Financial Independence Timeline Calculator

How to calculate your FI timeline?

The methodology for calculating your Financial Independence (FI) timeline is based on the intersection of your net worth growth and your annual living expenses. By compounding your current liquid assets and adding consistent monthly contributions at a chosen rate of return, we determine the point at which your portfolio can sustain your lifestyle through a safe withdrawal rate.

The relationship between future value and monthly savings is expressed through the compounding interest formula:
FV = P * [(1 + r/n)^(nt) - 1] / (r/n)
Where P is the monthly contribution, r is the annual interest rate, and t is the number of years.

Using the FI Calculator: An Example

Step-by-step calculation

• Starting Balance: The individual begins with $50,000 in invested assets.
• Monthly Savings: They commit to saving $2,000 per month from their income.
• Rate of Return: Assuming a diversified equity portfolio with an average 7% annual return.
• Outcome: The calculator projects the growth until the portfolio reaches 25x their annual expenses, signaling financial independence.

Frequently Asked Questions

How does inflation affect my timeline?
Inflation reduces the purchasing power of money over time. To account for this, it is best to use a 'real' rate of return (e.g., 7% instead of 10%) so that the final target amount is represented in today's dollars.

What is the 4% Rule?
The 4% rule is a guideline suggesting that if you withdraw 4% of your total portfolio value in the first year of retirement and adjust that amount for inflation thereafter, your money will likely last at least 30 years.

Why is my savings rate more important than my return?
Your savings rate is the primary driver of FI because it serves a dual purpose: it increases the speed at which your wealth grows while simultaneously lowering the annual expense target you need to reach.