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The FI Million Dollar Question: How Do You Retire Early and Live a Life That You Love?

For us, being financially independent entails having complete time control. And having control over our time was what motivated us to save and invest aggressively until we reached our goal.

You don’t have to be 65 or older to leave a corporate job and begin living a fulfilling life based on true happiness.

Can you visualize a life where you work only if you want to? Better yet, work only on what matters to you?

Now that we are early retirees, our “work” days consist of a few hours per week spent on things that we either enjoy or that are necessary for our survival rather than purely for monetary gain.

There’s a simple rule you can use as a guideline to paint that future. Use it to figure out how much money you’d need to invest to call it quits.

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The 4% rule

We had a plan in place to achieve financial independence before we retired early from corporate jobs. To achieve that plan, we calculated how much we needed by applying a simple rule that is well known in the financial community. We used the 4% rule to determine how much we needed to accumulate in income-producing assets in order to consider ourselves financially independent.

Financial advisors have a rule of thumb that you may need 75% to 85% of your current annual income for each year of retirement. That might make sense for people who don’t save much. Would that rule still apply if you have a very high savings rate? I doubt it.

For extreme savers like us, focusing on our annual expenses and applying the 4% rule made more sense. The 4% rule implies that if we multiply our future annual expenses by 25, the resulting figure is the amount of net worth we need to have in income-producing assets to be financially independent.

This is based on the fact that we are able to withdraw, on average, 4% of our portfolio annually while giving our investments a chance to last indefinitely.

The idea is that by withdrawing this amount, your investments can keep up with inflation. So, if you earn 7% on $100, you can safely withdraw 4% and leave the remaining $103 invested.

Your spending determines how much you’ll need in retirement

Let’s use our 2014 spending as an example. Including gifts and donations, we spent about $47,000. If we wanted to see how much we would need to have invested to be FI the following year, we would take that number and multiply it by 25. 

$47,000 x 25 = $1,175,000

That means we’d need a net worth of $1,175,000 in income-producing assets, or slightly more than a million dollars. This is just one example of how we calculated our expenses prior to achieving financial independence. Our spending habits have changed since we FIREd. This figure may seem startling, but don’t be alarmed; the power of compounding can help with the heavy lifting.

Maintaining a healthy standard of living

You also need to account for lifestyle inflation. If your annual expenses were to be higher, you might have to save more to achieve your goals. This is one of the reasons why people can’t keep their lifestyles when they’re ready to retire at a traditional age. They continue to spend more as time passes. This makes it much more difficult for their investments to cover their lifestyles once they retire.

When they reach retirement age, they can no longer pretend to be wealthy and must downsize. People also live unsustainable lifestyles because they spend all of their earning, which is compounded by a lack of financial education and planning.

When you factor in health issues and the high cost of health care, traditional retirement no longer sounds appealing.

If you could manage to keep the expenses down to, let’s say, $35,000 a year, then you’d only need to amass $875,000 to be financially independent. Can someone even live on $35,000 a year? Of course, income after retirement is more valuable than income earned while working.

Remember that $35,000 is a non-payroll income. There are no payroll taxes, and you will almost certainly not pay any additional taxes on that money due to the low income tax bracket.

Also, once you’re financially independent, you’re location-independent, which means you could live like a king or queen in the Caribbean or Thailand for $1,000-1,500 per month.

If your target number appears to be out of reach, according to the 4% rule, it may be time to change your lifestyle. Stop acting rich, and start becoming rich.

To see it in action, let’s take a look at some line items from our 2014 expense report.

Examples from household expenses

We spent $878 on home supplies in 2014. If we take that number and multiply it by 25, we’ll need to have invested $21,950 in order to pay for home supplies for life. That means we try to spend as little as possible and invest the rest in order to fill our FI bucket and never have to work again to buy toilet paper and other household items! Then we can wipe without worries. 🙂

white toilet paper roll on wooden floor
Photo by Vlada Karpovich on

You can also save money by changing your habits and still reap the benefits. For example, I used to spend $20 per month in books. I would have needed to invest $6,000 to maintain the $20 monthly book expense. I brought it down to $0 by getting the books from the library. Tatiana and I both use their e-book library from the comfort of our own homes now that I have more time to read.

