{"id":940,"date":"2023-01-01T12:00:43","date_gmt":"2023-01-01T12:00:43","guid":{"rendered":"https:\/\/moneywithkatie.com\/?p=940"},"modified":"2025-09-04T20:24:08","modified_gmt":"2025-09-04T20:24:08","slug":"2025-wealth-planner-faq-what-is-financial-independence","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/2025-wealth-planner-faq-what-is-financial-independence\/","title":{"rendered":"What is Financial Independence?"},"content":{"rendered":"<p><img decoding=\"async\" src=\"https:\/\/moneywithkatie.com\/wp-content\/uploads\/2025\/07\/Screen2BShot2B2024-10-072Bat2B137582BPM.webp\" alt=\"\"\/><\/p>\n<p>  <script class=\"TextAttributes-props\" type=\"application\/json\">[ {\n  \"id\": \"c3ca4018-1243-4732-b52c-7f1367a8820d\"\n} ]<\/script><\/p>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h3 style=\"white-space:pre-wrap;\">Financial independence is the point at which your <strong>investments<\/strong> will safely produce enough <strong>investment income<\/strong> to support your <strong>living expenses<\/strong>.<\/h3>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">The Financial Independence tab is designed to help you identify your \u201ccrossover point,\u201d or the point at which you can withdraw enough from your investments every year (using the <a href=\"https:\/\/podcast.moneywithkatie.com\/the-most-dangerous-misconceptions-about-the-4-safe-withdrawal-rate\/\" target=\"_blank\">4% rule<\/a>) to support your lifestyle. <\/p>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">In order to calculate this directionally, we have to make a few assumptions about the future:<\/p>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>How you\u2019re going to earn.<\/strong> We recommend increasing income by 3% per year, but you can adjust this.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Your average annual rate of investment return.<\/strong> We recommend using a 9% nominal rate of return, but you can adjust this. <\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Your annual inflation rate. <\/strong>We recommend using 3%, but you can adjust this. <\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Your preferred safe withdrawal rate. <\/strong>We recommend using 4%, but if you\u2019re retiring early, consider using 3.5% instead.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>How much you plan to contribute to long-term invested assets.<\/strong> In order to do this, we look at the <em>balances<\/em> and <em>planned contributions<\/em> for accounts with the \u201cLong-Term (Financial Independence)\u201d tag.<\/p>\n<\/li>\n<\/ol>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">By looking at your current invested long-term assets, income, spending, long-term savings, and tax rate, we can begin to project how your financial future will play out over the next 40 years. <span class=\"sqsrte-text-highlight\" data-text-attribute-id=\"c3ca4018-1243-4732-b52c-7f1367a8820d\"><strong>Learn more about which accounts and contributions are being used to feed this calculation.<\/strong><\/span><\/p>\n<\/div>\n<hr \/>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h3 style=\"white-space:pre-wrap;\"><strong>How to enter each section of your Financial Independence data<\/strong><\/h3>\n<h3 style=\"white-space:pre-wrap;\">Your Current Numbers Summary<\/h3>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">The Wealth Planner will automatically populate most of this section for you. <\/p>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">\u201c<strong>Current Long-Term Invested Assets<\/strong>\u201d is referencing the <em>current<\/em> balances of your accounts tagged as \u201cLong-Term (Financial Independence).\u201d<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">\u201c<strong>Current Income<\/strong>\u201d is using your current gross annual income. <\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"> \u201c<strong>Current Monthly Spending<\/strong>\u201d is totaling your monthly expenses and debt payments (the monthly expenses amount will lower in the data when it projects the debt is paid off). <\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">\u201c<strong>Estimated Effective Tax Rate<\/strong>\u201d is totaling your federal, FICA, state, and local tax rates. <\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">\u201c<strong>Estimated Monthly Employer Match Contributions<\/strong>\u201d is where you\u2019ll enter an estimate for the amount your employer(s) is adding to your long-term investment contributions each month. For example, if you get a 10% match that usually equals around $250 per month, you\u2019d enter $250 in this cell. This will factor those employer contributions into your investment growth.<\/p>\n<\/li>\n<\/ol>\n<h3 style=\"white-space:pre-wrap;\">Temporary Major Monthly Expenses<\/h3>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">If you currently (or expect to) pay a large, ongoing monthly expense (e.g., childcare) that your investments <em>will not<\/em> have to support in the future, you can enter the amount, start year, and expected end year. You can overwrite the \u201cTemporary Major Monthly Expense [Name It Here]\u201d with the actual name of the expense, if you\u2019d like to label it!<\/p>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>How Temporary Major Monthly Expenses alter your financial independence timeline:<\/strong><\/p>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">If the expense is <em>current<\/em> (that is, the start year is 2025) and the expense is already included in your budget, assumptions about your expenses and long-term investment contributions <strong>will not be affected<\/strong> for the duration of your temporary expense\u2014however, when it <em>ends<\/em>, that amount will be (a) removed from your expenses and (b) added to your long-term contributions in the future.