How To Know When You’re Financially Independent

If you spend any time reading financial blogs, one of the things you’ll come across is the pursuit of Financial Independence, that stage in life where work becomes optional.  Today, we’re going to examine “FI” a bit more closely, and address the question:

How To Know When You’re Financially Independent

I’m going to give you a free tool that will help you know when you’ve achieved “FI”.   In a future post, we’ll close out the look at “FIRE” with a focus on the “RE” (Retire Early).

For now, let’s look at FI:


Achieving Financial Independence is a major milestone in life, and should be the primary financial goal for those working toward retirement.  Once you’ve achieved FI,  you have the freedom to decide if you’d like to keep working, or if you’d prefer to retire.

FI doesn’t mean “Retirement”, but it does mean that work is no longer mandatory.   A decision on “Early Retirement” cannot be considered unless you know that you will achieve “FI”.

Without 'FI', there can be no 'RE'. How Do You Know When You've Achieved 'FI'? Click To Tweet

Making work “Optional” sounds pretty good, right?

Today, we’ll look at how we know when we’ve achieved the point of Financial Independence in our lives.

Financial Independence – Defined

First, let’s have a look at the definition of Financial Independence from our friends at Wikipedia:

Financial Independence

Let’s break down the definition.

For starters, how do we know if we have Sufficient Personal Wealth To Live“?

First, you need to define how much wealth you need.   How much will you spend as you live your retirement lifestyle?  Design the life you want, and figure out how much it will cost. It’s important to get this piece right. You’ll need to make as accurate an estimate as possible, and not just guess at your annual living expenses. Don’t use a “Rule Of Thumb”, such as 80% of your pre-retirement spending.  Be methodical, and break out the spreadsheets.  Get It Right.

My wife and I did exactly that when we were building our early retirement plan, and tracked every penny we spent for 10 straight months (ugh).  We then built a Retirement Spending Plan which adjusted our actual pre-retirement spending into a forecast for our post-retirement years (more $ on health insurance and travel, less on commuting and clothes).  If you’re starting from scratch, feel free to use the Spending Tracker I’ve built specifically for this purpose.

Second, make sure you take taxes into consideration.  When you’re working, it’s easy to overlook taxes, since they come out of your paycheck before you see them.  Once you retire, you’ll be on the hook for any taxes, including those on Before-Tax IRA investments as you withdraw them in retirement.  A detailed discussion of taxes in retirement is beyond the scope of this article, but make sure you’ve made an allowance for taxes when you’re building up your spending plan.  I suspect it’s an area most people don’t analyze closely enough, and I encourage you to take the time to understand your tax situation post-retirement.

Sufficient Wealth To Live

In reality, the term “Sufficient Wealth To Live” is misleading.  What we’re really looking for is “Sufficient Cash Flow” to live.

'Sufficient Wealth' is misleading. 'Sufficient Retirement Cash Flow' is what matters. Click To Tweet

So, the goal is to have sufficient cash flow to live, without having to work actively for basic necessities.

“Without Having To Work Actively”

To Be “FI”, we need “Sufficient Cash Flow” to live, “Without Having To Work Actively”.  That definition requires our investments to generate sufficient cash flow to cover our spending needs, for Life.  The goal then is to reach the point where our Passive Income from investments is sufficient to cover our needs.  

I can hear you saying, “But I’m going to work part time in retirement!”.  That’s fine, but how does that impact FI? It comes down to WHY you’re working post-retirement.   If you work because you’ll need the money, then you’re “Not FI”, at least based on Wikipedia’s definition.  Alternatively, if you work because you CHOOSE to work (i.e., for Purpose), then you “Are FI”, and simply choosing to work for benefits beyond monetary gain.

“For Basic Necessities”

We’re not talking luxury living here.  We’re talking “Basic Necessities”, which is something each of us interprets differently.  To me, “Basic Necessity” means the things you need to live comfortably, but not “The Extras” many of us have come to expect.  No big ‘Round The World retirement road shows, no second home in the mountains.

