You're at a dinner party. Someone mentions they need "about two million" to retire. Someone else says $3 million. A third person insists $500,000 is plenty. All three are confidently wrong, because none of them started with the only number that matters: what they actually spend.
Your FI number isn't a round number you pull from the air. It's a precise calculation based on your annual expenses, your withdrawal rate, and your time horizon. Get it right, and you have a target worth chasing. Get it wrong, and you'll either work years too long or run out of money too early.
The short version: Your FI (Financial Independence) number = annual expenses × 25 (for a 4% withdrawal rate) or annual expenses × 28.6 (for a more conservative 3.5% rate). It's the invested portfolio that generates enough passive income to cover your life, forever. But one number is a starting point, not a final answer. Adjustments for taxes, healthcare, Social Security, and spending changes matter.
The Rule of 25: Where Your FI Number Starts
The Rule of 25 is the inverse of the 4% safe withdrawal rate (SWR). If you can withdraw 4% of your portfolio each year (adjusted for inflation) without depleting it over 30 years, then you need 1 ÷ 0.04 = 25 times your annual spending [1].
William Bengen established this in 1994 by analyzing every 30-year retirement period in U.S. market history [2]. The Trinity Study (Cooley, Hubbard, and Walz, 1998) confirmed it: a portfolio of 50% stocks and 50% bonds had a 95% success rate at a 4% withdrawal over 30 years [3].
The math is clean:
| Your Annual Expenses | FI Number (25×) |
|---|
| $30,000 | $750,000 |
| $40k | $1,000,000 |
| $55,000 | $1,375,000 |
| $75k | $1,875,000 |
| $100,000 | $2,500,000 |
That's it. Your annual spending, times 25. Every FIRE calculation starts here.
But "starts here" is the key phrase. The 25× rule assumes a 30-year retirement. If you're 35 and planning to retire at 45, your money needs to last 45 to 50 years, not 30. And 4% might be too aggressive for that timeline.
Adjusting for a Longer Retirement
Morningstar's 2025 research recommends a 3.9% starting withdrawal rate for a standard 30-year retirement [4]. For retirements longer than 30 years, many planners suggest 3.5% or even 3.25%.
Here's how the withdrawal rate changes your target:
| Annual Expenses | FI Number at 4% (25×) | FI Number at 3.5% (~28.6×) | FI Number at 3.25% (~30.8×) |
|---|
| $40,000 | $1,000,000 | $1,142,857 | $1,230,769 |
| $55k | $1,375,000 | $1,571,429 | $1,692,308 |
| $75,000 | $1,875,000 | $2,142,857 | $2,307,692 |
For Maya, a 32-year-old data analyst who plans to stop working at 50, the difference between 4% and 3.5% is $197,000 (on $55,000 spending). That's roughly three extra years of saving. Is the added safety worth three years of work? Depends on your risk tolerance. But the question is worth asking out loud, preferably before you tell your boss you're done.
A Full Worked Example
Let's run the numbers for Maya.
Step 1: Find actual annual spending
Maya tracks expenses for six months and projects her annual spending:
- Current annual expenses: $60,000
- Adjustment: mortgage paid off by age 50 (saves $18,000/year)
- Adjustment: ACA Silver health insurance added (+$8,400/year, based on average premiums for a 50-year-old after subsidies) [5]
- Adjustment: more travel in retirement (+$5,000/year)
- Target retirement spend: $55,400
Step 2: Calculate baseline FI number
$55,400 × 25 = $1,385,000
Step 3: Adjust for 40+ year retirement
Maya is retiring at 50. She needs money for potentially 45 years. Using 3.5% SWR:
$55,400 ÷ 0.035 = $1,582,857
Step 4: Consider Social Security
Maya estimates a Social Security benefit of $24,000/year at age 67 [6]. From 67 onward, her portfolio only needs to cover $31,400 ($55,400 minus $24,000).
