Financial Independence Calculator

What is financial independence?

Financial independence is the point at which your wealth generates enough passive income to cover all your expenses without needing to work. It doesn't necessarily mean you'll stop working — many people continue doing what they enjoy — but work becomes a choice rather than a necessity. To calculate when you can reach that point, you need three pieces of information: your monthly expenses, the capital you need to accumulate to cover them, and how long it will take to accumulate that capital by saving and investing.

How is the required capital calculated?

The capital needed for financial independence (also called the FI number or FIRE number) is calculated by dividing your annual net expenses by your withdrawal rate. For example: if you spend €2,000 per month (€24,000 annually) and use a 4% withdrawal rate, you need 24,000 / 0.04 = €600,000 in your portfolio. The idea is that this capital, invested in a diversified portfolio, generates returns that sustainably cover your withdrawals over time. This calculator uses the real return — nominal return minus inflation — so results already reflect the effect of the cost of living, without needing to adjust figures separately.

The 4% rule and withdrawal rate

The 4% rule comes from the Trinity Study (1998), which analysed historical portfolios of stocks and bonds in the US and concluded that a well-diversified portfolio can sustain annual withdrawals of 4% of the initial capital for at least 30 years, including periods of high inflation and market crashes. In practice, many financial planners update this figure to 3.5%–4% for longer horizons (more than 30 years). If you expect many years of retirement, or prefer a larger safety margin, you can reduce the rate to 3%–3.5% in the advanced settings. The effect is significant: at 3.5% you need 14% more capital than at 4%.

What is the FIRE movement?

FIRE (Financial Independence, Retire Early) is a personal finance movement that promotes saving and investing a large portion of income — typically 50% or more — with the goal of achieving financial independence in decades rather than a full working life. Within FIRE there are several variants: Lean FIRE minimises expenses to reach independence with less capital; Fat FIRE maintains a more comfortable lifestyle; Barista FIRE combines passive income with part-time work; and Coast FIRE reaches a point where investments grow on their own to retirement without additional contributions. This calculator doesn't impose any variant: you decide what level of expenses you want to cover and at what withdrawal rate you're comfortable.

Financial independence in Spain: context

In Spain, planning for financial independence has some important particularities. The public Social Security pension can reduce the capital you need to accumulate: if you estimate you'll receive a pension of €800/month, you only need your portfolio to cover the remaining expenses. You can enter this in the 'Other monthly income' field. Regarding taxes, capital gains and investment income are taxed under IRPF as savings income: the first €6,000 at 19%, from €6,000 to €50,000 at 21%, and above that up to 27%. This means you'll need to withdraw slightly more than 4% to cover both expenses and taxes. Tax-efficient savings accounts in Spain (pension plans, EPSV in the Basque Country) can help, though they have liquidity restrictions. For most individual investors in Spain, global index investing through low-cost index funds or ETFs is the most solid foundation for capital accumulation.

Limitations and assumptions of this simulation

This calculator is a planning tool, not a prediction. Results depend on the assumptions you enter and may differ significantly from future reality. Financial markets don't generate constant returns: there will be years with 30–40% losses and years with 20–30% gains. The sequence of returns — especially in the early years of withdrawal — can affect your portfolio much more than the average return. Inflation may be higher than estimated. Tax law changes, legislative changes, or personal expense changes (health, family) can alter the plan. For all these reasons, review your plan periodically, maintain an emergency fund, diversify, and consider consulting an independent financial adviser for high-stakes decisions.

Frequently asked questions

What withdrawal rate should I use?

4% is the most commonly used starting point, based on the Trinity Study with historical US market data. For horizons longer than 30 years, or if you want more safety margin, consider 3.5% or 3%. At 3%, you need a larger portfolio but the probability of money lasting a lifetime increases. You can adjust this value in the 'Advanced assumptions' section of the calculator.

How does inflation affect my FI number?

This calculator uses the real return (nominal return minus inflation) for the portfolio growth simulation. This means the 'FI number' we calculate is already expressed in today's euros: if you need €600,000 to cover your current expenses, the model assumes both your portfolio and your expenses grow with inflation, maintaining the balance. What really matters is the difference between return and inflation.

What about the public pension?

If you expect to receive a public pension, enter it in the 'Other monthly income' field. That amount will reduce the expenses your portfolio needs to cover, and therefore the capital needed. Keep in mind that the public pension amount is uncertain in the future: use conservative estimates.

How much should I save per month to reach FI?

There's no single answer. It depends on your expenses, current capital, time horizon, and expected return. Switch to the 'How much do I need to save?' mode in the calculator, enter the year you want to reach FI, and the tool will calculate the required monthly savings. You can also see the scenario comparison in the 'When will I get there?' mode to explore what happens if you increase your savings by 25% or 50%.

Where do I start if I want to achieve financial independence?

The first step is knowing your actual expenses and distinguishing fixed from variable ones. With that base, calculate your current savings rate (what you save and invest divided by your net income). The higher your savings rate, the faster you'll get there. The second step is to systematically invest in diversified, low-cost assets such as global index funds. Pirfila's investment calculator can help you project the growth of those investments.