“A financial independence number is derived by calculating annual spending and multiplying it by 25. The result is the amount of invested assets a worker should aim to accumulate before retiring. This number is based on a common financial planning tool called the “4 percent rule”, which says that a retiree can safely withdraw 4 percent of retirement assets each year and live from their nest egg for approximately 30 years without earning any additional income.
The 4 percent rule is a convenient rule of thumb to gauge retirement preparedness. If you’ve saved more than 25 times your annual spending, you can be reasonably assured your retirement savings will last, as long as your spending remains modest. You can also adjust for items such as pensions, Social Security, and other income-producing assets. You may need less than the value of your financial independence number if you have income coming in from other sources. However, you will need to save more than your financial independence number if you plan to increase spending on travel, hobbies, medical care, or other new costs in retirement.”
-Craig Stephens, https://money.usnews.com/money/retirement/iras/articles/4-metrics-to-measure-retirement-preparedness
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.