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A roadmap to financial freedom

Key takeaways

  • Aiming for financial independence (FI) can be a great goal for your future. That means that you could live the life you want supported by your savings and investments.
  • Being financially independent can give you the power to take control of your time and the freedom to choose how you spend it.
  • Many FIRE followers go by the rule of 25, saving 25 times (25×) your annual expenses, withdrawing 4% or less per year in retirement. Fidelity suggests using a more conservative measure, 33× and a withdrawal rate of 3%.*

If you're ready to optimize your finances and make faster progress toward your goals, the principles of the FIRE movement (financial independence, retire early) may be able to help. Retiring early doesn't even need to be on your list of priorities, but financial independence is a good target to aim for. After all, saving more, spending less, and investing well for your goals and time frame are always good things.

What is financial independence?

Financial independence means having enough money to live the life you want without income from a job (unless you want one). Savings and investments could provide income for the rest of your life.

Sound good? Read on to find out why taking a page from the FIRE playbook may help inspire confidence and clarity around your spending and saving choices.

1. Your time is money

Time is a precious commodity. Your money can be used to enhance your quality of life now—whatever that may mean to you—and it can be used to buy more free time in the future to do what you want.

For most people, most purchases are made with money that was earned so it's easy to quantify how many hours of work were required to afford it. For instance, let's say you make $40 an hour and work 2,000 hours a year. You buy a car that costs $40,000. That represents nearly half of your working hours for the year. All things equal, you may have preferred to do something else with that time and money.

It's easy to get swept up in the excitement of buying new things and experiences. To help avoid that, try to identify your highest values and keep an eye out for spending opportunities that align with your long-term goals.

When there's a mismatch between your spending and your values, bringing them into alignment may be one way to spend more intentionally. By making fewer unnecessary purchases you may have some extra money to put toward something you value even more.

If your long-term goal is to be financially independent, spending less and saving more now isn't a chore but a choice that supports your future plans to take control of your life and your time.

2. Financial security can be a benefit of aiming for financial independence

Achieving financial security means you've built a cushion around your finances to try to avoid a worst-case scenario, like losing your job or a serious illness or injury that keeps you out of work. Fidelity suggests saving 3 to 6 months of essential expenses for an emergency.

For the financially independent, losing a job may be an inconvenience or a heartbreak but not a threat to their ability to sustain their lifestyle.

3. The option to say yes or to walk away

Financial independence gives you options. It could be the option to say yes. If you've always dreamed of taking a year off to travel, you may actually be able to do just that. If family members need a helping hand, you may have the time, energy, and financial freedom to help.

The option to say no to things you don't want is powerful as well. When money isn't the only thing holding you back, you may feel free to break away from toxic situations whenever you're ready.

4. Freedom

For some people, waking up when they want, choosing their daily activities, and living where they please are the best things money can buy. It often involves a tradeoff, forgoing a more extravagant lifestyle in order to chart their own path through life.

Read Viewpoints on Fidelity.com: Is financial independence possible?

How to work toward financial independence

If you want to learn how to be financially independent, Fidelity's financial independence planner can guide you through the steps to consider and suggest ways to allocate your savings: Take the first step toward financial independence.

Here's what you'll find out:

Your savings rate

Your savings rate is the percentage of income you may be able to save. It measures how aggressively you're pursuing your goal. If you're able to save 50% of your income, your expenses may be low relative to income and you may be able to reach FI more quickly than if you were saving 15% or 20% of your income.

Your current spending and the amount you may spend in retirement

In order to save for future expenses, you need to estimate what those expenses might be. To judge how much you may spend in the future, start with how much you're spending now.

Your FI number and the number of years to FI

Your FI number is an estimate of how much money you may need to save and invest in order to be financially independent.

To be conservative, Fidelity's FI number is 33× (times) your expenses at a withdrawal rate of 3% (although other calculators use 25× and a withdrawal rate of 4%).

