How to calculate your FI number
Start from spending, not income. Your salary also pays payroll tax, income tax on wages and the money you save, and none of that has to be replaced once you stop working. Add up a normal year of living costs from bank and card records, then add the income tax your withdrawals will trigger.
Next, subtract income that will last the whole period, such as a pension already being paid, net rental income or part-time work you actually want to keep. Income that starts later, like Social Security, needs its own treatment, covered below.
Finally, divide by a withdrawal rate. A 4% rate gives the familiar 25 times spending; 3.5% gives about 28.6 times and leaves more room for a retirement of 40 years or longer. FINRA notes that expert opinion on withdrawal rates tends to cluster between 3% and 5%; where you land depends on how long the money must last and how flexible your spending can be.
To track progress, divide your invested assets by your FI number. The percentage shows how much of your spending the portfolio could already support, and the FI ratio extends the same test by counting pensions and other reliable income.
What goes into the spending figure
Build the figure for the life you plan to live after work, not today’s budget with the commute removed, and state it at today’s prices, because the research behind common withdrawal rates assumes withdrawals that rise with inflation. A useful test is to live on the figure for a year while still working. If it feels tight, the number is too low, and that is far easier to discover with a paycheck than without one. Four costs are easy to leave out:
- Tax on withdrawals. Money from a traditional IRA or 401(k) is taxed as ordinary income, qualified Roth withdrawals are tax-free, and brokerage sales are taxed only on the gain.
- Health insurance until Medicare at 65. For 2026 coverage, the marketplace premium tax credit generally requires household income between 100% and 400% of the federal poverty level; above 400% there is no credit at all.
- Irregular costs such as cars, roofs and big trips. Spread them into a yearly amount, the way a sinking fund does.
- Housing that changes. A mortgage that ends in year eight should not be multiplied as if it lasted for life, while property tax, insurance and upkeep continue as long as you own the home.
Common mistakes
Most errors in an FI number come from the spending side, not the arithmetic, and any miss is multiplied: underestimate yearly spending by $4,000 and, at a 4% rate, the target comes out $100,000 short. The number also goes stale when a new house, a child or a costlier routine changes what you spend, so recalculate it at least once a year and whenever your life changes. Watch for these slips:
- Basing the number on income instead of spending, which inflates it by what you now save and pay in payroll tax.
- Leaving out the income tax on withdrawals from pre-tax accounts.
- Treating 4% as proven for a 50-year retirement; the best-known studies judged success over 30-year retirements.
- Letting lifestyle inflation raise spending without raising the target.
Illustrative numbers
An FI number for a household spending $64,000 a year
- Annual spending
- Yearly living costs at today’s prices, plus the tax on the withdrawals that pay for them
- Reliable income
- Income expected for the whole period, such as a pension or net rent
- Withdrawal rate
- The share of the portfolio you plan to take in the first year, such as 4% or 3.5%
Income that starts later, such as Social Security at 62 to 70, lowers the long-run need but not the bridge years before it begins.
Living costs, after tax$64,000
Estimated tax on withdrawals$6,000
Yearly withdrawal needed$70,000
FI number at 4% ($70,000 × 25)$1,750,000
FI number at 3.5% ($70,000 ÷ 0.035)$2,000,000
Invested today$700,000
At a 4% withdrawal rate this household is 40% of the way to its FI number. Choosing 3.5% for a longer retirement raises the target by $250,000 and puts it 35% of the way there; the savings rate then decides how quickly either gap closes.
At a glance
FI number by yearly spending from the portfolio and withdrawal rate
| Yearly spending from the portfolio | At 4% (25×) | At 3.5% (about 28.6×) | At 3% (about 33.3×) |
|---|---|---|---|
| $30,000 | $750,000 | $857,143 | $1,000,000 |
| $40,000 | $1,000,000 | $1,142,857 | $1,333,333 |
| $60,000 | $1,500,000 | $1,714,286 | $2,000,000 |
| $80,000 | $2,000,000 | $2,285,714 | $2,666,667 |
| $100,000 | $2,500,000 | $2,857,143 | $3,333,333 |
| $150,000 | $3,750,000 | $4,285,714 | $5,000,000 |
Put it in your plan
FI Number in MoneyWhatIf
MoneyWhatIf handles the tax step for you: when a plan draws on an account to cover a year’s spending, it solves for the gross withdrawal that pays both the spending and the tax the withdrawal creates, including the 10% penalty on pre-tax money before 59½ unless a modeled exception applies. The Dashboard’s goals panel can hold a financial-independence goal, stated at today’s prices, and checks when a safe withdrawal can cover spending. To put a date on your number, add a life milestone for net worth reaching a multiple of annual spending, measured on a recent three-year average, and let your retirement date follow it.
Common questions
FI Number FAQs
Should an FI number use today’s dollars or future dollars?
Use today’s dollars and expect the number to grow with prices. The CPI-U rose 3.4% in the 12 months to August 2026, so a household whose FI number was $1.5 million a year earlier would need about $1,551,000 for the same lifestyle. Your portfolio is expected to grow too, which is why progress is best measured against an inflation-adjusted target.
Is $1 million enough to be financially independent?
It is if your spending fits. At a 4% withdrawal rate, $1 million supports about $40,000 a year, including the tax on withdrawals, on top of any pension or Social Security you receive. At 3.5%, a more cautious rate for a longer retirement, it supports $35,000. A household that spends more, or that stops work decades early with no other income on the way, needs a bigger number or some earnings.
What counts toward your FI number?
Count money you can invest and eventually spend: 401(k)s, IRAs, Roth accounts, HSAs, brokerage accounts and cash beyond your emergency fund. Pre-tax balances carry future income tax, so either value them after that tax or include it in spending, as this page does, but not both. Leave out the home you live in, cars and the emergency fund itself; a house pays no bills unless you sell, downsize or borrow against it. A paid-off home helps by lowering spending, and a rental counts through its net rent.
Does reaching my FI number mean I should retire?
Not necessarily. It means your investments could plausibly cover your spending, so work becomes a choice. Many people keep working, cut back, or change careers, and the extra years add a margin against a poor market in the first years of retirement, known as sequence of returns risk.
Social Security, pensions and the bridge years
Income that begins after you stop work lowers the long-run number but not the early years. Social Security retirement benefits can start no earlier than 62, and each year you wait up to 70 raises the monthly amount, so an early retiree often faces a decade or more in which the portfolio pays for everything.
A practical fix is to split the target in two. The long-run part covers spending minus the benefit, multiplied by your withdrawal multiple. The bridge part holds the benefit’s share of spending for each year before it starts. Suppose a household that needs $70,000 a year stops work 20 years before claiming a $24,000 benefit. At 25 times, the long-run part is $46,000 × 25 = $1,150,000, and a bridge of $24,000 a year for 20 years, ignoring growth, adds $480,000. The total, $1,630,000, is $120,000 below the $1,750,000 that leaving Social Security out would require. A pension that starts later works the same way.
The bridge years also raise an access question. Withdrawals from a 401(k) or IRA before 59½ usually owe a 10% additional tax unless an exception applies, such as the Rule of 55 for a workplace plan you leave in or after the year you turn 55, or substantially equal periodic payments under rule 72(t). Many early retirees hold bridge money in a taxable brokerage account or Roth contributions, or build a Roth conversion ladder.