Reaching financial independence is the holy grail of personal finance. But what does financial independence really mean? In this post I'd like to determine the three levels of financial independence.
That's right. Even in financial independence there is no one size fits all since everybody has a different desired standard of living. Some people are happy living a solo life on a boat. While others want to start a family.
The Meaning Of Financial Independence
As one of the pioneers of the modern day FIRE movement, been writing about achieving financial independence since 2009. I permanently left my job in 2012 at age 34 because I thought I was financially independent.
Contrary to what you may think, financial independence is not only about having enough money to cover all your desired living expenses. Financial independence also means being able to overcome your psychological fears to truly live free.
For example, I have peers who have millions in net worth. Yet, they still make their respective spouses work because they do not feel 100% financially secure. WiFi!Common reasons include the need for health care coverage or their spouse's “love” for their job even though they'd rather be doing something else.
Here are the three levels of financial independence I've come up with. All three levels of financial independence should meet the following basic criteria:
1) No need to work for a living. Investment income or non-work income covers all living expenses into perpetuity.
2) Net worth is equal to or greater than the number of years left in your life X living expenses. For example, $3 million with 30 years left to live is FI if your living expenses are no more than $100,000 a year.
The Three Levels Of Financial Independence
As you work your way to financial independence, you'll find three levels to unlock.
1) Budget Financial Independence (Lean FIRE)
If your household income is less than ~$40,000 a year, you are considered lower middle class. Don't be offended. It's just a definition based on millions of datapoints. The current official poverty threshold is an income of $25,000 per year for a family of four. It is $19,000 for a family of three.
If you are happy with living a lower middle class lifestyle, then you would need between $800,000 – $1,600,000 in investable assets returning 2.5% – 5% a year to replicate the $40,000 in gross annual income. Of course if you've been investing in the bull market, you've likely seen a higher return than 5%. But over the long run, it's best to stay conservative since downturns do happen.
Given the 10-year bond yield is around 1.7%, everybody should make at least 1.7% a year on their investable assets risk-free. If you're losing money during your financial independence years, you haven't been investing properly.
This category of financial independence is interesting because there's a lot of tradeoffs the individual or couple still make.
Tradeoffs for being Budget FI or Lean FIRE
- Making one spouse work in order for one spouse to live the FI life.
- Moving to a lower cost area of the world instead of living where most of your family and friends are.
- Downsizing to a small rental, small house, or even an RV or van.
- Delaying or not having children, which can really hurt the FI budget.
- Taking on a part-time job.
- Aggressively working on your side hustle / passion project.
- Constantly telling other people how much you're worth due to insecurity.
- Relocating to another country to save money, such as how one woman retired with $600,000 and moved to Taiwan
Another thing I've noticed about people who retire early with less than $1 million is that they are often more anxious. They tend to show off their fabulous lifestyles more online. They also like to write about FIRE frequently if they have a blog.
The thing is, once you FIRE, there's no need to talk about FIRE so much anymore. You're just busy living your life.
Are You Really Financially Independent On So Little?
The question many people have in this stage is therefore: Are you really FI if you've got to do one or many of these things?
Many who work a day job argue no. But it doesn't matter because nobody can tell you how to live your FI life. If you don't have to work a full time job and can cover your expenses, you are Budget FI as far as I'm concerned.
Budget Financial Independence is where I found myself between 2012 – 2014. I was earning about $80,000 in passive income, which was more like $40,000 since I lived in San Francisco, and had negotiated a large enough severance to last for 5-6 years of living expenses.
Even with these numbers, I was still afraid that I had made the wrong choice leaving a job at 34. As a result, I tried to sell my house and downsize by 70%. However, nobody wanted to buy my house in 2012 thank goodness!
Further, my wife and I agreed that she work for three years until she turned 34 (hooray for equality) to give us enough time to figure out whether we could both leave the workforce. At the end of 2014, she negotiated her severance as well before her 34th birthday.
2) Baseline Financial Independence (Regular FIRE)
The median household income in the U.S. is about $68,000. $68,000 is therefore considered a comfortable middle class income If you didn't have to work for your $60,000 a year income, then life should be better, maybe even fantastic.
Based on a conservative 2.5% – 5% annual return, a household would need investments of between $1,360,000 – $2,720,000 to be considered financially independent.
Once you've got at least $1,360,000 in investable assets and no longer want to work again, I don't recommend shooting for an overall return much greater than 5%. You can carve out 10% of your investable assets to go swing for the fences if you wish, but not more. There is no need since you have already won the game.
Remember, once you've reached financial independence, you no longer have to save. Everybody striving for financial independence tends to save anywhere from 20% – 80% of their after tax income each year. This is on top of maxing out their pre-tax retirement accounts.
Therefore, if you're able to 100% replicate your gross annual household income through your investments, you're actually getting a raise based on the amount you were saving each year.
If you have 20 years left to live and only require $60,000 a year, having $1,200,000 can also be considered enough even if you make zero return. The only problem is that your purchasing power will decline by ~2% a year due to inflation. The other problem is that you don't know exactly how many years you have left to live. Therefore, it's always better to have more rather than less.
Baseline Financial Independence Example
My blogging buddy Joe from Retire by 40, who is six years older than me, is a good example. He has enough money (~$3 million net worth), but is still finding it difficult to overcome the fear of not working.
Since 2012, every year, he questions whether his wife can join him in retirement. This is even though they have a $3 million net worth. He also has online income and passive income. Every year I tell him she could have retired years ago, but he's adeptly convinced her to keep on working.
He says his wife loves her work. But he also said his wife does work calls at 5 am and 11 pm as well. So I'm not so sure!
Related: Achieving A Two Spouse Financial Independence Lifestyle
3) Blockbuster Financial Independence (Fat FIRE)
This is a level of FI that I've been trying to achieve since I was 30 years old. I decided back then that an individual income of ~$200,000 – $250,000 and a household income of ~$300,000 was the ideal income for maximum happiness.
Some call Blockbuster FI, Fat FIRE or Obese FIRE. Fat FIRE is the determine that has become most popular today.
With such income, you can live a comfortable life raising a family of up to four anywhere in the world. Given I've spent my post college life living in Manhattan and San Francisco, it was only natural to arrive at much higher income levels than the US household median. Remember, half the country live in more expensive coastal cities.
These figures are partially due to a highly progressive tax code that was implemented in the mid 2000s. The government really went after income levels above these thresholds.
Income Threshold For Maximum Happiness
I carefully observed my happiness level from making much less to making much more. Any dollar earned above $250,000 – $300,000 didn't make a lick of difference. In fact, I often noticed a decline in happiness due to the increased stress from work.