Basic sustenance, but not too many extras.

The FI Scoreboard

Introducing The FI Scoreboard

To help you track where you are on the road to FI, I’ve created a cheat sheet for you! The cheatsheet, or “FI Scoreboard”,  is one of the simple tools I’m using to track our status on the road to FIRE. Every time I update our Net Worth, I check our “FI Score” to monitor our progress. I’ve simplified the concept for you today, and am sharing it to help you know when you’ve achieved FI.

Use your FI Score To Help Determine When You've Achieved FI Click To Tweet

First I’ll talk through the concept, and then I’ll share the spreadsheet with you.

The Concept:

Start with Your Net Worth Statement, then deduct any assets which won’t be providing cash flow for retirement. For example:

Next, we calculate the Retirement Income we’re able to generate from our “Available Assets” under various withdrawal rate assumptions.  Using the $600k from above, you can see how different withdrawal rates generate different levels of annual income:

  • 3% Withdrawal Rate       =    $18k Annual Retirement Income
  • 3.5% Withdrawal Rate    =    $21k     ”        “
  • 4% Withdrawal Rate        =   $24k     ”        “

(For the record, my wife and I are targeting a withdrawal rate below 3.5%, due in part to this excellent series from EarlyRetirementNow. It’s one of the best Withdrawal Rate series I’ve ever read.  Bottom Line:  Plan for a  withdrawal rate of 3.5% or lower.)

Finally, we add any other retirement revenue sources to calculate our total retirement income.  We then compare our retirement income to our retirement spending to create our FI Score!

Here’s The FI Score, in summary:

How do you know when you've achieved Financial Independence?

That’s the concept, now let’s look in a little more detail at the spreadsheet.

Calculate Your FI Score!

Click here to open the Google spreadsheet to calculate your own FI Score from your Net Worth Statement.  Note the page titled “FIRE Scoreboard” in the attachment (save a copy to your own drive if you want to customize it).

It’s a bit simplistic to say that this one metric can determine if you’re FI, but it’s a good indicator, and one you may want to consider.  It’s easy to set up, and it’s fun to watch the FI Score improve each year.  Just add a few rows to your Net Worth Statement, and you can monitor your FI Score every time you update your Net Worth!

What's your FI Score? Use this spreadsheet to get your number! Click To Tweet

To help you get your score, we’ll walk through the specific lines of the Scoreboard below. Then, it’s time for you to calculate your own FI Score!

How to know when you're financially independent

Here’s a description of each line, to help as you prepare your own scorecard:

Assets To Fund Retirement:  This is total assets minus non-cash generating assets, showing a growth from $427k to $600k between 2015 and 2016.

Retirement Income From Investments:  Improved from $14,963 to $21,000 one year later.  This is one of the joys of this scorecard, as you watch your retirement income grow each year.  The spreadsheet also has rows for a 3% and 4% withdrawal rate, but I’ve hidden them in this example for simplicity.

Total Retirement Income:  Add in Social Security/Pension/Other to calculate total retirement income.  Nice improvement from $60,033 to $65,885

Total Estimated Spending:  Living Expenses & Taxes are input, which leads to the final “Score”:

FI Score:   The highlight of the Scorecard.  You can see the FI Score in this example went from 94% to 108% a year later.  This one score can give you a good sense of how you’re doing on your journey toward FI.  In the fictitious case above, we could say:

“We’ve Achieved Financial Independence!”



Financial Independence is the state of having sufficient passive cash flow to meet your basic living needs.  Once you achieve this major milestone, work becomes optional.  As you work toward “FIRE”, be aware of your FI Status, and track your annual progress. Feel free to use the “FI Score” methodology from the Google Sheet in this article, or simply adapt the concept for use with your current Net Worth statement.  The FI Score can be developed with only a few minor “tweaks” to your Net Worth statement, and it provides a new metric on your financial scorecard.  I track mine and encourage you to begin tracking yours.

