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What does FI mean to you?
Old 06-18-2008, 11:32 PM   #1
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What does FI mean to you?

I know,

I have been posting on these forums for a while and it may sound a bit weird that after all that time I ask a question which seems so trivial. I have searched the forums' archives and I have not found a thread addressing this question.

Often FI is defined as having enough money so that one does not have to work anymore. But I struggle with the details...

So let's say that someone has annual expenses totaling 60K, including 40K for mandatory/recurring expenses (shelter, food, transportation, insurances, healthcare, taxes, clothes, home and car repairs...) and 20K for discretionary expenses (including travel, dining out, donations...).

Using the 4% SWR rule, would you consider that person financially independent when his/her portfolio reaches 1M (only enough to cover mandatory expenses) or when it reaches 1.5M? With 1M in the bank that person could theoretically stop working and still pay his bills...

Or do you have a completely different definition for financial independence? I am looking for some kind of consensus here...
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Old 06-19-2008, 01:13 AM   #2
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Originally Posted by FIREdreamer View Post
So let's say that someone has annual expenses totaling 60K, including 40K for mandatory/recurring expenses (shelter, food, transportation, insurances, healthcare, taxes, clothes, home and car repairs...) and 20K for discretionary expenses (including travel, dining out, donations...).
Using the 4% SWR rule, would you consider that person financially independent when his/her portfolio reaches 1M (only enough to cover mandatory expenses) or when it reaches 1.5M? With 1M in the bank that person could theoretically stop working and still pay his bills...
I'm hoping to avoid the debate over whether it's 3.5% or 4.3% or 3.9987825352% for 30 years or 25 years or 60 years. Let's go with Trinity's numbers as gospel.

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Originally Posted by FIREdreamer View Post
Or do you have a completely different definition for financial independence? I am looking for some kind of consensus here...
I would say that anything above $1M is overkill-- voluntary effort expended for paychecks to supply a sleep-at-night buffer (or an emergency bucket or whatever you want to call it) or to improve the quality of life during one's ER.

I'd say this is especially true if the person is willing to mess with Trinity to their advantage-- to tighten their belt in ER (variable SWR) or to consider part-time work to pay for their "wants" while recovering from extended bear markets.

Another issue is that most people (let alone Trinity) have a difficult time specifying their budgets to such a level of confidence or detail. When one has to agonize over the inflation rate or the vehicle replacement timing or the specific sequence of returns on their ER portfolio's asset allocation of inverse beever-cheeze futures swaps... then a single point of failure is an indication that the ER plan is probably inadequately capitalized. I believe that's what drives most people to stick around for $1.5M.

I didn't really have to make a decision-- I had the benefit of DoD handing me a pension check and telling me to vacate their property. The effort necessary to acquire more paychecks to build a bigger portfolio far exceeded the desire to do so, let alone the commitment.

One of the advantages of the "Work Less, Live More" approach, provided you can find part-time work, is that you have the flexibility to enjoy ER for a while and see how the portfolio is holding up while taking it one year at a time.
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Old 06-19-2008, 01:26 AM   #3
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Originally Posted by FIREdreamer View Post
I know,

I have been posting on these forums for a while and it may sound a bit weird that after all that time I ask a question which seems so trivial. I have searched the forums' archives and I have not found a thread addressing this question.

Often FI is defined as having enough money so that one does not have to work anymore. But I struggle with the details...

So let's say that someone has annual expenses totaling 60K, including 40K for mandatory/recurring expenses (shelter, food, transportation, insurances, healthcare, taxes, clothes, home and car repairs...) and 20K for discretionary expenses (including travel, dining out, donations...).

Using the 4% SWR rule, would you consider that person financially independent when his/her portfolio reaches 1M (only enough to cover mandatory expenses) or when it reaches 1.5M? With 1M in the bank that person could theoretically stop working and still pay his bills...

Or do you have a completely different definition for financial independence? I am looking for some kind of consensus here...
I would say, take your choice. If it were me at this time in my life, I think I would prefer the $1.5mm definition. Who wants to be scraping the bottom all the time?

Ha
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Old 06-19-2008, 04:11 AM   #4
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For me, FI means the ability to live the life you want without having to have a j*b to provide the $$ you need in order to meet that goal.

Dosen't matter if you have $1 or $10m. If that "stake" (along with other forms of income) allows you to "persue your bliss" without worry, then you are FI.

Yes I am ... Thanks for asking...

