🧵1/ What’s your Financial Independence (FI) Number?
Your FI Number = The amount of money you need to live off investments without running out of money.
Two common approaches to find out the FI number:
1️⃣ The Risk-Free Rate Method (conservative)
2️⃣ The 4% Rule (market-based)
2/ Let’s compare! 👇
The Risk-Free Rate Method:
1️⃣ Calculate your annual expenses (e.g., $50k/year).
2️⃣ Use the 10-yr Treasury yield as a "risk-free" return (e.g., 4.5%).
3️⃣ Subtract inflation (2.5%) to get the real return (e.g., 2%).
4️⃣ FI Number = $2.5mn ($50k ÷ 2%)
3/ The 4% Rule* Method:
1️⃣ Multiply your annual expenses by 25.
2️⃣ This assumes a 4% withdrawal rate from a diversified stock/bond portfolio.
3️⃣ FI Number = $1.25mn ($50k x 25)
*based on research by William Bengen