Your Turn:  

  • Do you track your FI status?  
  • What tools do you use?
  • How does it compare with the FI Scoreboard approach presented here?  

I look forward to your comments, as always!



  1. Great metric, Fritz. Never heard of the FI Score before. Just calculated our FI Score based up on 3% and came up 139%. Having low living expenses really helps. Our annual living expenses are just shy of $40k, and that includes $10k for travel. My mini pension of $19k is also a big help. Damn, I wish I would have known about this metric sooner. I could have retired a year or two earlier. Meh.

    1. Hey Groovy! I’m excited that someone else has run their “FI Score” (BTW, the reason you’ve never heard of it is because I just invented it!). I don’t think I’d ever encourage anyone to retire if their score is right at 100, there’s simply too much risk in the formula. At an FI Score of 139%, I’d say you’re in great shape as an early retiree!

      1. You don’t invent anything this is call a funded ratio and been use for several years by the insurance industry also boglehead forum has several discussion about it

  2. I’m liking the FI Score! I have a somewhat similar score board that I’ve tracked over the years as my investment balance has increased as well as for changes in my expected post-retirement living expenses.

    And you’re right, I think many folks forget about the tax! Coincidentally I posted about assessing the hidden tax in investments yesterday and next week I’ll follow up with a post on how to minimize taxes in retirement. The goal —> Never Paying Tax Again in Retirement!

  3. Great tool to have. Interestingly, I’ve basically done the same calculations (and did remember to account for taxes) but I was not as organized as you with your FI score. I’m just about at FI but what’s holding me back from RE is the accuracy of my annual expense estimate. I agree that an FI of 100% is not sufficient especially when accounting for inflation and am wondering if you have plans to add in an inflation adjuster? Only my SS income when I retire is indexed and for how long that will last no one really knows. To be safe, I’m starting with a 3% withdrawal rate, which I plan to increase every couple of years until I get to 4%.

    We seem to have a major unexpected expense every few years that throws our annual expense estimate out of whack. I’ve tried to factor this in by distributing an additional 2 thousand dollars of expenses over the 25 years I’m projecting.

    Though we haven’t had any major health expenditures yet, it’s a growing concern and I’ve seen friends/family who have heath insurance and still have had some major out of pocket costs in the last couple of years but I’m not sure how to project for these additional costs. I may have to raise that two thousand figure for major unexpected costs to three thousand.

    I’d be interested in learning what assumptions others have used to project their living expenses over the next 25 or so years.

    Perhaps a 125% FI score would be good to aim for? Using your spreadsheet, I plan to run some different scenarios to arrive at a conservative score I’m comfortable with.

    Thanks for starting a discussion on this overlooked topic. Paul

    1. Good comments, Paul. I’ve built in an “unexpected” account in our retirement budget, and plan on using it to capture those things which we should expect, we just don’t know when (e.g., new roof, furnace, water heater, cars). I’ve amortized all of the major expenses (cost to replace / expected life time), and have something like ~$500/month planned for the “unexpected” account (includes a car replacement every 8 years).

      I agree, due to the inexact science of all of this, a target of something like 125% FI Score makes sense, depending on how conservative you are in your retirement spending assumptions. I agree with your concern about retirement. On the other extreme, the “One More Year” Syndrome is real, and there comes a time when you just need to pull the trigger. I’m planning a “One More Year” post shortly, it’s a nice compliment to this post on the FI Score.

      1. I look forward to that “one more year” syndrome article. I’m in that boat right now as I plan to retire in less than a year. After spending a lifetime working and receiving a steady paycheck, it’s a difficult shift to realize I have to rely on my lifetime of savings (plus SS) for the rest of the way.

        At this point, it’s more of a psychological than financial problem since I’ve been fairly conservative in my modeling and have already put in that extra year. I’m anxious but realize it’s time to finally pull the trigger or else what was the purpose of saving and investing the past 35 years.