Additionally, I don't necessarily believe in the 4% as "gospel". Sure, it's a good "target", but that's all it is. For example, in our early years in retirement (age 59-70) as certain "income set points" come on line (pensions at 65, SS at 62/70) our rate of withdrawl against our retirement portfolio is much more than 4% (up to around 11% at age 70). At age 71 (first full year of my SS), it drops much below that "magic number" and stays below it for most of the remainder of the plan (till age 100). If we would adhere to that 4%, we would have much more than we need to be FI (and delaying it to later in life, rather than now). Sometimes a rule should be considered a suggestion.


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Old 06-19-2008, 05:51 AM   #5
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I agree with rs0460a, FI to me means having the money to live the life I want and being able to sleep at night without worrying about typical market and inflation cycles.

That means 2-3 years of cash above 4% SWR budget that includes extras like travel and normal periodic expenses like car replacement, house maintenance and a cushion for extra healthcare expenses.
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Old 06-19-2008, 06:58 AM   #6
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Originally Posted by FIREdreamer View Post
So let's say that someone has annual expenses totaling 60K, including 40K for mandatory/recurring expenses (shelter, food, transportation, insurances, healthcare, taxes, clothes, home and car repairs...) and 20K for discretionary expenses (including travel, dining out, donations...).

Using the 4% SWR rule, would you consider that person financially independent when his/her portfolio reaches 1M (only enough to cover mandatory expenses) or when it reaches 1.5M? With 1M in the bank that person could theoretically stop working and still pay his bills...
You are financially independent when you can draw 4% from your portfolio and lead a "normal" life. Normal is defined by the way you expect to live in happiness.

If you need to cut out items such as travel and eating out then you are not financially independent since those are things you would "normally" do in your life.
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Old 06-19-2008, 07:45 AM   #7
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By some definitions I am FI, since I now have enough to live at several times my present expenditures.

Medical expenses are the great unknown in this equation, so I am waiting another 16 months for my lifetime medical before I make the big leap into ER.

I hate working, I want to ER, but I can't. So maybe I am not as FI as my portfolio would indicate.
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Old 06-19-2008, 07:58 AM   #8
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I also prefer the 1.5 definition . I like having a lot of padding for travel .
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Old 06-19-2008, 08:09 AM   #9
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To me, you're FI when you could generate enough passive income to continue to live your current life without a job and have enough padding in your numbers to sleep at night. I'll feel truly FI when I have enough in the bank to support a 2.5% withdrawal rate... which, unless the world collapses, will be around 40-45. With a, hopefully, long event horizon after that, I want the cushion to smooth out who knows what over 40 more years.
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Old 06-19-2008, 08:12 AM   #10
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I also prefer the 1.5 definition . I like having a lot of padding for travel .
I guess I'll add my additional $.02 on the "travel" comment (since it comes up, often).

My DW/me have always traveled (1-2 Europe/other places) each year, along with at least one U.S. based "excursion" over the last dozen+ years (yes, I have driven on the "wrong side of the road" in some countries ).

Being that travel is my DW's "passon" (beyond me, of course ) it is part of our "base budget", and remains so throughout our retirement expense budget (through age 100). Just to say, that you should be including your "wants" along with your "needs" when planning for retirement. Anything else (such as thinking you will add it as an "extra") is just fooling yourself.

BTW, I'm a "stay at home" guy. My "bliss" is playing with the dogs on the "back 40", napping when I want to, sitting in front of the fire with a glass of wine on a cold/snowy day and just enjoying retirement.

- Ron
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Old 06-19-2008, 10:21 AM   #11
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This is what I thought. There is very little consensus over what FI means. Right now our fictitious person spending 60K a year would be considered FI if he/she had a portfolio worth 1-2.4M according to the various definitions posted so far. That's a huge range! It looks like we all have different definitions and requirements. Since this is a FIRE forum, I wanted to know if there was a universal definition for FI that everyone could agree on. We have tons of definitions on these boards, yet FI never seems to be nailed down completely.


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You are financially independent when you can draw 4% from your portfolio and lead a "normal" life. Normal is defined by the way you expect to live in happiness.
This is very close to what used to be my own definition of FI. The reason I struggle with this definition though is this: it becomes very confusing when measuring something as intangible as happiness becomes part of the equation (that's the scientist in me). While 20K in discretionary expenses might be enough to have a reasonably happy life, maybe 40K or 60K would make me even happier! I could get nicer cars, travel to more exotic locations, eat out more often! Give me 100K and maybe I'd find nirvana! Maybe I can buy a second home in the bahamas and fly first class!


