Enter you’re current liquid net worth, a safe withdrawal rate you’re comfortable with, your desired job/W-2/wage equivalent lifestyle income level, and the tax rate associated with that income level and the calculator will tell you if your net worth will support that income level (e.g., you’re financially free) or how much more net worth you need to get there.
Move the sliders around to test out different scenarios!
Many traditional financial independence calculators focus solely on the accumulation of a certain amount of net worth or investment portfolio and just apply a safe withdrawal rate to that amount. This is confusing to many people because it requires them to try to understand how much after-tax spending they want to have to maintain a certain lifestyle – a number most people have never considered and have no experience with.
The vast majority of people think of the type of lifestyle they want to lead in terms of an equivalent of how much lifestyle a job’s income would provide. But no financial independence/retirement calculators use this common benchmark, that everyone understands, as a starting place.
Additionally, it’s hard for most people to compare the after tax spending they will need from spending down an investment portfolio compared to the income levels they’ve made throughout most of their life, especially since those two types of money are be taxed at substantially different rates.
Regular job income tends to be taxed at a combined federal and state effective rate of 30-40% for most people (but can be higher or lower).
But spending down your investment portfolio may be taxed much, much lower rate. Capital gains tax is only ~20% and you don’t pay taxes on the principal portion, so your net effective tax on spending down your investment portfolio is likely to be a lot less than your tax rate on income.
This is why we built this calculator. To be able to say “I want to live indefinitely at this job income level, based on my assets, but without actually having to have a job!” and be able to give a number for how much that would take.
This is an admittedly simple and blunt instrument. We will eventually build a much more intricate calculator for the finance nerds out there, who want to be able to play around with more detailed factors and levers.
For example, your particular situation could be much more complicated, you might have income from rental properties or other non-liquid assets, ongoing investments that offset taxes, or other more complicated situations. Those might require far more detailed modeling to determine if you’re financially independent.
But this calculator gives you a fun, fast, and easy way to rapidly give a rough idea of what net worth you would need to support a lifestyle in terms of job/wage/w-2 income, which is the way of thinking about a lifestyle that most people are used to.
Cody is the founder and owner of Personal Finance Guru. His day job is as a management consultant at one of the Top 3 firms (think Mckinsey, Bain), where he advises Fortune 500 C-suite clients on their most important and pressing business problems. He completed his business education at Harvard Business School.
After seeing the lack of personal finance education for regular people, Cody started the website with the mission to provide everyone access to information that will help them achieve their financial goals.
Cody approaches personal finance from a maximalist perspective, shunning typical advice around simply not buying a cup of coffee instead of more effective methods like investing in yourself to quickly grow your income.
He believes in saving money and investing for the future, but he also knows that you need to enjoy life today. That’s why Cody approaches money with a sense of humor and a positive attitude. He knows that if you’re not having fun while you’re growing your wealth, then what’s the point?
Cody approaches life with the same gusto that he brings to personal finance. He loves to travel and experience new cultures, and he is an avid reader and learner. He also enjoys playing sports (especially tennis) and spending time with his family and friends.