How Much Money You Need to Be Financially Independent

Financial independence is often talked about abstractly. The reality is, financial independence is a mathematical calculation that is unique to each person and their desired income in retirement. So, how much money do you need to be considered financially independent?

The average household in the United States will need $1.95 million dollars to be considered financially independent. This is based on the median household income of $78,000 per year in 2020 using the Bengen rule of retirement.

Financial independence and retirement are definitely the same. Financial independence is usually used to describe achieving “retirement” prior to the traditional retirement age.

The table below shows how much money you need to support the corresponding annual expenses in retirement:

Annual Retirement Expenses Retirement Fund Required
$30,000 $750,000
$40,000 $1,000,000
$50,000 $1,250,000
$60,000 $1,500,000
$70,000 $1,750,000
$80,000 $2,000,000
$90,000 $2,250,000
$100,000 $2,500,000

Continue reading to learn more about calculating your financial independence number.

a picture of the fire calculator that illustrates the growth of an investment over time.

a picture of the fire calculator that illustrates the growth of an investment over time.

Retirement income must cover your expenses

The purpose of saving money for retirement is to cover the cost of living when we’re unable or unwilling to work for an income. The government does help with social security benefits, but that is not enough to support the retirement I envisioned.

How do you save enough for financial independence?

If you start investing at the age of 30 and earn an average interest of 8% per year, you need to contribute $9,000 per year for 37 years to have a net worth of $1.95 million to cover the average household expenditure of $78,000 per year.

Calculating your financial independence number

In order to calculate an accurate number for financial independence, we need to determine how much money we will need to cover our mandatory expenses in retirement. Your mandatory expenses are the amount of money you will need to pay yourself in order to eat, pay your bills, etc.

Once you have your mandatory expenses identified, you can increase your expenses to match the lifestyle you envision for retirement.

For example, you may only need $50,000 per year to cover your mandatory expenses in retirement, but you may want to retire with $70,000 per year to travel or drive a nicer car. It’s up to you.

Don’t make your retirement lifestyle fit into the confines of your net worth, but instead grow your net worth to match the retirement lifestyle of your dreams.

What is the Bengen rule of retirement?

The Bengen rule defines the safe withdrawal rate of 4% in which we can withdrawal 4% of our retirement fund and reasonably expect our money will support us for 30-years. Alternatively, you can multiply your required retirement expenses by 25 to get the total amount you will need in retirement.

For example, If we need $78,000 a year in retirement, then we need $1.95 million of invested assets ($78,000 X 25 = $1.95 million).

Use a financial independence calculator

I created this FIRE calculator to give you a visual of your current and projected retirement situation. By understanding where we are presently at compared to where we would like to be, we can make more intelligent, data-driven financial decisions to get there.

How to determine your expected retirement expenses

Understanding your current household expenses (needs vs wants) gives you a better chance at understanding what your future household expenses will be in retirement. The first step is to begin a zero-based budget so you can track where your income is going each month.

3 steps to determine your expected retirement expenses:

  1. List all of your current household expenses and amounts

  2. Remove any expenses you won’t have in retirement and subtract the costs

  3. Determine any additional expenses you foresee needing or wanting in retirement

What expenses do you have now, that you won’t have in retirement?

Your minimum expenses may be lower when you choose to retire than they are now. Many people pursuing financial independence will retire with a paid-off mortgage, or downsize into a smaller house. This can drastically reduce your required expenses in retirement.

If you have children now, it’s likely they won’t be living with you when you choose to retire. Dependents are one of the largest expenses and will definitely change your retirement needs when you’re no longer financially supporting them.

23 common household expenses:

  1. Mortgage/rent

  2. Insurance (auto, health, life, homeowners)

  3. Electricity and natural gas

  4. Water

  5. Garbage/waste disposal

  6. Household staples (toilet paper, toothpaste, etc.)

  7. Gasoline

  8. Internet

  9. Cell phone

  10. Child care

  11. Student Loan

  12. Credit card payments

  13. Auto loan

  14. Eating out

  15. Clothing

  16. Alcohol

  17. Movies and entertainment

  18. Video games

  19. Fitness memberships

  20. Travel

  21. Weekend fun

  22. Household projects

  23. Monthly subscription boxes


Your financial independence number can be calculated using simple math and financial calculators made specifically for the purpose of giving you a target to achieve. The goal isn’t to calculate our retirement number to the dollar, but it’s to give us a realistic goal post so that we can work backward from it.

Before starting on your own financial independence journey, you must first understand where your destination is so you can get started in the right direction.

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