If one has to come up with a universal definition for FI, then I don't think we can throw in intangible variables. When can I declare myself FI independently of any ER considerations? That's what I want to know and that's why I like Nords' approach:

Quote:
I would say that anything above $1M is overkill-- voluntary effort expended for paychecks to supply a sleep-at-night buffer (or an emergency bucket or whatever you want to call it) or to improve the quality of life during one's ER.
Note that I would not necessarily ER without a buffer and enough money in my budget for at least some discretionary spending, but does it have anything to do with FI? Those things will increase my comfort level in retirement for sure, but when considering only the FI side of the equation (forget about ER for a minute), they seem like an overkill.

At any rate, thanks y'all for your replies and keep them coming.
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Old 06-19-2008, 01:49 PM   #12
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...it becomes very confusing when measuring something as intangible as happiness becomes part of the equation (that's the scientist in me). While 20K in discretionary expenses might be enough to have a reasonably happy life, maybe 40K or 60K would make me even happier! I could get nicer cars, travel to more exotic locations, eat out more often! Give me 100K and maybe I'd find nirvana! Maybe I can buy a second home in the bahamas and fly first class!...
"Reasonably happy" is the goal, so the definition is a good one.

If "happier than happy" is the goal, then it can never be achieved.

Most of us go through life in a certain financial zone and it makes us who we are. I know many people who grew up poor and now are multi-millionaires, yet they are still happy driving a used chevy. I also know a few people that were born into a rich family who "need" to live in a McMansion and can only go to upscale restaurants.
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Old 06-19-2008, 04:31 PM   #13
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the only time i didn't worry about money is when my parents gave me an allowance. i don't think i will ever be f.i.
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Old 06-19-2008, 04:44 PM   #14
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When my actual holdings reached 25 times (same as 4% SWR) my current annual expenses, I considered that crossing the FI line. However, by the time I pull the trigger I should be about 35 times current expenses without including SS (DW and I) and a small pension. YMMV...
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Old 06-19-2008, 04:48 PM   #15
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the only time i didn't worry about money is when my parents gave me an allowance. i don't think i will ever be f.i.
Do you really worry about money? I know I think about money a lot, but I don't suppose that I really worry about it. I know that I have enough for the necessities. Anything beyond that is gravy, and who wants to worry about gravy?
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Old 06-19-2008, 05:00 PM   #16
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Unclemick's lefthanded Norwegian widow definition of F.I.:

When the current yield of what you own(aka da portfolio) equals or exceeds your 'hard times' budget. So if you skip a few parties/vacations/etc you can live off your dividends/interest.

Psst Wellesley or in my case Target Retirement 2015.

heh heh heh heh - Party till you puke on the difference between hard times and what 'your retirement budget' says you can spend.
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Old 06-19-2008, 05:52 PM   #17
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When the current yield of what you own(aka da portfolio) equals or exceeds your 'hard times' budget. So if you skip a few parties/vacations/etc you can live off your dividends/interest... Party till you puke on the difference between hard times and what 'your retirement budget' says you can spend.
Now that's my new definition of FI!
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Old 06-19-2008, 06:18 PM   #18
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FI = good Z-Z-Z-Z-Zs each and every night....
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Old 06-19-2008, 07:05 PM   #19
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would you consider that person financially independent when his/her portfolio reaches 1M (only enough to cover mandatory expenses) or when it reaches 1.5M?
For myself, FI is "enough to cover mandatory expenses", or 1M in your example.

Off the top of my head, that includes housing, food, healthcare, basic transportation, education, and all of the normal everyday expenses (e.g. clothes, household stuff, whatever).

I might not stop working immediately upon reaching this FI point, because I might want to save more to pay for specific goals (travel, toys, etc.).

But the key for me will be knowing I don't NEED to work to pay for a decent standard of living for me and my family. Knowing I can walk away from any job or any business and that my family will have a secure future. That will be FI for me. The rest will just be a question of "how many toys do I want to trade years of my life for?"
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Old 06-19-2008, 07:12 PM   #20
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Do you really worry about money? I know I think about money a lot, but I don't suppose that I really worry about it. I know that I have enough for the necessities. Anything beyond that is gravy, and who wants to worry about gravy?
firecalc says i'm ok, but firecalc doesn't know how to make hot chicken soup. ok, well, mom didn't make hot chicken soup either. but can firecalc make reservations?
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