Using the same 2.5% – 5% return figures, one would therefore need $5,000,000 – $10,000,000 per individual and $6,000,000 – $12,000,000 per couple in investable assets to reach Blockbuster Financial Independence. In addition, it is preferable if your home is also paid off.
If you are generating $250,000 – $300,000 in passive income without having to work, life is good, really good. In 1H2017, I got to about ~$220,000 in annualized passive income. But then ended up slashing ~$60,000 from the top after selling my rental house to simplify life. Therefore, I've still got a long ways to go, especially now that I have a son to raise.
Financial Samurai Current Passive Income
Today, my passive income is around $380,000 +/0 $15,000. It's a comfortable amount of money. I've been working on building my passive income since 1999.
The way many people reach Blockbuster Financial Independence with income of $250,000 – $300,000 is through a combination of investment income and passion project cash flow. The wealthiest people I know don't depend on index funds.
Since FI allows you to do whatever you want, here's your chance to follow the cliché, “follow your passions and the money will follow” without worry that there will be no money. My passion so happens to be this site. Everybody should start their own today.
All Three Levels Of Financial Independence Are Good
Even if you find yourself in the Budget FI category, it's still better than working at a soulless job. Just getting rid of a long commute or a terrible boss makes Budget FI worth it. Just make sure your financial independence number is real enough to take action. Otherwise, you're probably not even in the Lean FIRE / Budget FI category.
Most people who find themselves in Budget FI are either on the younger side (<40), don't have kids, or are forced to live frugally. I've found that in many cases, folks in Budget FI long to lead a more comfortable life. Therefore, they either get back to work, do some consulting, or try to build a business within three years to move up the pyramid.
The only way I've found to successfully overcome the fear of not working is by either negotiating a severance, building enough passive income to cover all your living expenses for at least 12 consecutive months, or trying out FI living first while your partner still works. Feeling comfortably FI doesn't just happen with a snap of the fingers.
There is this natural urge to still make financial progress by continuing the good financial habits that got you there in the first place. And wonderfully, the progress you make is like finding loose diamonds after you've already found a pot of gold.
Build Passive Income With Real Estate
Out of all the asset classes to reach financial independence, no asset has done more for me than real estate. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties and their income streams gave me the confidence to retire early.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms.
With interest rates down, the value of cash flow is up. The pandemic has made working from home more common. With a rebound in corporate earnings and tremendous support from the government, I'm very bullish on real estate.
Take a look at my two favorite real estate crowdfunding platforms.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified realestate portfolio.
Both are free to sign up and explore. I personally have over $1 million in private real estate investments.
Track Your Wealth Wisely
Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool. See exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible. I’ve been using Personal Capital since 2012. In this time, have seen my net worth skyrocket thanks to better money management.
The Three Levels of Financial Independence is a Financial Samurai original post. I've been writing about achieving FIRE since 2009. Come join me on this incredible journey!
159 thoughts on “The Three Levels Of Financial Independence: Because Money Is Only Part Of The Equation”
In this article, we know that Levels Of Financial Independence. We have known that how would we financial independence. The article helps us to make financial independence and also helps the way to save money. In this article, we know the benefits of financial independence. That was a motivation article to become financial Independence.
Thoughtful article as always. I’ve saved $2.3M liquid (or $1.9M excluding IRA/401k) without a house after working for 9 years in tech.
My biggest dilemma is deciding which living standards I can accustom to after earning $500k/year for the last 3-4 years. I’ve spent $120k last year but that’s mostly due to travel expenses and rental both of which can be significantly lower if I move back to Asia where I grew up.
I probably need at least $80k/year which means I’d need at least $3M. But then would that be enough? Or would I end up regretting not saving more later?
Another dilemma is that I make way too much money right now to justify a retirement: $700k pre-tax and save $300-350k after tax per year. At this kind of income level, it’s really hard to justify that I should not work for another six or twelve months, which could add another quarter or third of million to my nest egg.
My current plan is to work at least three more years but my mental health may not hold up that long.
That’s a tough decisions set… I can see the dilemma and in you’re shoes I would be thinking the same…
Is there a way you can increase your offsets mentally, say, hire a good coach, or set up some additional outside of work goals/challenges/passions?
I’m assuming you are on the sales side at tech?
I had this same dilemma. Was saving $250k per annum, but only needing close on 10% to support my lifestyle. Very atypical investment banker, but anyway, the mental issues were going to make me sick, so I quit. I’d have an extra $1m now, but I would’ve had other issues that may have caused my life to be cut short.
In the end, it’s just money, we’re our own worst critics, you have enough to do coast-FIRE and find something that you enjoy but wealth grows a little slower. That’s ok too, because you aren’t dead.
I have about 1 year’s worth of expenses saved. Hoping to get to 25x expenses by the time I’m 30. I’m currently 23 and just starting my first job out of college. I think I can definitely achieve that, but I’m nervous about performing well at work. Hopefully it all works out and I can choose to quit if I’d like early in life. I’m hoping I actually enjoy work, but I am thinking that is asking for too much…
Sam, agree with you! $20k/month is the comfortable FI target. How do you optimize your tax so that I won’t need to make $500k in pre-tax in order to get $250k after tax, social security and medicare?
One of the most important challenges here is to develop a dependable portfolio of non-equity investments to both provide a good rate of return and to insulate you from market swings. Other than rental property (which is a good one) hardly any financial planner or investment website touches on this.
Success in this area allows any investor/potential retiree to peg their rate of return better than if they are just relying on historical data regarding equity market returns.
How about examples? I’ll help ya out, notes, life insurance contracts….
Financial independence is when you plan your finances so well you do not have to worry about any future’s financial crisis. Financial independence typically means having enough income to pay your living expenses for the rest of your life without having to work full time.
My husband retired from the military after 20 years of service last summer at age 38 – his guaranteed income is appx $67k per year for life (tax free and subject to COLA), and he gets an additional $17k the next 4 years under the GI Bill while he’s in school. We have appx $450k invested, no debt, and guaranteed health insurance for life with no monthly premiums, $150 annual deductible and $3k annual catastrophic cap. We have one child, age 5, who will receive free college tuition if she attends a state University in our state of record. We do have appx $25k in a brokerage account for her for addtl college expenses. My husband is considering not working after he finishes school, or working a ‘fun’ part time job. We live in the Midwest, where cost of living is ok (much better than our last duty station in CA!). I work a ‘fun’ part time job bringing in about $1k/mo. Curious on your thoughts as to where this puts us. And, do we figure my husbands ‘pension + benefits’ in our networth?
