What is Financial Independence?
Financial Independence (FI) is the state where your investments generate enough passive income to cover your living expenses, making paid work optional. This calculator helps you plan your journey to FI using well-established principles and mathematical models.
Key Concepts
The 4% Rule (25x Rule)
The calculator uses the widely-accepted 4% rule, which suggests you can safely withdraw 4% of your portfolio annually with a high probability of never running out of money. This means your FI number is typically 25 times your annual expenses.
Real Returns
The calculator accounts for inflation by calculating real returns (nominal returns minus inflation rate). This provides a more accurate picture of your purchasing power over time.
Social Security Integration
The calculator factors in Social Security benefits to provide a more complete retirement planning picture. You can adjust both the age you'll start receiving benefits and the expected amount.
Calculator Inputs Explained
Current Age: Your starting point for the FI journey.
Current Savings: All your current retirement and investment accounts combined.
Annual Income: Your total yearly income before taxes.
Annual Expenses: Your total yearly spending - this determines your FI number.
Savings Rate: Percentage of income you save and invest annually.
Expected Return: Predicted investment return before inflation (historically 7-10% for diversified portfolios).
Inflation Rate: Expected annual increase in costs (historically 2-3%).
Understanding the Results
Key Metrics
FI Number: The target portfolio size needed (25x annual expenses).
Years to FI: Estimated time to reach your FI number.
Required Monthly Savings: How much you need to save/invest monthly to reach FI on schedule.
Charts
Portfolio Growth: Shows the projected growth of your investments over time.
Withdrawal Phase: Illustrates how your portfolio might perform during retirement, including Social Security income.
Important Notes
- The calculator assumes relatively consistent market returns, which isn't realistic but provides a useful baseline.
- All projections are in today's dollars (adjusted for inflation) for easier understanding.
- The calculator doesn't account for taxes, which can significantly impact your actual FI timeline.
- Regular rebalancing and low-cost index funds are assumed as part of the investment strategy.