What annual expenses should I use?

Use your actual retirement-budget spending — not aspirational cuts or current pre-retirement spending. Include housing, food, healthcare, utilities, transportation, insurance, taxes on withdrawals, and 5-10% buffer for one-time expenses. Most people underestimate healthcare and home maintenance.

Should I use 25× or 30×?

25× for 30-year retirement horizons (traditional retirement at 65). 28-30× for 40-year horizons. 30-33× for 50+ year horizons. If you're not sure, 30× is a reasonable default for most FIRE scenarios.

Do I include Social Security in my FI number?

It's a judgment call. Conservative approach: don't count on SS, plan FI number without it — treat any received SS as a bonus. Moderate approach: reduce FI number by present value of expected SS. Given political uncertainty around long-term SS benefits, many FIRE planners use the conservative approach.

How often should I recalculate?

Annually. Expenses drift, tax laws change, market valuations shift. FI is a moving target; the formula is the same but inputs evolve.

FI MATH

The Financial Independence Formula: Calculating Your FI Number From Scratch

Financial Independence is a single equation: expenses × 25 (or 33, for longer horizons). Every other complication (taxes, healthcare, inflation, geo-arbitrage) is a modifier on that base. Here's the formula, its inputs, and the traps.

Base formula

Expenses × 25

30-year SWR

4.0%

40-year SWR

3.5%

50-year SWR

3.25%

How It Works

Your FI Number = Annual Expenses ÷ Safe Withdrawal Rate. For a 30-year retirement horizon, SWR is typically 4% (so FI = expenses × 25). For 40-year horizons (early retirees), SWR drops to ~3.5% (FI = expenses × 28.5). For 50+ year horizons, use ~3.25% (FI = expenses × 30.8). The 'expenses' input should include: housing, food, healthcare (critical — often underestimated), utilities, transportation, insurance, taxes on retirement withdrawals, and one-time expenses (amortized). For US residents pre-Medicare, ACA premiums + out-of-pocket can run $15-30K/year per couple — often 25-40% of total retirement spending. For expats in countries with universal healthcare (Portugal, Spain, Thailand), this number drops dramatically.

Where It Came From

The core FI formula traces to Bengen's 1994 paper — 'how much do I need' is the inverse question of 'how much can I withdraw'. The 25× simplification was popularized through the FIRE blogosphere in the 2010s. Mr. Money Mustache's 'Shockingly Simple Math' post (2012) is the canonical reference. Each new generation of FIRE research has refined the formula: Pfau added horizon adjustments, Kitces added dynamic strategies, modern research adds CAPE-based adjustments. The formula itself is simple; correctly specifying the inputs is where most planning fails.

Where It Breaks

Five common failure modes in practice. (1) Expense underestimation — lifestyle drift, healthcare, home maintenance, and one-time expenses all drift up in retirement. Budget real numbers, not aspirational ones. (2) Tax blindness — withdrawals from traditional 401(k)/IRA are fully taxable as ordinary income; if you need $60K net, you may need $75-80K gross withdrawals. Plan tax-aware. (3) Single-horizon thinking — your FI number today isn't static. It changes with longevity expectations, inflation, lifestyle, and market valuations. Reassess annually. (4) US-centric assumptions — if you plan to retire abroad, your expense base changes dramatically. FI in Portugal at $35K/year requires $875K; the same lifestyle in Boston requires $2M. (5) Ignoring healthcare transitions — pre-Medicare (<65) US retirees face substantially different cost structures than post-Medicare retirees. Some plans split the FI number: pre-Medicare amount + post-Medicare amount, with a bridging strategy.

Worked Examples

30-year traditional retirement

Setup: $55K annual expenses, age 65 retirement, 30-year horizon

FI Number: $55K × 25 = $1.375M

45-year early retirement

Setup: $55K annual expenses, age 45 retirement, 45-year horizon

FI Number: $55K × 28.5 (3.5% SWR) = $1.568M — about 14% more than 30-year

Geo-arbitrage FI

Setup: $55K US expenses → $28K equivalent in Portugal (with local tax), 30-year horizon

FI Number: $28K × 25 = $700K. A 49% reduction in required portfolio.

Run Your Own Numbers

Put the math behind The Financial Independence Formula to work with your own portfolio, spending, and time horizon.

Open FIRE Calculator

Research Citations

“Core 25× formula” — Bengen (1994); MMM 'Shockingly Simple Math' (2012)
“Horizon adjustments” — Pfau, Kitces (various)
“Expense underestimation in retirement planning” — Employee Benefit Research Institute, various

Related Strategies

SAFE WITHDRAWAL RATE

The 4% Rule

FIRE MATH

The 25× Rule

SWR RESEARCH

Safe Withdrawal Rate by Age

COAST FIRE

Coast FIRE

Sources

Bengen (1994), 'Determining Withdrawal Rates Using Historical Data', Journal of Financial Planning (accessed 2026-04-17)
Mr. Money Mustache, 'The Shockingly Simple Math Behind Early Retirement' (2012) (accessed 2026-04-17)
Cooley, Hubbard, Walz (1998), 'Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable', AAII Journal (accessed 2026-04-17)

Last verified: 2026-04-17

Educational content only — not individual investment advice. Retirement planning involves significant uncertainty. Consult a qualified fiduciary advisor before acting on any strategy.