Two kids, boys, one at state university for CompSci. RE at 53, FI since before that. Younger son understands value of money and will save and spend wisely. Older son, never got it.
We are closer to blockbuster than anything else on this post on a hard working engineers salary and a stay at home and raise the kids stretch a dollar, low maintenance wonderful wife! Oh, yea and rental properties and other non stock market investments.
I don’t understand how NOt having children hurts your FI??? It has been great for me!! Please explain. Because Anyone that I know who has children, has NO FI.
I like the idea that you are FI when you are no longer worrying about money. When your brain is free and you can spend your time as you please because you aren’t fixated on not having enough.
This is Dan from Romania again.
Me and my wife consider that a pasive income of 2000€/month.. so 44.000€/year would be great and we would consider financial independent in this case.. Having in mind that average income for a working person in Romania is ~8700$/year we consider that our target of ~2400$/household/month would be great because you can have an above average lifestyle..
Until you want to buy an Iphone 8 and you see it is 900$ :)))
Right now,at 27,we are far away from our target, but we work hard for this.
I wish to enjoy everhthing you have and to stress a little less with your financial situation because you are doing great.
Keep up the good work.
Greetings from Romania,
Diana and Dan
Nice way of putting it! I am more towards setting a year to retire early (and live within whatever means I could to reach that) but this yearly income does makes the picture clearer.
“Don’t be offended. It’s just a definition based on millions of datapoints.” I am not sure why but this line cracked me up haha.
I love this chart! I have seen a few different descriptions of the levels of FI but this one feels the most authentic. Personally I am targeting the Baseline FI by 50 with the hopes that I am running an empire that will allow me to catapult into Blockbuster. Great work as always!
I think it is hard for the majority of those who are seeking/building towards financial independence, to essentially turn the switch off. What I mean by this is that it is hard for them to ever feel “financially secure” because their whole life’s financial habits have been based on constantly earning/saving/growing their money. Based off of those deep ingrained habits, it is extremely difficult for that individual to suddenly change course and tell themselves they no longer need to keep growing their money.
I like how you say all levels of financial independence are good and then take it to the next level by breaking it into three buckets. It’s motivating to get to the top of the pyramid :) Nice graphic!
Similar comment to many above:
That 2.5% to 3% return should be post inflation, so you need to have approximately 4% to 5% nominal total return on your investments, otherwise you are eroding your capital and your financial independence will come to an end sooner or later.
On the other extreme, if you do not take capital gains into consideration when it comes to FI then that predisposes you to shun things like growth stocks, which are a significant passive income builder, not a speculative investment where you gamble just 5-10% of your net worth.
I’m just flexible in my living, so I jump from one FI level to another. I live the middle tier FI during periods when returns are good, and hunker down to budget FI when there are crises, or otherwise lower returns. It actually adds some spice in my living without endangering my FI.
I think I would be happy with budget FI, but I don’t have any kids to worry about and my wife works full time. I think as long as I can comfortably pay my share of the housing costs and pay for my (future) kids activities, I’d be comfortable driving older vehicles and living on a budget.
I think I am in that mindset because I am mostly excited about the idea of building up something new from scratch and not chasing a paycheck. So when I reach some level of FI that allows me to pursue new projects and new ideas I will be happy.
This definitely embodies the saying, “There’s levels to this $h*t.” I was aiming for the middle tier of financial independence, but now I’m asking myself why not go for the top of the pyramid. Even if I don’t quite get there I will likely add a nice cushion to the baseline. My goal is to diversify my streams of passive income between market investments, rental income, and small business income. Returns from all three should make me and my future family comfortable indefinitely.
Hi Sam, interesting post as always. I’m always very curious about how you arrive at your estimates. It would be great if you could show us the math! (actually I’m very curious about this in your 401k value post) Anyway, in this post you mention: “need between $800,000 – $1,600,000 – to replicate 40,000 a year in passive income” This is a bit bigger than the standard 4% approach. I can see that you are cautious, I’m just wondering about how I could replicate some of the math too.
2.5% – 5% returns once you are FI. Cheers
Blockbuster FI would be way more money then my HH would ever need. Eventually, Baseline FI & Budget FI can grow to Blockbuster numbers. I’m not going to worry too much about how many millions I have. As long as I am able, I’m down to work if I need to, but I know for sure that I am not going to work to save up $XM just in case.
Late to the game, Sam, but I like where you, J.D., and others are going with this line of reasoning. Understanding levels of financial independence and financial security are very much needed. I worry that our main message is a turn off to a lot of people because they can’t possibly fathom saving 25 times their annual living expenses or more. For a lot of people, just being able to spend slightly less than they earn and having a modest emergency fund is their idea of financial nirvana. It would be nice if we could somehow champion these people and show them that they are welcomed members of our community. Cheers.
Thanks for the post. Not to be negative, but want to stress importance of not “waiting” for FI. My parents have a passive income of about 500K/year and have had some health issues popping up recently. My dad lost his hearing in one ear and my mom is having a lot of trouble with her vision. Although having $$ makes dealing with some of these issues easier, it is important to remember how valuable your health is, because suddenly money doesn’t seem so important.
Do you feel your parents waited too long? If so, why do you think they couldn’t exit sooner?
I left at 34… which I feel is early b/c I was originally thinking about leaving at 40. But 6 years later, I have NO REGRETS!
See: The Fear Of Running Out Of Retirement Is Overblown
When you refer “Income” for retirement, how capital gains (or return on investment like 15.87% in 2017 in other blogs) would be considered?
Currently our expenses are quite high (to support both parents, living in NY) and I realized expenses in 2017 = appreciation of stock market + Income. so end of the year, our financial balance is same as last year which is not good.
so passive income you mentioned is only for cash flow you get from investment but not including any appreciation?
Once all non cash generating real estates are sold, then I could make expenses = income from investment but until then, I’d like to know how you consider gains.
I personally do not consider any capital gains or paper gains as part of my retirement income. Any capital gains are one off. It’s safer this way because it’s important to focus on building recurring passive income sources. Hopefully, my gains from my rental house sale in 2017 will be properly deployed to earn future income. But I’m not touching those gains for spending.
Folks can classify the way they wish. I just have a personal belief that the ideal withdrawal rate in retirement does not touch principal.
Your asset appreciation should lead to more financial safety and more investment income.
My wife and I are squarely at the mid-point of Blockbuster FI. I am 60 and she is 56. However, one thing I always have to keep in mind is that 54% of our portfolio is in tax-deferred accounts and at some point, we will have to pay the taxes on that. Realistically 1/4 to 1/3 of that money belongs to the government.
