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Your FI number is the dollar amount your portfolio needs to hit before work becomes optional. Here is the simple formula, and the assumptions hiding underneath it.
Every version of FI comes back to one number: how much you need invested before withdrawals alone can cover your life. It's a simple formula, but the assumptions baked into it matter more than the math itself.
Using the common 4% safe withdrawal rate, this becomes: FI Number = Annual Expenses × 25. Spend $50,000 a year, and your target is $1,250,000. Spend $30,000 a year, and it's $750,000.
We'll unpack where the 4% figure comes from — and why it's a starting point, not a guarantee — in Lesson 5. For now, treat "×25" as a reasonable planning shortcut.
Not your income. Not what you think you spend. Track actual spending for 2–3 months, or pull it from your bank and card statements for the last year. Most people underestimate this by a wide margin the first time they actually add it up.
Your FI number shouldn't just mirror your current budget. Some costs disappear (commuting, work clothes, coffee runs) and some appear (health insurance if it was employer-covered, more travel, hobbies you didn't have time for). Build a projected post-FI budget, not a copy of today's spending.
| Category | Now | Post-FI estimate |
|---|---|---|
| Commuting & work costs | $3,600/yr | $0 |
| Health insurance | Employer-covered | $7,200/yr (marketplace plan) |
| Travel & hobbies | $2,000/yr | $6,000/yr |
| Housing, food, utilities | $28,000/yr | $28,000/yr |
Withdrawals from certain accounts are taxable — a $50,000 target spend might mean withdrawing more than $50,000 to net that amount after tax. And your number needs to grow with inflation over time; $1,250,000 today buys noticeably less in 20 years. Most FI calculators build in an inflation-adjusted growth rate for exactly this reason.
Calculating your FI number once in your 20s or 30s and never adjusting it. A number that ignored kids, a mortgage, or a location change will quietly become useless. Recalculate it at least once a year, especially after any major life change.
You don't need this precise to the dollar to start planning. A rough FI number, revisited annually, is far more useful than a perfect number you never calculate because you're waiting for certainty that doesn't exist. Get a version 1 done this week.
Most FI planners exclude it, or treat it as a bonus safety net, since benefits depend on age and are decades away for early retirees. It's safer to plan as if your portfolio has to do all the work.
Usually not, unless you plan to sell it and downsize. A paid-off home you're living in reduces your annual expenses (no more mortgage or rent) but typically isn't counted as an investable asset in the ×25 formula.
Break it into checkpoints — first $100k, first $500k, halfway point — instead of staring at the full total. Coast FIRE (Lesson 2) is also worth exploring if a full early-retirement number feels out of reach on your current timeline.