Calculating Your FI Number

Your FI number is the amount of invested assets you need for work to become optional. It is not a magic number or a guarantee, but it gives you a concrete target instead of a vague dream like “I want to be free someday.”

The 25x Rule

The most common FI shortcut is the 25x rule. It comes from the idea that if you can withdraw about 4% of your portfolio in the first year, your portfolio target is about 25 times your annual spending.

The formula is:

$FI\ Number = Annual\ Expenses \times 25$

Required example: $50,000/year expenses

If your annual expenses are $50,000, your estimated FI number is:

\50,000 \times 25 = $1,250,000$

That means a $1.25 million investment portfolio could theoretically support $50,000 of first-year spending using a 4% withdrawal rate.

Annual Expenses	FI Number Using 25x Rule
$35,000	$875,000
$50,000	$1,250,000
$75,000	$1,875,000
$100,000	$2,500,000
$150,000	$3,750,000

The formula shows why spending is so powerful. Every $10,000 of annual spending requires about $250,000 more in invested assets:

\10,000 \times 25 = $250,000$

This does not mean you should cut everything enjoyable. It means recurring lifestyle costs have large long-term consequences.

Withdrawal Rates

A withdrawal rate is the percentage of your portfolio you withdraw in a year. The formula is:

$Withdrawal\ Rate = Annual\ Spending / Portfolio$

If you spend $50,000 from a $1,250,000 portfolio, the withdrawal rate is:

\50,000 / $1,250,000 = 0.04 = 4%$

A lower withdrawal rate means a larger FI number and more safety. A higher withdrawal rate means a smaller FI number but more risk.

Withdrawal Rate	Multiplier	FI Number for $50,000 Spending
3.0%	33.3x	$1,665,000
3.5%	28.6x	$1,430,000
4.0%	25x	$1,250,000
5.0%	20x	$1,000,000

Early retirees often consider lower withdrawal rates because their retirement may last 40, 50, or even 60 years. A 4% rule created for traditional retirement horizons may be a useful starting point, but early retirement requires more caution.

What Expenses Should You Include?

Your FI number should be based on the spending your portfolio needs to support. That may be different from today’s spending.

Include expenses such as:

• Housing.
• Food.
• Transportation.
• Insurance.
• Healthcare.
• Taxes.
• Travel.
• Hobbies.
• Gifts and giving.
• Home and car repairs.
• Technology replacement.
• Long-term care planning.

Do not forget taxes. If much of your money is in traditional retirement accounts, withdrawals may be taxable. If your money is in taxable brokerage accounts, dividends and capital gains may matter. If you retire before Medicare, healthcare premiums can be a major cost.

Worked example: building an FI expense estimate

Suppose Maya currently spends $72,000 per year. Some expenses will change after leaving full-time work.

Category	Current Annual Cost	FI Annual Estimate
Housing	$24,000	$24,000
Food	$10,800	$10,800
Transportation	$8,400	$6,000
Healthcare	$4,800	$12,000
Travel	$5,000	$8,000
Taxes	$8,000	$7,000
Other spending	$11,000	$12,000
Total	$72,000	$79,800

Maya’s FI number using the 25x rule is:

\79,800 \times 25 = $1,995,000$

This is very different from using current expenses without adjustment. Retirement planning should reflect the life you actually expect to live.

FI Number With Partial Income

You may not need your portfolio to cover everything. If you plan to work part-time, earn rental income, receive a pension, or run a small business, your portfolio only needs to cover the gap.

The formula is:

$Portfolio\ Spending\ Need = Annual\ Expenses - Reliable\ Annual\ Income$

Suppose your annual expenses are $60,000, but you expect $20,000 from part-time work. Your portfolio needs to cover:

\60,000 - $20,000 = $40,000$

Your FI number becomes:

\40,000 \times 25 = $1,000,000$

Without part-time income, the target would be:

\60,000 \times 25 = $1,500,000$

This is the logic behind Barista FIRE and semi-retirement. Partial income can reduce the required portfolio dramatically.

Make Your FI Number a Range

Because the future is uncertain, it is better to think in ranges than one precise number. You might create three targets:

FI Level	Annual Spending Supported	Portfolio Target
Lean baseline	$45,000	$1,125,000
Comfortable FI	$65,000	$1,625,000
Abundant FI	$90,000	$2,250,000

This helps you make flexible decisions. At the baseline level, you may be able to leave a bad job. At comfortable FI, you may feel secure leaving full-time work. At abundant FI, you may have more travel, giving, or housing flexibility.

Key Takeaways

• Your FI number estimates how much invested wealth you need to make work optional.
• The basic formula is $FI\ Number = Annual\ Expenses \times 25$.
• If you spend $50,000 per year, the 25x rule gives an FI number of $1,250,000.
• Early retirees may use a lower withdrawal rate than 4% for added safety.
• Build your FI number from realistic future expenses, including healthcare, taxes, and any partial income.