The number of years until your potential financial independence day is calculated from your estimated retirement expenses and your savings rate. If your savings rate or estimated expenses change, the number of years to reach your goal may change as well.

Here's a hypothetical example: Sarah is 50 years old and her household expenses are about $100,000 per year. Her FI number is $3.3 million (33×$100,000).

Fidelity's financial independence planner can suggest where to put your savings each paycheck to help reach your FI goal in an efficient way. In the example above, Sarah’s savings could be spread out across a number of accounts to help maximize the potential tax benefits.

Source: Fidelity Investments, Financial independence planner

Starting the journey is already a success

Saving money and being financially responsible are always great things to strive for. Your journey to financial independence may take more or less time than you anticipate but the lessons you learn about your finances and yourself can be worth it.

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This information is intended to be educational and is not tailored to the investment needs of any specific investor.

* Financial Independence Planner Methodology


Learn more about the methodology of the financial independence planner.


Limitations of the financial independence planner
The financial independence planner (“FI Planner”) is not intended to project or predict the present or future value of an actual asset allocation or actual investments. Also, the planner should not be used as the primary basis for any investment, savings, or tax-planning decisions. The planner estimates an effective tax rate based on your total income, account contributions and take-home pay. The Financial Independence Number presented in Chapter 2 is generated through Monte Carlo simulations. These simulations are based on analysis of historical market data. The analysis considers the probability of returns that certain asset mixes might experience under different market conditions. Stocks are represented by the Dow Jones Total Market Index from March 1987 to latest calendar year. From 1926 to February 1987, stocks are represented by the Standard & Poor's 500® Index (S&P 500® Index). The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Bonds are represented by the Barclays U.S. Aggregate Bond Index from January 1976 to the latest calendar year. The Barclays U.S. Aggregate Bond Index is a market value-weighted index of investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more. From 1926 to December 1975, bonds are represented by the U.S. Intermediate Government Bond Index, which is an unmanaged index that includes the reinvestment of interest income. Short-term instruments are represented by U.S. Treasury bills, which are backed by the full faith and credit of the U.S. government. Monthly returns assume the reinvestment of interest and dividends. It is not possible to invest directly in an index. All indices include reinvestment of dividends and interest income. All calculations are purely hypothetical and will not affect your actual accounts. Remember, past performance is no guarantee of future results. Performance returns for actual investments will generally be reduced by expenses, which may be different from those used in these hypothetical illustrations. Returns also will generally be reduced by taxes. Data entered in the FI Planner will not be shared with other Fidelity tools and will not update or override any information previously provided to Fidelity. If your financial situation has changed, you should update your information accordingly.


IMPORTANT: The projections or other information generated by the FI Planner regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use, and over time.


Chapter 1 – Savings Rate Calculation


The savings rate calculation is intended to provide an estimated percentage of your current savings rate to your total income. The FI planner assumes all contributions customers indicate they are currently making to their accounts are for savings, and that money is not used for essential or discretionary expenses. The calculation uses inputs such as current salary, other income, account contributions, takehome pay, and pay frequency to estimate an effective tax rate. First, the calculator estimates your taxes by deducting from your take-home pay and all pre-tax deferrals you might have (traditional 401(k), traditional IRA and HSA). It then divides the remaining amount with your salary. This effective tax rate is then applied throughout the calculation to gross up any after-tax contributions and/or payments made to debt, so that the calculation can correctly factor in taxes when allocating your cash flow. The savings rate calculation then collects additional inputs to identify the current accounts you have, and to determine if you are eligible for a 401(k)/403(b) and a Health Savings Account. The FI planner also asks you to provide your employer match information for your 401(k)/403(b) if you are eligible. A current limitation is the planner only takes a single-tiered match and does not account for multi-tiered match structure or non-elective contributions. Your employer match information will be used in a later chapter to allocate your cash flow. Based on your recurring contributions and frequency of contributions to all your accounts, the savings rate calculation estimates your total savings rate as the ratio of the total amount of savings in pre-tax terms to the total pre-tax income (salary and other income).