This "bridge" model means she needs her full $55,400 covered by the portfolio from age 50 to 67 (17 years), then only $31,400 from 67 onward. The exact impact depends on the modeling tool, but it generally brings her effective FI number back down closer to the baseline of $1.4 million.
Maya's working FI number: $1.4 to $1.6 million, depending on withdrawal rate and Social Security assumptions.
Common Mistakes in FI Number Calculations
Mistake 1: Using gross expenses instead of after-tax expenses.
If your FI money is in a traditional 401(k), you need to withdraw enough to cover your bills plus the taxes on that withdrawal. A $55,000 spending need might require $62,000 or more in gross withdrawals from a pre-tax account. Plan accordingly, or prioritize Roth accounts.
Mistake 2: Including home equity.
Unless you plan to sell your house and invest the proceeds, home equity doesn't count toward your FI number. It reduces expenses (no rent or mortgage) but doesn't generate withdrawal income. Your house is a place to live, not a retirement fund.
Mistake 3: Treating the number as static.
Life changes. Kids grow up. Health insurance costs shift. Your spending at 50 won't be identical to your spending at 70. Build in flexibility. Review your number annually. A single number is a compass heading, not a GPS coordinate.
Mistake 4: Ignoring healthcare before Medicare.
This is the blind spot that catches the most people. Fidelity estimates a 65-year-old retiring in 2025 needs $172,500 in after-tax savings just for medical expenses, and that excludes long-term care [7]. For early retirees, the pre-65 healthcare gap can cost $8,000 to $20,000 per year depending on age, state, and subsidy eligibility.
The Psychology of the Number
There's a phenomenon in the FIRE community called "one more year syndrome." You hit your FI number, and instead of making a change, you think: what if the market drops 20% next year? What if healthcare costs spike? What if my spending estimate was wrong?
So you work one more year. Then another.
This isn't irrational. Sequence of returns risk (the danger of a big market drop in your first few years of retirement) is real. But at some point, overworking for extra safety has its own cost: years of freedom you'll never get back.
A practical compromise: build a 1 to 2-year cash buffer in a high-yield savings account outside your investment portfolio. If the market drops 30% in year one, you live off cash while your portfolio recovers. This reduces sequence risk without requiring you to save an additional $300,000 "just in case."
Your FI number is a target, not a trigger. Hitting it means you can stop. Whether you should stop depends on context that no formula can capture.
Your Next Move
- Track your actual spending for 90 days. Everything. Use YNAB, Copilot, or a spreadsheet. Your FI number is only as good as your spending estimate.
- Choose your withdrawal rate. 4% for a traditional 30-year retirement. 3.5% if you're retiring before 50. 3.25% if you want maximum safety. The difference is real money, not academic.
- Run the calculation. Annual expenses × your multiplier. Use our FIRE calculator to model different scenarios and see your projected timeline.
- Adjust for known future changes. Will your mortgage be paid off? Will you have Social Security? Will healthcare costs change? Build these into separate phases rather than using one static number.
- Separate your savings rate target from your FI number. Your FI number tells you where you're going. Your savings rate tells you how fast you'll get there. Both matter. Neither is useful without the other.
References
- Bankrate. (2025). "How to Calculate Your FIRE Number." Bankrate.com.
- Bengen, W. P. (1994). "Determining Withdrawal Rates Using Historical Data." Journal of Financial Planning.
- Cooley, P. L., Hubbard, C. M., & Walz, D. T. (1998). "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable." AAII Journal.
- Morningstar. (2025). "The State of Retirement Income: Safe Withdrawal Rates." Morningstar.com. https://www.morningstar.com/retirement/whats-safe-retirement-withdrawal-rate
- Kaiser Family Foundation. (2025). "Average Marketplace Premiums by Metal Tier." KFF.org. https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/
- Social Security Administration. (2026). "Cost-of-Living Adjustment (COLA) Information for 2026." SSA.gov. https://www.ssa.gov/cola/
- Fidelity Investments. (2025). "2025 Retiree Health Care Cost Estimate." Fidelity.com. https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