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">If the expense <em>begins in the future<\/em>, the expense will be (a) added to your expenses and (b) removed from your long-term contributions for the duration of the expense, because we\u2019ll assume your savings will go down temporarily to accommodate it. <\/p>\n<\/li>\n<\/ol>\n<h3 style=\"white-space:pre-wrap;\">Future Assumptions<\/h3>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Annual Income Increase<\/strong>. We like to use around 3%, but if you\u2019d like to be more conservative, you can estimate 0% (or a decreasing rate, if you expect to earn less in the future).<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Average Annual Rate of Investment Return<\/strong>. We typically recommend using something between 7% and 9%, but if you\u2019re invested primarily in bonds or other fixed income instruments, you might want to use 5%. This is the nominal\u2014or <em>before inflation\u2014<\/em>return, not the \u201creal\u201d return.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Annual Inflation<\/strong>. We usually use around 3% to account for how your spending will rise each year, but feel free to adjust if you know your personal inflation rate.<\/p>\n<\/li>\n<\/ol>\n<h3 style=\"white-space:pre-wrap;\">Future Net Income from Other Sources<\/h3>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Pensions. <\/strong>Enter your estimated monthly pension payment (make a conservative post-tax estimate, preferably), if you have one, and the year you expect it to start. If your pension has a cost-of-living adjustment and will be increased with inflation, check the \u201cCost-of-Living Adjusted?\u201d box. There\u2019s room for two pensions.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Social Security.<\/strong> Enter your estimated monthly Social Security benefit (make a conservative post-tax estimate, preferably), and the year you expect to begin taking it. There\u2019s room for two Social Security checks that begin in different years.<\/p>\n<\/li>\n<\/ol>\n<h3 style=\"white-space:pre-wrap;\">Debt, Future Large Purchases, Inheritances<\/h3>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Debt. <\/strong>If you currently have debt, some of your monthly expenses are being used to service that debt. At some point in your Financial Independence timeline, your debt will be paid off, and your expenses will lower by the corresponding amount. If you\u2019d like for us to take that into account, keep the box checked. (Recommended!)<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Major One-Time Expense from Investments.<\/strong> If you plan to use a large portion of your \u201cLong-Term\u201d invested assets for a one-time purchase (e.g., draining your financial independence brokerage account to buy a house), enter the estimated amount and expected year. This will allow us to lower your invested balance accordingly and adjust your timeline. There\u2019s room for two major one-time expenses.<\/p>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"> If you\u2019re planning to make a one-time major purchase with money that you\u2019ve already set aside in \u201cshort-term\u201d or \u201cmedium-term\u201d savings or investments, like a house fund or 529 plan, <strong>you do not need to input the expense here<\/strong>, because that money is <em>already<\/em> excluded. Only include major one-time expenses that will <strong>use your long-term investments<\/strong>.<\/p>\n<\/li>\n<\/ol>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Major Future Inheritance.<\/strong> If you know you\u2019ll be receiving a big inheritance that you intend to invest for the long-term, enter the estimated amount and expected year. This will be added to your invested balance. <\/p>\n<\/li>\n<\/ol>\n<h3 style=\"white-space:pre-wrap;\">Financial Independence and Retirement Assumptions<\/h3>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Preferred Safe Withdrawal Rate. <\/strong>Research indicates 4% is the sweet spot for traditional retirements, but if you plan to be retired for more than 30 years, we recommend using 3.5%.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"><strong>Year You Plan to Stop Working.<\/strong> If you learn that you\u2019re financially independent in 2050 and you\u2019d like to see how your timeline would change if you quit working and began living off your investments in 2050, you\u2019d select \u201c2050\u201d from the dropdown. Your income column will zero out, and you\u2019ll see how your invested balance will change as you withdraw your annual expenses from it each year. <\/p>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\"> Be sure not to select a year that occurs <em>before<\/em> you reach Financial Independence. For example, if you\u2019re set to reach FI in 2042 but you say you\u2019re going to stop working in 2037, you\u2019re going to run out of money. The <em>earliest<\/em> year you could safely quit work (per these assumptions, of course) is the first year you\u2019re set to be financially independent.<\/p>\n<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n<\/div>\n<hr \/>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h3 style=\"white-space:pre-wrap;\"><strong>How to read your Financial Independence results<\/strong><\/h3>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">\u201c<strong>Years Until Financial Independence<\/strong>\u201d describes how many more years you\u2019d need to execute the inflation-adjusted version of your current plan in order to reach financial independence.