One of the things I’m working through right now is whether or not to start liquidating some of those tax-deferred accounts a little at a time over the next 10 years, pay the taxes with non-qualified money, invest the balances into Backdoor Roth IRAs and let that money roll tax-free from there on out.
My wife continues to work a really good sales job. I retired from corporate America in 2015 to work and consult with startups. I’m currently a co-founder of a healthcare software and services startup. I also have a pension that kicked in right after I turned 60 last October. Our combined incomes/pension are around 250K with our only debt being our mortgage which still has 7 years left @ 3.5%. I’m also thinking about paying a little extra toward principal to shorten the term to 5 years and coincide with when I turn 65.
Our plan is to continue on until I hit 65 when I can transition my healthcare to Medicare, our daughter will be out of college and almost finished with grad school and close to transitioning to her own healthcare plan which just leaves the need to cover my wife for another 3 years, unless she wishes to soldier on a little longer on the company plan.
Ah… a pension… you have truly found the pot of gold at the end of the rainbow.
At 60, what would you have done DIFFERENTLY when you were 40? Thx for the advice.
I retired at age 56 with budget/baseline FI, but I am now in blockbuster category (age 69). My investment accounts have done well and the house has increased in market value. Renting part of the home covers housing and transportation expenses, and my small pension covers basic living expenses. I withdraw money from investments for travel but reinvest most of the gains. I too am faced with heavy income taxes once I have to withdraw from tax deferred accounts. I have run spreadsheet projections for income, net worth, and income taxes to 2035 with various withdrawal plans and estimated net returns. Always come back to deferring tax as long as possible, spending down the taxable accounts first, while building up the tax-free account agressively. What I would do differently is learn to invest my own money at a younger age, buy a bigger better house at a younger age, and retire earlier.
Sam you did it again, you can tell a world class post when it generates so many comments that it takes five minutes to scroll to the bottom of them! I’m trying to wrap my head around how I could ever spend $300k. I could afford to spend that much, even more, if I wanted to now but the fact is I can only find about $100k worth of stuff to spend money on annually. I have no debt, very profitable side gigs and a big portfolio so the money is there but I just tap out of things to spend on right about $100k. I’ve done this for over two years now and my spending is very consistent. And if another several millions of dollars dropped out of the sky into my lap I still would buy not a thing extra. So I like your concept but I kind of think that once you feel completely free to buy anything or go anywhere or do anything you want to do then you are at your own version of Blockbuster FI. I love visiting DC, New York and San Fran but there simply is no reason I’ll ever want or need to fund an existence in one of those cities. I’m sitting on 800 acres of wooded wetlands with mink, deer, otters and foxes so why would I ever leave paradise? Maybe we need a flyover state FI category?
Good stuff man. To feel like you’re living in paradise when paradise is cheap is a gift! And if all you need is Budget FI to be happy, then more power to you.
I’m trying to slowly get through all these comments myself!
It is hard to spend more money when you are used to spending less. Gonna write about this topic in a future post.
I’m so impressed and humbled by your talent for business! Some of us, who can only save and be frugal, will never make it beyond the bottom of the pyramid. Still better than most, and I’m grateful, but WOW.
I am already budget FI. However being in my 40s that level leaves me feeling a bit vulnerable so I still work part time. 2 weeks on/4 weeks off. I travel in the off weeks and my p/t salary covers the travel and some left over that goes into pension saving.
I want to enjoy life now while I am still young and fit enough to do the activities I enjoy. A wealthy blockbuster retirement when I am old is no use to me. A good friend died recently at 49 years old and that concentrates the mind too.
Good article Sam on fine-tuning the FI tribe. It maybe the dream among FI folks to be at “blockbuster” level – also called FatFIRE in Reddit subs- but it’s actually not necessary to kill your self in the rat race for it if one is worried. Expenses play a huge part, of which, just housing alone is a big driver in FIRE comfort scale. Saving even only $500 a month in housing costs (either downsize or move to a LCOL place) can move many people into a very comfortable FIRE position. From leanFIRE, they can move to baseline FIRE quite easily after they save this much in housing. I know folks who have done this in Asia, and no, you don’t need to move to crazy place like Pyongyang to be a king. Nice locales in Malaysia, Thailand, Ecuador, India and even Eastern Europe are all available if people are open to it. It’s not everyone’s cup of tea though.
I see FI as more of a continuum which might vary with age and circumstances. When I was in my early 20s, an FU fund of six months living expenses was the goal. I eventually got up to a few years. After I got married in my 30s, being able to buy a house outright took over – and once that was bought at 40, I focussed on ensuring I had a pension that would comfortably cover all of our costs and a bit of contingency.
Along the way, the missus stopped working and in the last year or so, I found we could cover all of our costs up until early retirement. We do live fairly frugally, but frankly that’s how we like it as our hobbies don’t cost very much. For now, I am working but am hoping to go part-time this year.
Interesting discussions. I am personally aiming for a $40k passive income range for myself with a paid off home living in a high cost of living area but I agree that $40k is not enough for a family. Even then I don’t know if I can fully quit but I would definitely work less.
Thanks for sharing your household income goals and historical amounts generated over the years :)
I find it easy just to figure out what lifestyle you want, what it costs, and then make that your monthly nut. We relocated to a low cost-of-living midwest community, with excellent schools, and a medium-sized city within a 30-minute drive. My military retirement covers about half of our nut and we’re making up quite a bit more than the other half with work / contracts we’ve landed. We will save the remainder, pay off our house so that reduces our nut even further, then start jamming enough money into passive-income generating investments so that we can quit working entirely if we want, though work right now is interesting enough and is on terms that we set, so I’m not in a hurry to quit working anyway. As always, Sam, a good piece that I enjoyed reading…
Enjoy the breakout.
How fortunate are we to break out levels of FI as we all click away on our keyboards to respond to each other!
What a time to be alive!
My goal is to take time at each level of FI and ask WHY I am doing what I am doing. Will an extra 100K a year in passive income make me happier then I will stick with it.
Hopefully over time I will learn more about myself and get involved in projects that are rewarding. I never want to retire the same way many FIRE bloggers do though.
As of now I think my aim is 200k a year, oh how we all adapt and adjust over the years though. Humans are irrational creatures and I am starting to believe there is truly no “perfect” income.
Our passive income currently covers 50% of expenses, which is a bit less than I would like, but as we are comfortably living in step 2 of your pyramid I’m not too concerned. We also have various pensions that kick in over the next 5 – 15 years.
Obviously would prefer not to draw down but I’m comfortable with the small amount we need to each year. Especially as we have come to terms that our goal in life is not to leave our kids with several million dollars.