If you use a standard Netflix plan for TV, which costs $12.99, you only need to set aside $3,897. If you pay $100 per month for cable, you’d need $30,000 invested. I could go on and on about it, but I think you get the idea. In actuality, we use Amazon Prime for TV and try to take advantage of channel subscription promos by switching back and forth as the subscriptions expire.

Final thoughts

This is the metric we used to track our progress toward financial independence. It gave us a clear picture of how many expense buckets we needed to fill. By waking up and seeing how real this was, we drastically cut our working years. In comparison to what could have taken a lifetime, we achieved financial independence in less than ten years.

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Photo by Mike B on

Unnecessary or wasteful spending can prevent you from becoming financially independent or retiring early. It can add far too many working years to your life. We were unwilling to make that trade. We preferred to spend our time doing meaningful things without time constraints, even if it meant going against the norms.

Who says you have to work a job until you die?

It’s your life. You get to dictate how you live it. And it’s definitely too short to spend more than a third of it in a cubicle!

We’d like to share the following exercise to demonstrate the power of compounding in action: Which of the following do you prefer right now? A million dollars or a single penny? If you take the penny, your money will double every day for the next 31 days.

Please leave a comment without cheating!


After dedicating 13 years of his career to Vanguard, José retired from the corporate world at the young age of 44. During his tenure at Vanguard, he expertly coordinated the production of both electronic and print educational materials for 401(k) participants. Now, he relishes in his early retirement, cherishing time spent with his family, indulging in his favorite hobbies, seeking out new experiences, and savoring meals in the comfort of his own backyard.

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Ten Factorial Rocks
6 years ago

I know I am commenting on an old post of yours, but do you believe in the 4% rule for long (>40 years) retirement horizons? I did a post on that titled Hacking the retirement calculators to arrive at a very conservative withdrawal rate of 3.27%. Not saying everyone needs to be as conservative, but I am wondering if you feel something like 3.5% is what you would now suggest compared to 4%, given the massive bull run we’ve had recently.

6 years ago

Hi TFR, you make a good point. I think that the 4% rule is a great starting point and individuals can tweak it as they go. In today’s environment, in which Jack Bogle rationalizes a 4% return on equities for the next decade, I would be more on the conservative side and go with a flexible 3-4% withdrawal rate. 3.5% is a nice middle-of-the-road compromise and it doesn’t take that many more years of work to achieve it.
I think the key to ensure that your money last is to be flexible and either spend less or make some income on the side when the markets are down.
Thanks for your comment!

Bladimir Mercedes
9 years ago

Best article I have read here. My focus in business and life has always been producing as much as possible, some times without a clear purpose on what I’m going to do with what I have produced. Thank you for this article, anyone with 2 cents of brain can see the power in the formula. Keep it coming, I’m hooked!

9 years ago

Thanks, that’s great to hear. With a clear purpose on what you’ll do with your money you’ll certainly put your energy to even better use. Awesome, keep reading and we’ll keep writing!

No Nonsense Landlord
9 years ago

Great analogies. Just save $1 a day, for a million days, and you are all set. It takes time, but the money does grow by it self eventually. And when you have a sum in the bank, it’s nice to watch it grow. Saving gets addicting.

9 years ago

Thanks. Yes, it’s amazing how it grows by itself. What a difference it would make if people would put savings first and spending later and let compounding do the rest!

9 years ago

Definitely a penny every day 🙂 — “Then you can wipe without worries”!!!! too good. Love this blog!

9 years ago
Reply to  LM

Become FI and then you can wipe without worries! We might be onto something here! It’s so exciting to read comments like this one. Thanks!

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