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  • Alex Mizerski

Your FI Number: What you need to retire early and gain financial independence

What I imagine early retirement is like
What I imagine early retirement is like

Your FI number, or financial independence number, is the amount of money you need available in your retirement accounts in order to retire. Many have recently spent a lot of time talking/writing about FIRE, or financial independence retire early. While these concepts are similar, breaking out the FI portion allows you to focus on the amount of money you need annually to live, and from there, you can guess how many years you plan to live from your current age

Let's walk through how to understand and calculate your FI Number.

Retiring early is a dream for many, but it requires careful planning and a solid understanding of your finances. One of the most important considerations when planning for early retirement is determining how much you will need to spend in retirement. This will depend on your lifestyle and the cost of living in your area, but a general rule of thumb is to plan for 80-90% of your pre-retirement income.

To determine the ideal withdrawal rate for early retirement, it is important to consider the safe withdrawal rate, which is the rate at which you can withdraw money from your investments without running out of money before the end of your life expectancy. A commonly used safe withdrawal rate is 4% per year. However, this can vary based on your investment portfolio and expected growth rate.

Expected investment growth rate is another important consideration when planning for early retirement. Historically, stocks have returned an average of 10% per year, while bonds have returned an average of 5% per year. However, it's important to remember that past performance does not guarantee future results.

Finally, it's essential to consider the risks associated with early retirement. One of the biggest risks is the possibility of outliving your savings. This risk can be mitigated by careful planning, diversifying your investments, and ensuring that you have enough money saved to last through your life expectancy. Additionally, it's important to consider how you will pay for healthcare expenses in retirement, as these can be a significant expense.

While early retirement is a desirable goal, it requires careful planning and a solid understanding of your finances. By taking the time to consider how much you will need to spend in retirement, your ideal withdrawal rate, expected investment growth rate, and risks associated with early retirement, you can create a solid plan that will help you achieve your goals. Additionally, seeking professional financial advice can help you to make the best decisions.

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