Chapter 2 – Financial Independence (FI) Number


The FI number is intended to provide a projected age at which the desired level of spending may be achieved with 90% confidence throughout the retirement time horizon (age 96). The FI number calculation takes your current age, current savings and planned contributions, and your desired retirement expenses expressed in today’s dollars (net of any retirement income) as inputs. Your monthly expenses are estimated as the difference between your income and your current savings indicated in Chapter 1. Any dollars not saved are assumed to be dedicated towards essential and discretionary expenses. Fidelity estimates that the average person will spend 15% less per month in retirement. However, if you plan to move somewhere more expensive or travel a lot, you may want to estimate 15% to 30% more. For more detail, visit Fidelity’s viewpoint. The future expenses indicated in the tool are used as inputs for the FI number and years to FI calculation. The calculated FI number then tests every year whether the estimated combined savings and contribution growth is sufficient to cover the desired expenses. Assets and contributions are grown using straight line growth rate calculations from a reference table derived with Monte Carlo simulations; the FI Planner itself is not running any simulations. Instead, the returns used to project any given year have been derived by determining the rate of return over the planning horizon with 90% confidence out of 250 Monte Carlo simulations. Fidelity uses the corresponding figure based on your planning horizon so as to err on the side of a more conservative estimate of future market performance. The simulations used to generate returns are based on a historical performance analysis of asset class returns, including a range of potential returns for each asset class, volatility, and correlation. Asset classes are represented by benchmark return data from Morningstar, Inc., not actual investments.1


  • Stocks (Domestic and Foreign) are represented by the S&P 500® Index from the year 1926 through 1986 and the Dow Jones U.S. Total Market IndexSM from 1987 through the last calendar year.2

  • Bonds are represented by U.S. intermediate-term bonds from 1926 through 1975 and the Bloomberg Barclays U.S. Aggregate Bond Index from 1976 through the last calendar year.3

  • Short-Term investments are represented by 4-week U.S. Treasury bill rates from 1926 through the last calendar year.

1. Morningstar, Inc., is an independent provider of financial information. Morningstar does not endorse any broker-dealer, financial planner, insurance company, or mutual fund company.


2. S&P 500® Index is an unmanaged market capitalization-weighted index of common stocks. S&P 500® is a registered service mark of Standard & Poor’s Financial Services LLC. Dow Jones U.S. Total Market IndexSM is an unmanaged market capitalization-weighted index of over 5,000 U.S. equity securities which contains all actively traded common stocks with readily available price data.


3. Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged market capitalization-weighted index of U.S. dollar-denominated investment-grade fixed-rate debt issues, including government, corporate, asset-backed and mortgage-backed securities with maturities of at least one year.


A sustainable withdrawal rate of 3% is used to determine if the projected balance can meet your planned expenses. This rate is sustainable for withdrawal horizons up to 55 years in retirement with various investment mixes. This amount is also determined via Monte Carlo simulations to be sustainable with 90% confidence out of 250 simulations. A 90% confidence level represents underperforming market conditions, in which 9 out of 10 market scenarios the hypothetical portfolio performed at least as well as historical market averages, while 1 out of 10 times the hypothetical portfolio failed to perform as well as historical market averages. The FI number is the projected balance at 90% confidence level that is enough to cover your estimated expenses through age 96, given the 3% sustainable withdrawal rate. Balances at that age are reported in today’s dollars. The assumption of a hypothetical investment mix of 70% stocks, 25% bonds and 5% short term investments is used throughout the experience and rebalanced monthly to this stated allocation. The investment mix is for educational purpose only and does not represent actual investment performance. If you have a different investment mix, your actual results may differ. The calculator assumes you will cover estimated expenses with your savings only. Social Security or guaranteed income sources are not included in the calculation. Non-qualified distributions may be subject to taxes and penalty.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

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