Financial independence calculator

Your salary is not what decides the date

Financial independence is one division: your annual spending divided by the rate at which you will draw down your capital. At 4%, that means multiplying by 25 — €25,200 of annual spending calls for €630,000. Every calculator on the subject stops there, which is a pity, because the number is not the interesting question.

The interesting question is: when? And the answer barely depends on your income. A household on €3,000 saving €900 and a household on €6,000 saving €1,800 have the same savings rate, 30%, and the same arrival date to within a rounding. The second aims at a target twice as large, but reaches it twice as fast. The two effects cancel exactly.

What remains, once income is neutralised, is the savings rate — and it works TWICE. Going from 30% to 40% adds a third to the monthly contribution and takes a tenth off spending at the same time, so €90,000 off the target. On our assumptions, the arrival moves from 28.8 years to 21.9: seven years gained for ten points. Going from 40 to 50 gains five and a half more. The table on this page runs that calculation on YOUR figures, and it is the only genuinely useful thing it has to show.

Two cautions, because the arithmetic is clean and life is not. The 4% rule comes from a 1998 American study covering thirty-year retirements; someone stopping at forty has fifty years ahead, and the margin thins. That same study says nothing about tax on withdrawals, which depends on country and wrapper. A 3% rate costs a third more capital and absorbs both.

And one remark worth more than the rest: a 50% savings rate is never reached by halving your spending. It is reached by not letting spending follow income — the only decision on this page, and it is taken every time the salary goes up.

Financial independence

The point at which the income from your capital covers your spending, and working becomes a choice. It is not retirement: there is no age, no entitlement, no pension — only a capital and a withdrawal rate.

Withdrawal rate

The share of capital drawn each year to live on. The usual 4% comes from a 1998 American study of a half-equity, half-bond portfolio held for thirty years: it is a probability of not running out, not a guarantee, and it ignores tax.

Savings rate

The share of your net income you set aside. It is the only figure on this page that really decides the date: at 10% it takes a whole working life, at 50% about fifteen years — and the size of the income barely matters.

Real return

What is left of the return once inflation is removed. It compounds rather than subtracts: a 6% return with 2% inflation is not 4.00% but 3.92%, and the gap costs months over thirty years.

The four levers, most decisive first

1. 1

   The savings rate

   First by a wide margin. Ten points more take five to seven years off, and the effect does not fade as it climbs: it is the only lever acting on the contribution and the target at once.

2. 2

   The withdrawal rate

   The quietest and the heaviest. Going from 4% to 3% multiplies the target by 1.33 and adds a good ten years. That is the price of caution, and it is paid in time.

3. 3

   The capital already there

   It works without you, and its weight grows with the years. Ten years of head start on an existing capital is worth more than ten points of savings found halfway through.

4. 4

   The return

   The one quoted first and controlled least. Take the low end of the range: an optimistic assumption is only corrected by discovering, too late, that five years are missing.

Before aiming for independence, two things are worth doing in order: holding an emergency fund, because one unplanned expense paid on credit wipes out three years of effort, and [taking stock of what you already have](netWorth), because a projection is only as good as its starting point. Only then does the question of the monthly amount become useful — and the path of a real portfolio never looks like the smooth curve on this page.

Frequently asked questions