Financial independence number

Financial Independence Number

Someone who spends €30,000 a year needs roughly €750,000 invested to stop depending on a salary. Someone who spends €50,000 a year needs €1,250,000. Same country, same markets, same decade — a difference of half a million euros, decided entirely by the first number.

That is what a financial independence number is: the portfolio size at which your spending is covered by your capital rather than by your employer. It is not a feeling and it is not a finish line. It is one division.

Where the 25 comes from

Divide annual spending by the withdrawal rate you are willing to accept. Withdraw 4 % a year and the multiple is 25. Withdraw 3 % and it is 33. Withdraw 5 % and it is 20.

The multiplier is the same idea in different clothes. Nothing else in the calculation matters as much as that one assumption.

Read across the row, not down the column. Two people with identical rent and identical holidays end up with targets €450,000 apart because one of them was told 4 % and the other read a blog that said 5 %.

Spending, not income, sets the target. A household bringing in €70,000 and living on €38,000 needs the same portfolio as a household bringing in €45,000 and living on €38,000. The first one just gets there faster. This trips up more people than any other part of the calculation, because income is the number you know off the top of your head and spending is the number you have to look up.

The gap between the last two lines is the argument against treating 25× as a universal answer.

Here is that table the other way round: one household, €50,000 of annual spending, three withdrawal rates.

What 4 % actually survives

The 4 % figure comes from historical backtesting of US market data, most famously the Trinity Study, which tested rolling thirty-year retirements from 1926 onwards. Thirty years. A retiree who is 65, who has Medicare, and who accepts a small chance of ending up with a reduced portfolio.

That is a narrower claim than most people hear. Read those conditions again, because if any of them does not describe you, 25× is the wrong number.

Stop working at 50 and live to 90, and the horizon is forty years, not thirty. Historical success rates thin out noticeably over that length, and the work published since the original study mostly points the same way: something closer to 3 % to 3.5 % for retirements that long. That is 29× to 33×, not 25×.

There is a second unglamorous line item: healthcare. In the US, the years between leaving a job and reaching 65 have to be covered yourself, and an ACA marketplace plan for a couple can easily run to five figures a year. German readers face the same arithmetic in a different costume — voluntary statutory cover or a private policy paid entirely out of pocket, at rates above the employee share. In both countries this belongs inside the spending number before you multiply it, not in a footnote after the plan has failed.