What If There Is No FI Number?

I love math.  The idea of a Financial Independence Number (FI Number) appeals to me because I love logic based on numbers.  Most Americans have no idea how much money they need to retire, and calculating your FI Number can give you more insight into what you need to survive in perpetuity.  Knowing your FI Number puts you ahead of most of your peers, who attach retirement to an age rather than a level of wealth.

The basic premise behind an FI Number is knowing your annual spending, and saving and investing 25x your annual spending to allow yourself to withdraw and live off 4% of your wealth each year.  Average market growth accounts for both replenishing that 4% each year and growing to keep up with inflation.  In other words, once you invest a certain amount of money, it will grow enough each year to allow you to live off of only the accumulated interest (and less, over time!) without ever touching that principal investment.

4% Rule Battles

Most debates about FI Numbers center around the 4% Rule.  The 4% Rule considers a 4% annual withdrawal rate a safe withdrawal rate to sustain over time.  The risk averse often choose FI Numbers that assume much lower safe withdrawal rates while the innovative opt for higher safe withdrawal rates to account for multiple streams of income.  The math behind the 4% Rule, based on the Trinity Study, does not support the added value of a lower safe withdrawal rate, but more recent models appropriately consider the nuance of modern wealth building through multiple streams of income, some of which are relatively passive.

Debates around the 4% Rule typically attempt to prove that another safe withdrawal rate is superior to 4% or that the 4% Rule simply cannot account for market volatility, a changing economic environment, or the unknowns in a person’s life.

In some ways, these arguments against the 4% Rule miss the whole point of why the 4% Rule exists.  Rather than throw our arms up in frustration because we can never know the precise number of dollars required to fund the remainder of our lives, the 4% Rule gives us a starting point to calculate the wealth we need to accumulate to live our lives without fear of financial instability.  The 4% Rule lets us avoid fears of running out of money.  It lets us know we have enough.

What is Enough?

Your FI Number is the mathematical answer to what is enough.  But an FI Number, a Financial Independence Number, can be much higher or lower depending on when you mentally reach the point of enough.

Through my own financial independence journey, I have realized that different people hit enough at different phases.  They can find enough at 2x their annual spending or not yet have it at 50x their annual spending.  Enough can mean $100,000 or remain elusive at $10 million.

So how do you get to enough when you do not know where enough is for you?

I recently found enough.  Realizing that I found it was a slow process over the course of about a year.  While enough does not attach to a specific number, it does have a formula.  You hit enough when your net worth reaches a level where you do not worry about making more money, and you have full confidence that you could figure out how to make the money you need to weather adversity without causing excessive discomfort in your lifestyle.  Enough is when work becomes optional and wealth building becomes fun rather than stressful or controlling.

This happened before we hit a mathematical FI Number but after we were over the halfway point.  There is something about having more than a decade of your spending rate that starts to make you freer.  Your money starts to grow without you adding to it, and it grows significantly if you continue to contribute.

Importantly, I do not think I found enough just because our net worth hit a certain threshold.  I think I needed the freedom and opportunity to feel like I had enough.

That opportunity presented itself when we spent a month in Sicily this summer.  For the first time, I spent what I wanted to spend without worrying about maximizing dollars.  We dined out at restaurants more frequently, bought the extra granita, and stayed in a place with a roof deck.

And after spending in a manner that felt extravagant, I returned home to see our net worth had grown since we left.  I could spend without thinking about money and still have enough.

Is FI Math Obsolete?

The only thing worse than obsessing about your FI Number is living in fear that you will not have enough money in retirement, particularly if you have no idea how to figure out what enough means.  I am happy that I calculated an FI Number and had a number to work towards while maximizing my investments.  If I contributed 10% to a 401(k) without considering my net worth or when I would have enough money to retire, I would feel tied to a job, fearful of losing my job, trapped by an employer’s demands, and scared to buy the extra granita after hiking Zingaro Nature Reserve.  Our lack of awareness about our wealth keeps us imprisoned in jobs we hate, spending our time in ways that do not honor our passions.

My FI Number stood as a goal to inspire a journey of not only building wealth but understanding wealth building.  Along the journey of understanding wealth building, I realized that I had built enough wealth that I must know how to build wealth.  My net worth was no longer a fluke.  If I needed money, I could figure out how to make enough of it to sustain a happy existence.  I had enough.  Along with wealth, I was building confidence in my own capabilities to figure out how to live a fulfilling life.

I would never have gotten to enough without an FI Number.  But I am happy I reached enough before my FI Number.  It turns out enough is a little bit of math and a little bit of mindset.  The math gets you going, and the mindset sets you free.