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Financial independence

Having enough savings, investments or other income to cover your living costs without needing a paycheck from a job.

What It Means

Financial independence (FI) is the point where the money you've built up, from investments, savings or passive incomePassive incomeIncome that keeps coming in without much ongoing work, like rent; for taxes, the IRS limits it to rentals and businesses you don't materially take part in. See more, can pay your living costsCost of livingWhat it costs to keep a certain standard of living, such as housing, food and transportation, in a given place at a given time. See more, so a job becomes a choice. Fidelity notes that reaching it doesn't require quitting: you might keep working because you like the work, and FI gives you the option to leave. People usually estimate the amount they'd need by dividing a year of spending by the share of their savings they plan to withdraw each year.

Try It: Estimate Your Financial Independence Number

Enter a year of spending and pick a withdrawal rate. Both rates are guidelines from past market data, with no guarantee.

FI number$1,200,000
Still to go$1,050,000
How far along12.5%

Each extra $1,000 of yearly spending adds $25,000 to the number at this rate.

How It Sounds at Home

  • "Our FI number is about a million and a half."
  • "I want work to be optional by the time I'm 50."
  • "We'd hit FI sooner if we cut the car payment."

The Breakdown

Formula

FI number = yearly spending ÷ withdrawal rate. At a 4% rate that's the same as yearly spending × 25, since 1 ÷ 0.04 = 25.

Worked example. A household spends $48,000 a year and has $150,000 saved and invested.

Withdrawal rateFI numberStill to go
4%$1,200,000$1,050,000
3.9%$1,230,769$1,080,769

What the result means. The number moves a lot with two inputs. A lower withdrawal rate raises it, which is why the rate you choose deserves as much thought as the spending figure. Spending moves it too: at 4%, every $1,000 cut from yearly spending lowers the target by $25,000. Build the spending figure from what you really spend, including the costs Charles Schwab's FIREFIRE movementA personal finance approach, short for financial independence, retire early, built on saving a large share of income so that work becomes optional early. See more guide flags for anyone leaving work early, such as taxes, health insuranceHealth insuranceA plan you pay a premium for that covers part of your medical costs, while you pay your own share through a deductible, copays and coinsurance. See more and prices that keep rising.

Good to Know

According to Morningstar, the 4% figure comes from financial plannerFinancial advisorA general job title for someone who helps with money and investment decisions; the title alone says nothing about their license, training or duty to you. See more William Bengen's 1994 study, "Determining Withdrawal Rates Using Historical Data." Looking back over past returns, he found a portfolio split evenly between stocks and bonds lasted at least 30 years at a 4% withdrawal rate but sometimes ran out at 5%. Morningstar stresses that the rule carries no guarantee, and its research for 2025 put the highest safe starting rate at 3.9%, assuming a 30-year retirement, half or less of the portfolio in stocks and a 90% chance the money lasts. A retirement that begins at 45 can run well past 30 years, so check Morningstar's latest research and consider asking a financial planner to test your own numbers.

FAQ

How do I calculate my financial independence number?

Divide your yearly spending by the withdrawal rate you plan to use. At 4%, that's the same as multiplying by 25, so $40,000 of yearly spending points to $1,000,000. A lower rate gives a bigger number.

Is the 4% rule safe?

It's a rule of thumb from William Bengen's 1994 study of past returns, and Morningstar notes it carries no guarantee. Morningstar updates its estimate each year, and its research for 2025 put the highest safe starting rate at 3.9% for a 30-year retirement with half or less of the portfolio in stocks.

Does financial independence mean I have to retire?

No. Fidelity describes FI as having the choice: you can keep a job you like, cut back your hours or leave, because your bills no longer depend on the paycheck.

Do It in Buhata

Goals

Set your FI number as a Goal in Buhata, a Plus tool, and update the saved amount whenever you check your balances so its progress bar shows how far along you are.

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Related Terms and Categories

  • FIRE movement

    A personal finance approach, short for financial independence, retire early, built on saving a large share of income so that work becomes optional early.

  • Safe withdrawal rate

    The share of a retirement portfolio you can withdraw in the first year, then raise with inflation, with a high chance the money lasts a set number of years.

  • Passive income

    Income that keeps coming in without much ongoing work, like rent; for taxes, the IRS limits it to rentals and businesses you don't materially take part in.

  • Savings rate

    The share of your income you save, found by dividing what you saved in a period by what you earned in that same period.

  • Coast FIRE

    A FIRE style where you save enough early that, left to grow, your investments could reach a retirement goal later without large new contributions.

Household money and budgeting

Sources

Fidelity, "How to achieve financial independence"; Fidelity, "FIRE: Financial independence, retire early"; Morningstar, "Morningstar's Retirement Income Research: Reevaluating the 4% Withdrawal Rule"; Morningstar, "The Math for Retirement Income Keeps Getting Worse"; Charles Schwab, "What Is the FIRE Movement? Financial Independence, Retire Early"; Morningstar, "What's a Safe Retirement Withdrawal Rate for 2026?"

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