Calculating Your FI Number

The One Number Everything Comes Back To

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.

The Formula

FI Number = Annual Expenses ÷ Safe Withdrawal Rate

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.

Step 1: Get Your Real Annual Expenses

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.

Step 2: Decide What Changes After FI

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

Step 3: Account for Taxes and Inflation

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.

Real Example: Calculating a Full FI Number

Using the post-FI budget table above, let's calculate an actual FI number step by step.

Step	Calculation	Result
1. Total post-FI annual expenses	$0 + $7,200 + $6,000 + $28,000	$41,200
2. Add estimated tax buffer (~15% for taxable withdrawals)	$41,200 × 1.15	~$47,380
3. Apply the ×25 rule	$47,380 × 25	~$1,184,500

This person's actual FI target is closer to $1.18M, not the $1.03M a naive ×25 calculation on the raw $41,200 would suggest — the tax buffer alone added over $150,000 to the target.

A Rough Number Beats No Number

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.

Common Mistakes

• 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.
• Copying today's budget instead of projecting a post-FI one: As the table above shows, some costs disappear and others appear — using today's numbers as-is skews the target in either direction.
• Forgetting the tax buffer entirely: As the worked example shows, ignoring taxable withdrawals can understate the real FI number by well over $100,000.

Key Takeaway: FI Number = Annual Expenses × 25 (using the 4% rule) is the starting formula, but the real work is in getting accurate post-FI expenses, factoring in taxes, and adjusting for inflation. A rough number calculated today and revisited annually beats a perfect number you never get around to calculating.

Frequently Asked Questions

Should I include Social Security in my FI number?

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.

Does my FI number include my home?

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.

What if my FI number feels impossibly large?

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.

How accurate does my expense tracking need to be?

2-3 months of actual tracking, or a full year pulled from statements, is generally accurate enough to start — you can refine the number annually as you go rather than waiting for perfect precision upfront.

Why does the tax buffer matter so much in the calculation?

Because withdrawals from tax-advantaged accounts are often taxable, the amount you need to withdraw to net your target spend is higher than the spend itself — as the worked example shows, this can add well over $100,000 to the final FI number.

Should I recalculate my FI number if I get a raise?

The FI number itself is based on expenses, not income, so a raise alone doesn't change the target — but it can speed up how fast you reach it if you save the extra income rather than increasing spending.