FI number

Explanation

The FI number answers: “How much do I need invested so that my portfolio, not a paycheck, can pay for my life?” The usual shortcut is 25 times annual spending, which is the same as assuming a 4% withdrawal rate (1 ÷ 0.04 = 25). A more cautious 3.5% rate means about 28.6 times spending; 3% means 33.3 times.

Refinements that matter:

• Guaranteed income lowers it. Subtract pensions, annuities or (later) Social Security from the spending the portfolio must cover. Because Social Security usually starts later than early retirement, the gap years need their own funding.
• Taxes raise it. If much of your money is in traditional accounts, part of each withdrawal goes to tax. Your spending figure should include taxes, or your target should be grossed up.
• Time horizon. A 30-year retirement and a 50-year retirement need different withdrawal rates; early retirees often use 3.25% to 3.5%.
• Spending changes. Health insurance before Medicare, a paid-off mortgage, kids leaving home or long-term care can all shift the right number.

The FI number is a planning estimate, not a guarantee. Market returns, inflation and sequence of returns all affect whether a given balance lasts.

In scenarios, the app computes your FI number from your spending, guaranteed income and chosen withdrawal rate, then shows when your projected portfolio crosses it and how likely the plan is to last in a Monte Carlo run.

Example

You spend $60,000 a year, including taxes.

• At a 4% withdrawal rate: $60,000 ÷ 0.04 = $1,500,000
• At a 3.5% withdrawal rate: $60,000 ÷ 0.035 = $1,714,286

Now add a $20,000-a-year pension that starts when you retire:

• Spending the portfolio must cover: $60,000 − $20,000 = $40,000
• FI number at 4%: $40,000 ÷ 0.04 = $1,000,000

The pension reduces the target by $500,000.