Good morning Sam and happy Friday.
“Given the 10-year bond yield is at ~2.5%, everybody should make at least 2.5% a year on their investable assets risk free.”
Just saw a link to this:
Bank of Hope Personal Installment Savings up to 100,000.00 paying 3.05% for 60 months. Have you heard of them and would you consider this risk free?
LOVE this website!!
Why do bloggers consider themselves retired?
This is your business. You are a small business owner.
To attract a readership.
I am a small animal vet in the Washington DC area. Vet school loans and housing have taken their toll. I would like to retire at 60 (I just turned 52), and reach budget or baseline. Blockbuster isn’t a reality. Choose your career well– I love what I do, but sometimes wish it paid more. Semi-retirement may also be an option. Thank you, Sam, for a great post (as always).
Robin, I was reading through the comments and saw your post. I don’t know if you will see this since it is so much later. I am a small animal veterinarian in Eastern Washington State. I was privileged and had support with education but still had about 70k in student loans. I will easily reach blockbuster level by 40. I am nearly 37 now. I did it through ownership. That increases income dramatically. Additionally, it is an investment, my biggest, that you can sell when your done. Essentially, it allows you to earn income twice, once through dividends and then secondly through capital gains when you sell. I am also currently investing in real estate and downsized my primary residence. I had to transition my mentality about money and define wants vs needs but I did it. I still see other associate vets I work with that will barely scrape enough by the time they are 65. If you want to talk more please feel free to reach out to me.
That’s a pretty good breakdown. Budget financial independence is where I’m currently trying to reach. I should be there within a few years. Then baseline would be my next and final goal. I am happy with a $3 million portfolio indexed to inflation. :) Of course one way to feel like I’ve reached blockbuster level is to live abroad somewhere like Thailand. With a lower cost of living the same amount of passive income can go further.
This website makes me feel so poor haha. Half the people I know are food stamps and the other half are lucky if they have $5k in the bank. I use to see myself as rich until I came to this website. Actually I still feel rich. To me rich is someone who can quit work and can live off his investments or wealth for 10 years.
I’m 30 and single and have my house paid off. I don’t spend more than 900 dollars a month. I have 3k in rental income and 200k in the bank that I’m planning to use to open a small business.
It would be great if you could tell us what your expenses are. I live in the Michigan so its pretty cheap here. Also it would be great if other people can share the expense and income and how they were able to attain their net worth year by year. This would be a great article to bring everything together. Also including taxes in your statement would be great.
Good post. I’m definitely aiming for Blockbuster! Once there, I’m going to follow my dream of writing full time.
Sam, How about a poll, just to see where the average FS reader is and where we’re headed?
I would like to add another level to your pyramid. The “big baller” level. My wife and I just returned from Cabo and on the Tarmac there were close to twenty of the most beautiful private jets a person could ever hope to see.
We’ll never reach that level but I did spend $200.00 dollars on a 2lb lobster. I’m sure I enjoyed that lobster much more than the guy who flew in on his jet.
I feel like if I am not happy/content with a million dollars … I am probably not going to be happy with 2 or 4 million either. My goal is to generate as sum passive as my expenses (inflation adjusted). There is always the fear of unknown. That being said I would not some more money. My plan is to establish a foundation which provides educational scholarship. There is a reason for my frugality :-)
At the beginning of this year, as I was setting investment goals I came up with $2.4M as the amount of liquid cash needed for me to say “I quit!” That would put me in the Baseline FI category. It would take a truly horrible job for me to quit and settle for budget FI. I don’t think I could handle being FI on a tight budget for too long because I would get bored due to not having enough money to pay for experiences/travel which currently bring me a lot of joy.
Budget FI without debt, that is no mortgage, no car payments, no student loans no consumer debt IS the same as baseline with these. IMHO
Having no debt during retirement is an absolute must for me but I still wouldn’t be able to deal with budget FI. Having ~$40,000 a year to pay for health insurance, property/car insurance, gas, food, utilities, internet, cellphone, etc. doesn’t leave much for fun stuff. I look at FI as the ultimate goal. Goals are supposed to be the best situation I can strive for based on my personal wants. Baseline FI would allow me to pay all the bills AND have fun. Whereas budget FI is allowing just enough to cover expenses.
We’re using about 50k, no debt except rentals. FIREcalc puts us comfortably much higher. We are not fancy people, prefer to vacation and visit family, walks, parks…
Medical is challenging, some non traditional options are health cost sharing, should this fit your life choices. I’m insulin dependant but there are options for this that are affordable and quality.
Low tax property tax state, lower cost housing but highly educated area, good climate.
50k is a lot of money when you have no debt obligations.
High level Break down
5K Medical insurance
3K real estate tax
2k car insurance 20 year old, inexperienced driver, 3 cars, 1 high end
2k phones, network
25k ish remaining for eating out, vacation, gifts, gas, household, entertainment. It works for us, if we need more, it’s there. But when ya start at needing 200k as a base makes getting there and staying there tougher.
Hi Retiredat53, I was just reading through these posts. I’m also looking for a low cost of living area but around educated people. May I ask where you live, please? Thank you!
I wish there was an easy way to see others’ planning baselines. I didn’t need anywhere near $2.4MM to take early retirement. I have no dependents, though. Well, a diabetic dog, but I only take one less trip a year to finance her!
I didn’t retire debt free. My financial planner, who I pay to manage my money because I don’t want to spend the time, said that if they didn’t return more than my mortgage rate, I should fire them and go elsewhere. They’ve always returned more than my mortgage rate (way more), so I don’t find that expense a burden.
My travel budget is $45k a year. I never spend that much, and I travel a lot!
Sara. I would like to hear more about how you spend your travel budget. My base at home expenses are pretty low ($25k CAD a year) and I do not deprive myself. I spend $60-75k a year on travel. The major factors to get that high are taking specialized tours and the very low CAD against GBP, EU, and USD. I do not stay in luxury hotels and I rent the cheapest cars and fly economy. I avoid cruises, resorts, casinos, islands, sports, mountain climbing, snow and ice, beaches, and look for art, architecture, archeology, history, jazz, food and wine. About half the time I take a specialized tour and the rest of time I tour on my own, usually by car. Sometimes, I travel with a friend.
All these concerns about kids costing hundreds of thousands of dollars (up to and including a million) is interesting but off kilter to me.
Raising our 2 children in a modest sized city in the mid west did not cost us anywhere near that kind of money. We would have owned a 3 bedroom home anyway. We would have had two used cars anyway. Food and healthcare??? Not a big deal. Lucky I guess in that they were two healthy kids.
btw – to keep kids healthy get them outside a lot and preferably around farm animals. Young bodies quickly develop strong anybodies when exposed to normal bacteria in the world.