  4. I think races defijitly get glazed over in our FI world but that’s because some of these
    Peeps are so stinking smart they aren’t payin any! I will be factoring in taxes because I doubt I will ever be showing no income or a low enough income for it to create a $0 tax bill…then again, maybe once I hit FI I will have all the time in my hands to figure it out! This is part of the reason I have a big cash cushion… so I can live for a year and two without making anything and instead transfer chunks of my traditional to my Roth with the lowest tax bracket. Anywho, not the scope of the post!! The calculated sounds fab and I will be sure to check it out in 2 weeks when my financial celibacy
    month comes to an end. 😉

    1. Hey Miss Mazuma! I agree taxes tend to get glazed over, but the closer I’m getting to my retirement date, the more I realize the importance of getting them right! I’d love to have a $0 tax bill, but know I won’t. Therefore, best to plan for it, and get your estimate as accurate as possible before you decide to retire! I’m proud that you’ve continued your financial celibacy, sorry for the temptation with the “Net Worth” post today!

  5. FI score, love it! The sheet looks great too. I track how we are progressing to FI but not in such a clever way. I’ll definitely add this to my methods. Thanks, Fritz!

    Hope the move is progressing nicely!

  6. Great explanation. Funny how we all interpret “basic needs”! I have heard much about ERN but have yet to read the series in great detail. Will head that way now…I like the idea of year to year tracking/scoreboard. I am motivated by the numbers and seeing progress is one of the best ways to stay on the road.

  7. Love this tool. I need to spend some quality time reviewing my expenses over the past year. Luckily I put almost everything on my credit card (and pay it off monthly) and have a pretty good idea where any cash is spent. This will help me decide ER this year or next. I don’t turn 59.5 until next spring but my office is moving next month and my daily commute will now top 5 hours (up from 3.5) a day. I still enjoy my work and really want to work another year but I’m just not sure about the commute. A quick run through of this tool tells me I am FI and can take ER whenever the commute wears me down. All of the other models were telling me the same thing but they seemed a bit generic. This one gives me a lot more comfort in making the decision because it is more focused on what I need to cover basic expenses and it also confirms that I’ll have enough to cover my travel plans too. Numbers are working at 3 and 3.5% and I know my expenses will plummet in a few short years when the mortgage is paid off so the ratios will then exceed 150%. Thanks!

  8. Good start. I am assuming you have a very good Medigap policy to handle major health expenes. Also the big wild card is LTC expenses. Do your current expenses include those costs or are you winging that?

  9. Taxes are not cool in retirement!! Great article, glad when I used your calculation formulas that my FI score was a bit over 200 @ 3.5 %. If it would not have been I think I would have stayed retired anyway. BTW – I always read all the comments, even when I don’t post myself because I learn so much from them too. I’ll. E adding the @The Green Swan to my reading list. All the Best you as you continue to help us all move forward!!

  10. Thanks for providing this tool and doing a step-by-step walk through. I do track our FI status using the spreadsheet that the Mad FIentist created (available here: However, I think crunching the specific numbers like you show can be really helpful to allow people to better understand the different aspects of what it really takes to be fully FI.

  11. Damn, how could i forget the taxes. While it may seem common sense after someone tells you, its really not intuitive. Its hard to pay taxes, when you dont earn any money through payroll in a given year. When I look at my 401k balances, i think all of that as my money. It doesnt seem so after reading this article. I am almost managing a portion of govt’s money for them. Imagine drawing out money from your own personal 401k, and giving a share of that to govt in the form of tax….How can I go to sleep now….

  12. We do track our FI statuts, it is called the amber index.

    It has flaws. It assumes a 4pct SWR (I do love the ERN series), and it ignores my option trading income
    Also, we do not track progress compared to basic spending, we track it compared to desired life style spending. It thus includes a big travel budget.

