to cover your annual expenses indefinitely without relying on employment income.
The Simple Formula: 25x Your Annual Spending
The most commonly used method to calculate your FI number is:
Annual Spending × 25 = FI Number
This is based on the 4% rule, which we’ll explain more in a moment. For now, here's a quick example:
If your annual spending is $40,000:
$40,000 × 25 = $1,000,000
That means you’d need $1 million in invested assets to maintain your lifestyle without needing to work.
What Counts Toward Your FI Number?
Not all assets are created equal when it comes to calculating your FI number. You should only include liquid, investable assets such as:
Retirement accounts (401(k), IRA, 403(b), etc.)
Taxable brokerage accounts
Long-term savings or investments
You should not include:
Home equity
Vehicles
Collectibles or personal belongings
While those items may contribute to your net worth, they aren’t income-producing or easily liquidated to support your lifestyle.
Estimating Your Future Spending
One of the most important variables in your FI number is your expected annual spending.
Start by reviewing your current spending (see our upcoming post on budgeting and tracking net worth), then consider how it might change in the future:
Will your mortgage be paid off?
Will childcare or college expenses end?
Will you need to pay for your own health insurance?
Will you spend more on travel or hobbies?
You have a lot more control over this number than you might think. Lower spending = lower FI number = faster path to independence.
Why 25x? Understanding the 4% Rule
The 25x formula is based on the 4% rule, a research-backed guideline that suggests you can safely withdraw 4% of your portfolio per year (adjusted for inflation) without running out of money over a 30-year retirement.
You can also think of the formula as:
Annual Spending ÷ 0.04 = FI Number
So if your spending is $50,000/year:
$50,000 ÷ 0.04 = $1,250,000
Where the 4% Rule Comes From
Bill Bengen (1994): Introduced the 4% rule, showing that a portfolio with 50–75% stocks historically survived 30-year retirements.
The Trinity Study (1998): Confirmed high success rates for 4% withdrawals across multiple time periods.
Morningstar (2022–2023): Initially recommended a lower 3.8% rate due to low return expectations, but returned to 4% as conditions improved.
Michael Kitces: Found that in many historical scenarios, retirees could safely withdraw even more than 4%.
What the Research Tells Us
The 4% rule is based on conservative, worst-case historical scenarios.
Most retirees who follow this guideline see their portfolios grow over time.
Adjustments can and should be made based on market conditions, spending flexibility, and lifespan.
So while it’s called a “rule,” think of it more as a guideline or starting point.
Creating a comprehensive financial plan is the best way to truly personalize your FI number. This involves considering additional factors like:
Other future income sources (e.g., Social Security, pensions, rental income)
Your asset allocation and expected investment returns
How long you plan to draw from your portfolio (early retirement vs. traditional)
Life goals such as travel, giving, or changing housing needs
A tailored financial plan helps you move beyond generic rules of thumb and create a strategy that aligns with your real-life vision of financial independence.
Final Thoughts
Calculating your FI number is one of the most empowering steps on the path to financial independence. It turns a vague dream into a specific target—and once you know the number, you can begin building the plan to get there.
In the next post, we’ll explore how to build the right mindset and daily habits to support your financial goals, including managing spending intentionally.
🔗 This post is part of the Financial Independence Blog Series.
Build the habits and mindset to make work optional.
📖 Previous:
FI Series #1: Why Financial Independence?
FI Series #2: What is Financial Independence?
📘 Coming Soon: Laying the Foundation: Mindset, Habits & Spending with Purpose