We did send them to private grade school (Catholic) and then did cost some $.
I know of no one who has spent the amount of money talked about by FS to get a kid to adulthood. I mean, what the hell would you be doing doing with all that money for a kid?
Best thing you can do for setting the kid’s life up correctly is making them live somewhat frugally and get a part time job at 15. They need to be responsible for their spending habits, not live off Mom and Dad. Having too cushy of a high school experience makes for a weak people.
Neither wife nor I ever had really fancy high paying gigs. Living below our means and ensuring the money put aside was working hard has allowed us to achieve Baseline FI by time we were in late 40’s. We raised two strong adults who are now off on their own too.
These child rearing dollars seem way off base to me. I think they are thrown out there by Financial planners to scare folks into – guess what? Going to a Financial planner.
It’s hard to truly experience the pressure and know the cost of raising a kid in an expensive coastal city if you live in the Midwest. You can see the $1.4-$1.5M median home price number, but it’s hard to really know how expensive that is for how average a house you get until you go and by one. This is partly why I want to GET OUT of SF and escape the grind and the knowledge that every parent I know is indeed spending a fortune on their kids etc.
It’s natural to extrapolate one’s situation and believe it will be the same for others. But I think the world has become a brutally competitive place where it’s harder for kids to get ahead like their parents.
BTW, not too many farm animals roaming around SF, NYC, and Washington DC! :) Let us know what the financial planner says.
Related: How To Stop Worrying About Your Child’s Future In This Brutally Competitive World
I agree with FS. I hope my $1M number is too high but it’s not unreasonable. According to the Department of Agriculture study last year the average family with an combined household income of greater than $107,000 will spend on average $372,000 to raise a child to age 18. Add in $250k of college costs (before inflation) and you’re already over $600,000 for the average. This average doesn’t include private school costs. I hope to send my children to public school but private school tuition around here is $40,000+/year if the public schools aren’t good enough. Without kids we would have a 3 bedroom house, with kids we had to go with a 4 bedroom. Adding that 4th bedroom here adds about $400,000 to the price of the house and $8,000+ extra in property taxes annually. And we haven’t gotten to any extras yet. I was fortunate enough to travel internationally with my family growing up and I want to provide that experience to my children. I believe that is valuable but it also costs thousands per year.
If I lived near my sister in Oklahoma and could buy a 4 bedroom house for $300,000 and pay $1,000/year in property taxes and send my kids to public school I’m sure the numbers would be significantly lower.
I look forward to seeing how your thoughts on this evolve as a parent. One recurring problem I have with the FIRE community, or the more publicized stories, is they are almost always single people or couples with no kids. I know you plan, as do I, to provide a good future for your children which includes education. If you’re going to send 2 kids to college in 15-18 years you’ll need close to $1M, or if you don’t include the tuition inflation you’re still looking at $500k. There is no way you support that kind of spending on budget FI of $40k/year. Even your baseline FI it would be tough.
To me the biggest reason for not quitting my job before have close to $10M is the cost of raising kids. I don’t see how it will work out for folks retiring at 35 with $1M saved if they plan to raise a family. Providing a good life, after school activities, travel opportunities, college, etc. I assume I’ll spend at least $1M per child to raise them from birth through college. (The average is ~$250,000 to get them just through high school and that doesn’t include many of the things I hope to do as a family)
Have you thought about a number that you’ll need to cover for your son?
I’ve briefly though about the number, and mentally expecting $1M from 0 – 21 or 22 sounds about right if I were to stay in SF.
For some reason, I’m not stressed about it. Maybe because he’s the most important thing in our lives, and we’d therefore spend everything we have to help him learn and grow up to be a kind, motivated, and good adult. Perhaps it’s because I’ve also run some pro forma financial numbers to see how much we’ll have in 20 years, and it seems like it could be a nice chunk of change.
All I’m doing is contributing to his 529 plan. I superfunded it in 2017 + $28K from mom and grandma. And mom will just contribute at least $14K a year for the next 4 years and then we’ll contribute $28,000 a year until college or whenever the fund maxes out. So, right then and there, we hope to have $500,000 for college.
Regarding how folks who retire at 35 w/ $1M saved can do it? It’s simple. They won’t have kids. No problem with that. It’s everyone’s personal choice.
What about shooting for $10,000,000 by 35? Then you should be able to retire pretty comfortably. How old are you?
I’ve always considered $10M to be a pretty decent goal that could fund a lifestyle + raising children without worries. Unfortunately I’m 32 right now so I won’t be able to hit that by 35. With some diligent saving, reasonable investment returns and some good performance at work that might be possible by 40. If I hit $5M at 35 I would start considering quitting my job more seriously. I grew up in the midwest, if I went back to somewhere with a lower cost of living, $200k on a 4% withdrawal rate would probably be sufficient for a pretty good life. Especially if combined with a less stressful side job even if it only made $30k-$40k/year. I’m just very risk averse and even though I save far more than I spend, I’m motivated by money (yes I know that sounds terrible but it’s honest). So it would be hard for me to quit a highly lucrative job just as my earnings are really ramping and exchange it for the unknown of semi-retirement.
And I agree with your previous post, there is nothing wrong with folks who decide to not have kids. It’s a very personal decision. I just find reading your posts to be particularly interesting because you are having children (or a child at least!) so it is more relevant to my life.
Budget FI sounds kind of like an oxymoron, but I get what you’re saying. I’d be happy to be there. We have a long way to go but I like how you placed parameters around the pyramid. There should be a projected lifestyle in mind already when one decides to retire. And the projection should be based on the amount in your accounts and the ways you’d like or need to spend it.
I like the pyramid visual of different levels of financial independence. We all know that there is so much more to this than $40K, $80K, $200K. Independent of where one lives and without the extremes of Mustachianisms, $40K can be near “baseline financial independence” when living with no debt and the kiddies living on their own. $100K is Yuge ;)
For example, we live in the burbs, the town has an average household income of 100K, average property value of $350K. That’ll cost ya $1500 a month (PI). Lot’s of BMW, Merc’s and other higher end cars, household has two cars, $1000 a month on lease. Most are both spouse working, some day care. We’re at near 3K a month with these expenses a month. If you head into FIRE with no debt allows the Basic to live like the Base. College funds, food for teenage boys, sports equipment, musical instruments, kiddie activity travel all add up.
I like the results provided by firecalc.com to determine portfolio longevity rather than more simplistic fixed rate, fixed spending approaches. Recommend everyone take a look at it, very easy to use and very flexible for more complex situations (pensions, annuities, investment style, social security)
Beyond the money, keeping busy is important, finding the niche.
