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4 Steps to Determine Your FI Number

Follow these 4 steps to determine your FI number. And it is perhaps the single most important goal to reach my target of retiring by 45.

In my very first post, I set my ultimate goal of retiring by age 45. This goal is the pinnacle and directs all my other goals. So, if I want to reach that goal, the first priority is knowing how much money it will take for me to retire. In the FIRE community this is often called your financial independence number, or FI Number for short. I’ll show you how to determine your FI number in 4 steps.

Once you’ve reached this number, it means you have achieved financial freedom. Money is no longer a worry. In my case, it means I no longer HAVE to work. Any work I do at that point will be a choice I make. You can see the importance of setting your FI number appropriately. This post is dedicated to my first money goal, and undoubtedly, the most important goal to reach my target of retiring by 45. If I don’t meet this number, I can’t retire.

You, too, can follow these 4 steps to determine your FI number.

What kind of FIRE?

There are various types of FIRE, which I’ll discuss in another post at some point. In setting my first FI number, I’m going to aim high and shoot for FatFIRE. FatFIRE means I wouldn’t have to make any cuts to my lifestyle. Also, by aiming high, I’m a lot less likely to run short. That is the one outcome I absolutely must avoid. Let’s see if it’s realistic to aim this high and not have to make any cuts to my budget.

Step 1: Determine current annual spending.

This step is the most important to get correct. It’s not an easy task, however. It’s hard to say what cost of living will be like in ten years. Gas prices will likely go up. Spending in other areas will likely go down. And who knows what will happen with government related expenses like taxes and healthcare. I’ll give it my best shot using the numbers and data I have today. I use worst-case scenarios when deciding which number to use. I’m the least likely to run out of money that way.

The first step I took in determining my estimated retirement spending was to look at how much I spend now.

Monthly Expenses


This number, $12,600, includes all housing related expenses. The majority of that cost is for property taxes. In case you didn’t know, property taxes are high in Texas. They run on average 1.86% of the property value. This is the sixth highest of any state. I’m not sure how many years I’ll be retired and stay living in Texas as a result of this.

Texas does not have any income taxes at all. I only have to file my federal income taxes. While I’m working, this helps offset the high property tax rate. This is one number that I anticipate will go down in retirement, but as I said before, I prefer to use the worst-case numbers.

Living Expenses

This is a very broad category that I’ve lumped all of my living expenses into. This category includes utilities, cell phone, gas and insurance for the cars, food (both groceries and restaurants), shopping, gym, dogs, travel, and all the miscellaneous things that come up. Utilities include natural gas, electricity, water, and internet. I anticipate that spending in some of these areas will go down, while others will go up. The biggest factor I see here is how much traveling we do once retired; therefore, I’m giving travel its own category in the retirement budget.


Giving is a big part of our lives. We give of our time and resources, which includes money. Giving also includes tithes to our church, which is 10% of our income. I know our income will be decreased in retirement, so this number will most likely drop. Although, it would be great if we could see this number increase.

Daycare & Work Expenses

These are categories that will not carry over into retirement for obvious reasons. Hopefully all our kids will be old enough that they can take care of themselves. If not, I’ll be home to take care of them. My wife has to pay for insurance, professional association fees, continuing education, and license renewal. These will go on for as long as she works.

UPDATE: My wife’s new job pays for all of these expenses! How sweet is that?

Step 2: Determine additional annual spending in retirement

It’s likely that the biggest increase in spending for me will be health insurance, which is currently subsidized through my employer.  To get an idea of what this number might be, I went to the, and started to put in my information. Determining the actual cost was an iterative process, meaning I had to repeat it a few times with small changes, to see how it altered the results. For age, I used what the ages of my family members will be. Not our current ages. I ended up using an $60,000 as our estimated income. The result is that healthcare will average to around $300/mo – $800/mo. That works out annually to be between $3,600 and $9,600.

We plan on travelling more, so I’m going to go ahead and add that in there as well. Let’s say I spend $800 a month, or $9,600 per year.

Step 3: Determine Spending in Retirement

Finally, the step where we determine how much our annual retirement spending is expected to be.

There are 3 sub-steps to this step:

A) Add up the numbers from step one and step two.

Only include the ones that will carry over into retirement. For me, that looks like this:

Annual Expenses
B) Add in taxes, if necessary.

If you’re saving up the money in certain tax-advantaged investment accounts, like a traditional IRA, you don’t have to worry about this step. You’ve already paid the income taxes. You will have to worry about paying capital gains though. For this step, I’m going to assume all my income in retirement is passive income, on which I have to pay income taxes.

In this calculation, I used the tax brackets for a married couple filing jointly in 2019. Given an income of $56,640 and the standard deduction of 24,000, my taxable income (AGI) would be $32,640. I’m going to ignore all other credits and deductions. Tat makes things complicated and those will all change in the next ten years I assume. With the given tax brackets, I’ll pay 10% on $19,050 and 12% on the remainder of $13,590. That puts my total taxes at $3,536.

Annual Expenses Plus Taxes
C) Adjust for inflation

Interest isn’t the only thing that compounds. Inflation compounds year over year as well. The roughly $50,000 I need today won’t buy as much in ten years as it does today. The long-term average from 1913 to 2015 has been 3.18%. Since the start of the century, the inflation rate has been about 2.42%. I’m just going to round to 3% per year. Over the course of 10 years, $60,176 becomes $80,872. I like round numbers, so we will say I need $81,000 per year.

Step 4: Determine Nest Egg Value

At last, you have made it to the final step, step 4, to determine your FI number. The last step is fairly easy with the use of FireCalc and Vanguard’s longevity calculator. FireCalc uses historical market values to see if your nest egg will run out before the allotted amount of time. The longevity calculator gives the probability that you will live to a certain age. FireCalc has a bunch of settings you can tweak in the background, but I’m just going to use the defaults. Using the longevity calculator, I determined there is a 30% chance that either my wife or I will live for 50 years after my planned retirement at age 45. That probability seemed low enough, so I went with that.

UPDATE: Vanguard has removed their longevity calculator. Try using the one over at BankRate.

I went back to FireCalc to determine my necessary nest egg value. 2 of the 3 values are now known. I used the two known values of $81,000 and age 50. For the third, I put in a random number for the portfolio value for the first calculation.

FireCalc Entry

On the results page, a success rate is given. This gave me an idea of how much I needed to adjust the portfolio value. I looped through this process a few times until I arrived at a 100% success rate. The nest egg value I arrived at is $2,600,000. That means, historically, $2.6 million has never failed to be able to provide $81,000 a year over the course of 50 years.

FireCalc Results


These are the 4 easy steps to determine your FI Number. This process could be completed in 15 minutes or less if you do a budget and have your annual spending numbers on hand. This number is kind of an eye-opener for me. Maybe even making my eyes pop out a little as a I gasp for air. $2.6 million is a BIG number. I would have to save $180,000 a year for the next 11 years with an 8% rate of return to achieve my goal. Considering that we don’t even make that much before taxes, something’s got to give. I’m really going to have to see how I can increase my savings rate, increase my passive income, and decrease my expenses.

Furthermore, I understand that I’ll have to come back and revise this number as my circumstances change, and as I have more information available to me. Even though I’ve gone fairly in depth with the numbers given here, there are parts I didn’t cover and possibly errors that I’ve made. For instance, how do I add the value of my tax-advantaged accounts into this calculation? What will I do for health care if the open market disappears? What tax credits should I include? There are a multitude of “What ifs?” All I’m trying to say is, my FI number is likely going to change in the future.

It’s how you deal with failure that determines how you achieve success.

David Feherty

FIRE away!