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">\u201c<strong>Projected FI Year (EOY)<\/strong>\u201d is the calendar year in which you\u2019re projected to reach financial independence, by December 31.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">\u201c<strong>Safe Withdrawal Amount This Year (Gross)<\/strong>\u201d tells you how much income your long-term investments can <em>currently<\/em> produce each year.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">\u201c<strong>Projected FI Number<\/strong>\u201d is the nominal value of your investments in the year you\u2019re anticipated to hit financial independence. Because this number is typically impacted by a decade or more of inflation, it usually looks quite large.<\/p>\n<\/li>\n<\/ol>\n<\/div>\n<hr \/>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h3 style=\"white-space:pre-wrap;\">\u201cOh, no! Why does my \u201cYears Until Financial Independence\u201d say \u2018<strong>Over 40 Years<\/strong>\u2019?\u201d <\/h3>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">If your Wealth Planner is returning \u201cOver 40 Years,\u201d that means that your current plan does not produce an outcome in which your investments can support your expenses in the next 40 years. A few things to check:<\/p>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">Did you fill out your <strong>Long-Term (Financial Independence)<\/strong> contributions on the Dashboard tab to tell the Wealth Planner how much you intend to save for financial independence? (<a href=\"https:\/\/moneywithkatie.squarespace.com\/2025-wealth-planner-faq-saving-timelines\" target=\"_blank\">Learn more<\/a>.)<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">Have you filled out your <strong>Long-Term (Financial Independence)<\/strong> investment balances in the Dashboard tab? <\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">Do you need to double-check that your <strong>assumptions<\/strong> for things like rates of return and inflation are accurate? If you\u2019re estimating a return that\u2019s too low or an inflation rate that\u2019s too high, that can throw off this calculation.<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">Do you have a <strong>Major One-Time Expense from Investments<\/strong> that\u2019s eating up too much of your balance too late in the game? For example, if you\u2019re FI once you hit $2 million but you plan to quit working for an income then spend $1.5 million of your long-term investments on a house, you might become \u201cun-FI\u201d and not reach it again without more income.<\/p>\n<\/li>\n<\/ol>\n<\/div>\n<hr \/>\n<p>  <script class=\"TextAttributes-props\" type=\"application\/json\">[ {\n  \"id\": \"e75bbe80-2705-4f38-9aca-7f58c3e6a109\"\n} ]<\/script><\/p>\n<div class=\"sqs-html-content\" data-sqsp-text-block-content>\n<h3 style=\"white-space:pre-wrap;\"><span class=\"sqsrte-text-highlight\" data-text-attribute-id=\"e75bbe80-2705-4f38-9aca-7f58c3e6a109\">Other Useful Reminders<\/span><\/h3>\n<ol data-rte-list=\"default\">\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">Be careful not to <strong>cut &amp; pasting<\/strong> cells. This can create #REF errors. (Copy &amp; paste is fine.)<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">Only change data in the <strong>white<\/strong> cells. Colored cells have formulas in them to make the Planner work!<\/p>\n<\/li>\n<li>\n<p class=\"sqsrte-large\" style=\"white-space:pre-wrap;\">Avoid <strong>adding<\/strong> or <strong>deleting<\/strong> rows &amp; columns. (Hiding rows and columns is fine.)<\/p>\n<\/li>\n<\/ol>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Financial independence is the point at which your investments will safely produce enough investment income to support your living expenses. The Financial Independence tab is designed to help you identify your \u201ccrossover point,\u201d or the point at which you can withdraw enough from your investments every year (using the 4% rule) to support your lifestyle. [&hellip;]<\/p>\n","protected":false},"author":178814,"featured_media":1381,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[54],"tags":[68],"class_list":["post-940","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wealth-planner-support","tag-wealth-planner-support"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is Financial Independence? - Money with Katie<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/moneywithkatie.com\/2025-wealth-planner-faq-what-is-financial-independence\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is Financial Independence? - Money with Katie\" \/>\n<meta property=\"og:description\" content=\"Financial independence is the point at which your investments will safely produce enough investment income to support your living expenses. The Financial Independence tab is designed to help you identify your \u201ccrossover point,\u201d or the point at which you can withdraw enough from your investments every year (using the 4% rule) to support your lifestyle. 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The Financial Independence tab is designed to help you identify your \u201ccrossover point,\u201d or the point at which you can withdraw enough from your investments every year (using the 4% rule) to support your lifestyle. 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