We have no non investment debt (rentals that we still mortgage), last year traveled domestically extensively (NC, TX, FL, CO, SD, NY, CA) and spent about $50K including medical, prescriptions (insulin aka expensive). I would put this closer this above Baseline at Basic income levels, all due to no debt. You can really live well for little when the debt is gone and not sacrifice. Channeling Dave Ramsey, I guess.
Yea, no taxes listed…adding taxes would incorrectly skew the picture, sold a rental with lots of tax owed, our investments generate significantly more taxable income than we use and I was not aggressive enough to find ways to reduce. Taxes on $50K passive income? Will there be any in 2018 for married filing joint?
$2739 if you’re under 65, $2427 if you’re over 65
“Budget FI” sounds a whole lot better than some of the other terms I’ve heard for that one. I like it! It accurately describes what’s going on – a point in which if you kept most your current lifestyle, but slimmed down some things you’d be FI.
The formula-lover in me wonders about doing something like this for defining these levels based on the avg income of cities. Your definition of “blockbuster FI” is being able to live anywhere in the world, which could be the point – but the low end of blockbuster could be wherever in the world you want to live. I like that idea of planning for options.
I guess there is a correlation with cost of living and best places in the world to live e.g. the best places in the world to live tend to be more expensive. Therefore, problem solved with Blockbuster FI!
What do people do all week when they are retired, especially when retiring early? I retired early and struggled with being preoccupied after 3 months. It turned into boredom and slippery slope of troublesome lifestyle. I finally returned to my career part time after bucket list. I consider myself semi-retired and enjoy working more once I had balanced time off. The pros are contributing Monday through Thursday, time off, salary to pay taxes, benefits, lower stress as compared to being self-employed/ business owner, and don’t driver my partner crazy. It has taken me years to unlearn setting goals and feeling inadequate if not chasing the carrot even when I don’t need to. It surprised me. My partner enjoys working and is seeing how far she can go. It’s is probably reassuring that she doesn’t have to work, and allows her to take more risk. I have improved, but have not arrived. I guess this is a good problem to have, but I just wanted you to know retirement is not always paradise, and semi-retirement may help make the transition.
Tell us more about the slippery slope of a troublesome life you speak of. Thanks
I moved to a remote tropical Island once FI. This idea was not spontaneous, and I had planted seeds for years working off and on as an expat in the medical field. I worked with royalty and even had the life changing experience of using a gold toilet. The toilet was not really life changing at all, and somehow sad. I also had opportunities to work with orphanages literally in the tree tops and cultures who thought their medical issues were caused by spirits. There were amazing times, but I also suffered through cholera. The remaining time I worked for years in high stress, high salary, with little time off. It made me sick.
When I took the plunge it was paradise for about 3 months, but got bored of the lazy days, warm beaches, and amazing sunsets. Kind of like the big island once the nature wears off. I was drinking more. I know some of you may think I am an alcoholic, but I have never been, but I did not like that I was drinking more. I also got a dangerous reputation for having money. I never showed real wealth, but I tend to give money away especially for education and this caused some jealousy. The ladies started to have more interest in me, and the local men did not always appreciate it. An analogy could be a celebrity with money and time off. I am no celebrity. I eventually moved to a major city and enrolled in a language school, because I could not adjust to just being alive. Two years later I returned to my career in the bay area after meeting my partner from Japan who is a well-known designer in those circles. You have never heard of her. Sometimes she designs hands bags for fashion industry and secret startups. I only mentioned her because I think the goal is to find something you enjoy and get paid for it. Why would she not want to work. Semi-retirement has been a better path for me. Maybe it’s like doubles tennis, I will play that when I can’t run well anymore and I’m getting there.
Amazing. Thanks for sharing! I’m gonna have to get you for a written interview in my “Financial Success Series” coming up. Your story is fascinating!
Thanks for the offer. I’ll contact you tomorrow.
Fascinating Max. I often worry that many people are chasing this end goal at the expense of really living their current life, and what you ultimately end up with in FI may not be all that rosy, like your story.
Any level of FI used to be a huge and urgent goal of mine, but its funny how finding work you enjoy doing and keeping life balanced and interesting can take away the urgency of FI.
I’m miles away from any of the three FI levels on that pyramid, but feel like I’m finally living very close to my ideal lifestyle regardless of how much money I have. Sam’s comments about going too hard and the resulting health issues resonate with me too – my priority is avoiding that and keeping a good balance today. Like to think I’m still on track for FI though – life can change very quickly!
Buy a Fitbit and get walking! You’ll wear off your boredom :-) I average 45 miles a week. Not bad for a 60-year-old, if I do say so myself. A little over 2300 miles in 2017. My goal was 2017 miles in 2017. Reached that goal mid-November!
Walking a lot means I’m healthy for all my traveling.
To me, financial independence is being able to live how I want without worrying (too much) about money. It isn’t just about meeting X times my annual expenses and riding off into the FI sunset. Things always come up. A new roof, new septic system, etc. Also, I want my kids to go to whatever college they want and not be burdened with student loans. I want them to follow their dream careers, not be cajoled into a career because of the earnings potential. While I have a plan to retire early, I’m already struggling with the question “will that figure be enough?” If I’m being honest with myself, I won’t be able to fully retire and be completely happy and mindfully secure until I reach Blockbuster FI.
Thanks for the mention! Let’s hope I can continue to convince my wife to keep working for a few more years. :)
I think the problem is that I still have the budget FI mindset. It’s hard to change your habit especially since it worked so well. We’ll try to move up to the mid level in the next few years. Fear of a big market crash is a big factor too.
Right on! I don’t know how you do it, keeping her working for six years after you left. Not having to commute to work and deal with knuckleheads is huge! I know you would never go back, and neither would I for less than….. $3 million a year salary!
My only fear is that once your wife retires at 50 or whenever, she will kick your butt and yell at you by saying, “Why didn’t you tell me how awesome not having to work is?!”
Would you really go back for 3 million?
Let’s hope she doesn’t see this. :)
She likes working, but would like to cut back a bit. Her work doesn’t offer that option, though. It’s be great if she can find something part time. Let’s see how it goes over the next few years.
I guess I’m in the Blockbuster Category, but living in the Midwest I’d have a hard time figuring out how to spend $300k/year even though the math says it is not a problem. I think the reality is most people who are super savers are going to get to Blockbuster eventually assuming they don’t inflate their lifestyle along the way. There is a lot of truth to more money not bringing you more happiness…I spend less in “retirement” than I did while working and I’m exponentially happier. I checked my taxable account for the first time this year and it in the first 11 days it is up more than I’ll spend this year, interesting times indeed.
