How to calculate your FI number

Your FI number, or FI target, connects two things: the yearly spending your wealth needs to support, and the share of that wealth you plan to withdraw in the first year.

The formula is simple. The judgement is in the inputs, so the rest of this guide takes them one at a time.

Start with what you spend now over a full year, including irregular costs. Bank and card statements are more reliable than memory. Then adjust for what will be different once you no longer need a salary.

• Remove costs that will end, such as a mortgage you will have repaid or commuting.
• Add costs that will start or grow, such as more travel or private health costs.
• Include a realistic allowance for one-off costs: replacing a car, a new roof, helping family.

Our guide to planning retirement spending covers this step in more detail.

If some of your spending will be covered by other reliable income, such as a defined benefit pension, a state pension or regular part-time work, your portfolio needs to fund less. Some people reduce their spending figure by that income; others leave it out and treat it as a margin of safety.

Timing matters. State pensions usually start at an age set by each country. In the UK, for example, State Pension age is rising from 66 to 67 between 2026 and 2028 and may change again. If you stop work earlier, your portfolio has to cover the full amount until that income begins.

The withdrawal rate is the share of your portfolio you plan to take in the first year. The commonly quoted 4% comes from historical US research on retirements of about 30 years. Many people planning to stop work early test lower rates, because their money may need to last longer.

Moving from 4% to 3.5% raises the target from £1,050,000 to £1,200,000. Our guide to withdrawal rates and the 4% rule explains where these figures come from and their limits.

A spending figure in today's money buys less each year as prices rise. There are two consistent ways to handle this.

Many central banks aim for low, stable inflation (the Bank of England, for example, targets 2% in the UK), but actual inflation has often been higher or lower. Many plans use an assumption of 2% to 3% and test the effect of a higher figure.

The progress figure uses only the wealth that would fund spending. Counting the home or other assets you would not sell would overstate it. See which assets count.

• Underestimating spending. Irregular costs are easy to forget and add up.
• Mixing today's money and future money. A target in today's prices compared with a nominal projection, or the reverse, gives a misleading date.
• Treating 4% as guaranteed. It is a historical finding for a specific context, not a rule.
• Ignoring access dates. Pension wealth may count towards the target but not be available when you stop work. For a UK example, see bridging to pension access.
• Forgetting tax. Withdrawals from pensions can be taxable; a gross target may need to be higher than your net spending.

Yield Clarity uses the same formula: your retirement income divided by your withdrawal rate. Today's money is the default, with a fixed amount available. Targets are before tax. The methodology shows the full calculation and its limits.