The 4% Rule and Your 'Freedom Number'
How much net worth do you actually need to retire? Learn the math behind sustainable withdrawal rates and find your target for independence.
When Can You Stop Trading Time for Money?
The ultimate purpose of tracking your Net Worth is to reach The Finish Line: the point where your assets generate enough income to cover your living expenses for the rest of your life.
The Origin: The Trinity Study
Researchers analyzed decades of market data and found that a portfolio consisting of 50-75% stocks and the rest bonds can typically sustain a 4% withdrawal rate (adjusted for inflation) for at least 30 years without hitting $0.
Calculating Your 'FIRE' Number
(FIRE = Financial Independence, Retire Early)
To find your target net worth, use the Rule of 25: [Your Desired Annual Spending] × 25 = Your Freedom Number
- Example A: If you need $40,000/year to live: $40,000 × 25 = $1,000,000.
- Example B: If you want a luxury lifestyle at $200,000/year: $200,000 × 25 = $5,000,000.
Net Worth Milestones
| Milestone | Description | Impact |
|---|---|---|
| Coast FI | Assets will grow to your goal by age 65 without further contributions. | Mental relief; can take a lower-paying job. |
| Lean FI | Assets cover your absolute minimum survival needs. | Security; you won't starve if fired. |
| Fat FI | Assets cover an abundant, luxury lifestyle. | True freedom; buy whatever you want. |
How to Track Your Progress
Open the Dapplesoft Net Worth Calculator.
- Look at your Total Net Worth.
- Divide it by your Freedom Number.
- The resulting percentage is your Freedom Progress. (e.g., $100k / $1M = 10% Free).
Watching that percentage crawl from 1% to 10% to 50% is the most motivating experience in personal finance.
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