  13. Awesome post! Yup, 3.5% is the new 4%! Many, many thanks for the shoutout!
    How do you deal with the potential staggered timing of FIRE, then pension, then Social Security? For very young FIREees (new name, maybe I should trademark this?) it’s probably safe to assume close to zero Social Security/Pension in that calculation. But for folks in their 50s with Social Security not too far away it would be good to explore what’s the appropriate “haircut” one has to apply to the expected Social Security benefits at age 67. Cheers!

    1. BIG ERN! Great question on staggered timing. In our case, I also built a retirement cash flow through Age 95, flowing the Social Security in at Age 70, giving my numbers a 25% cut from the projections I get from SS statement. The “FI Score” is a rough rule of thumb, and easy to track with your Net Worth. To be complete, you should look at cash flow through life before deciding to retire.

  14. Since I’ve already early retired I’m always a little scared to run one of these models to verify I made an OK decision. I mean it might say I’ve got to go find a full time job! Acckkkkkk! Relief though, I’m in good shape at like 150% plus so I feel all better. But it did stress me out for a minute so I think I’ll take a nap.

    1. Naps!? Man, I can’t wait to be retired! Sorry for inducing a few minutes of stress into your life….. 🙂

  15. Interesting calculation. Just plugged in my numbers and we’re sitting at 174%. Now it’s simply a matter of putting in a few more years of work and then we’re off to enjoy retirement.

  16. Greetings! Great post as always – really enjoy reading up on your financial facts and advice. FIRE is something we should all aspire to – but it can be much harder to accomplish these days. I really like the idea of the FI score – it gives you a solid number against an ambiguous term.

    I was wondering if you ever considered Housesitting as a means for income. It is a low-maintenance job and has the benefit of free accommodation. Housesitters have the chance to earn some money on the side while still having time to work and relax – on the job! I recommend visiting a website like to view opportunities for you!

    1. Cheryl, I’ve not thought of Housesitting, but we have consider Home Exchanges (we’d go live in someone’s home for a month, and they’d come live in ours). Lots of options out there, thanks for sharing the Housesitting idea.

  17. I can see it now… sometime in the future everyone will be checking their FI scores. Move over Free Credit Report commercials, soon enough there will be Free FI Score ads. “F-R-E-E that spells free, FI score report, baby” has a nice ring to it, don’t ya think?

  18. What an awesome concept – and you know I’m going to love it if there’s a spreadsheet involved 🙂

    Depending on what I assume for social security and pension, I’ve got a score anywhere between 33% (at 3.5% SWR) and 76% right now. My pension numbers are a bit more certain but the social security ones are tough because I have no idea what my income will be over the next 30 years and what social security payouts (and ages) will be 🙂

    Thanks for putting this together – really cool idea!

  19. Been reading your blog for a couple of months now, but first time commenting. I downloaded your spreadsheet and populated with our data. Interesting that @ 3.5% we came out at 169% … @ 53 with 54 being just 4 short months away … this just confirmed my original goal of 55 as my target age to say “good-bye” to Corporate America and do other endeavors that interest us. After reading your One More Year Syndrome link I may stay through 56 to vest in a very small pension and not leave anything on the table once I depart. The hardest part now is making it 2 1/2 more years 🙂 Best of luck in your upcoming retirement!

    1. Thanks for your loyal readership, Paul. It sounds like you’re in good shape, and you’ve got a bit of time before you need to answer the “OMY Syndrome” issue. It is, indeed, hard to leave “money on the table”, but once you have Enough, it’s enough! Good luck, please keep us posted on your progress!

  20. On the tax front, people need to remember that Social Security benefits can also be subject to income tax if certain income from other sources is too high.

  21. I was wondering how you figured out a tax rate of only 10%. I was expecting to have to deduct more taxes (something like 17%).

    1. I was looking at average tax rate, not marginal. You can simply look at a few of your past years tax returns and divide total tax paid into total income to see the significant difference between marginal and average. I need to relook at it again, but that was my logic.

Comments are closed.