With Blockbuster money, thoughts of leaving the cold Midwest for paradise? That’s an easy way to spend your money.
I don’t know if all super savers will eventually get to Blockbuster, b/c we run against a wall: time.
Well I do when its cold…spent 5 weeks last year visiting Oahu, Kauai, Maui, and the Big Island, 2 weeks sailing in the Bahamas, a week driving the French Riviera, a week hiking the Tetons, and spent Christmas through new years in Costa Rica. Off to Florida next week, then Turks and Caicos next month…haven’t thought too much farther ahead than that. Still no better place on earth to spend summers than on a big lake in the Midwest surfing everyday, anchoring on the sandbar for some sunshine and sunset boat rides or just sitting on your dock watching perfect sunsets over the water…and $100k a year spends like $300k on the coasts. Hopefully people don’t figure it out I’d hate for it to get spoiled with the crazy crowds.
Admittedly I’m in the process of visiting all the best places before I decide where the forever home base will be. If Hawaii wasn’t so damn far away I could see that being in the running, hell it still might be…big sticking point is there really isn’t boating like there is in the Caribbean.
It’s funny you mention the different psychological levels of financial independence. I read a lot of blogs and there is this one Blogger who goes on every single other blog and shouts from the top of his lungs that he is a multimillionaire. But he has no self-confidence because his wife still works. His writing oozes insecurity probably due to the lack of friends, lack of success from his site, and lack of purpose. He also likes to write about his investments, but he’ll only publish his winners and never his losers and he’ll never talk about them when he does make an investment.
Psychology is fun!
I have to say I also read a ton of blogs and I am darned if I know for sure who you are talking about.I could guess but that would be rather inappropriate….
I do agree with your general point that screaming form the top of your lungs that you are a millionaire (or stable genius….) with a knack for picking stock winners is not going to endear you to many savvy Personal Finance people
Hint: sea animal
Don’t want to bag on others publicly.
I guessed right, and mostly agree with your comment. However, I am guessing he has no losing stocks. Who would after an 8 yr bull market? I think I have over 80 positions and they are all up big, no losers.
Why are you being so rough on him? I disagree with him on a number of topics, so my comments don’t pass screening, although he did write an article about one.
2mm net worth and still at the bottom of the pyramid.
5m vs 10m is a big difference in lifestyle with respect to passive income .
Back to work for me
I recall an article about this very topic from a long time ago (early 1990s?) in the Wall Street Journal. They also outlined three levels of retirement financial readiness that they described in food terms as “beer and pretzels”, “steak and wine”, and “champagne and caviar”. I recall their nest egg targets were 2M, 6M, and 20M in USD for these ranges. These would be much higher today after adjusting for inflation.
Perhaps that article was directed towards mid-level executives looking to escape the grind. Now that living off passive income has gone mainstream these three levels have downscaled a bit. Among the younger crowd on Reddit they’re known as leanfire, fire, and fatfire, respectively.
Another source of variability in these targets besides what is driven by desired spendrate is what one considers a “safe withdrawal rate”. There is considerable variation of opinion on this topic with rates ranging from 2% (Bernstein) to 5% (general FA rule of thumb).
Currently I’m in your blockbuster range and I still work full time. In silicon valley these days these three ranges inflate on the high end– maybe something like seven, eight, and nine figures (blockchain FI?). I used the leverage from my financial situation to present my employer with an ultimatum about working conditions (i.e. I control my location, schedule, and work content), and they seem happy to accommodate. No idea how long this job nirvana lasts but it’s been a sweet ride so far.
Just realized there is a voice over at the bottom! Awesome
There’s even a Financial Samurai iTunes channel you can subscribe to that automatically notifies you of the audio versions. Only works on mobile or iPad for some reasons.
You are the man!
Best article I’ve ever read on this subject. You are spot on and a talented writer. Living FI lifestyle is a total mental game. I went through budget FI, currently in living in Baseline FI.
I want to be solidly in the middle – i.e. comfort zone, in the next 5 years. Right now I could hit the frugal FI button likely in the next year or so, but would not be happy there. I like the idea of the continuum. My in-laws are shooting for blockbuster FI, but they both own tech businesses that are doing well…so their reality differs slightly from mine.
Great post Sam!
Hey Sam, I think you hit a very important issue with “Financial independence also means being able to overcome your psychological fears to truly live free.” Thanks for bringing this up!
Figuring out the “money part” is not easy… but it is the easier one… to figure out the psychological part is a lot harder. Mostly because not many people pay attention to it. There are a lot of stuff going on “below the surface”… specially stuff from an age where we were too young to even remember what happened.
Like FullTimeFinance mentioned, it is not very good is to have the money if you are always worried about it.
I think the challenge is to strive for your goal, be grateful for whatever progress you have made (even if none; which I would translate as “still learning, better stuff will come later”), and have peace of mind not to worry too much about the future (we cannot control it anyway).
Do you do something to handle/improve the psychological side of it? Meditation, sports, anything?
PS: Meditation is ding wonders for my wife… but I never manage to start… maybe there is an “internal psychological block”… :-)
All the best,
I practice gratitude every day and play sports 3X a week. That helps with relieving pressure and staying fit and happy. I’m still wearing my jeans from my early 20s whoo hoo! Also pumped no gray hairs have sprouted out yet at 40.
The second half of my life will be all about finding ways to take it easy and increase productivity as well.
That’s a great routine. I am at the “trying to increase productivity” part… to have more time with my kids… it’s been a bit difficult to take it easy, though… but I am improving. :-)
ah… and congrats about the jeans!
I hope to end up somewhere in the “Blockbuster FI” category eventually, only because I am a worker. I like starting businesses, and making sales, so I’ll probably always be doing something creative. I just want to get rid of the fear and pressure that comes with being dependent on money. The fear of losing a big client, or the pressure of having a competitor undercut me with prices, and always being on edge. Once I am FI, I can just have fun running businesses and really not care about the money I make. That’s the dream I am striving for. My first quarter-million is in the bank, and generating me $1000 passive income a month, so I think the hardest stage of getting it going is over. Now I just have to keep building it. Always enjoy stopping by. Billy B.
Can you explain how 250,000 generates $1,000 a month?
I realize this is not directed at me, but let me give you my current retirement “job”. I hold rehab notes for real estate investors. I carefully underwrite (evaluate) the deal and my returns are 1% a month. That $250,000 would generate $2500 a month. My cash utilization is also very high. My retirement job has a great following now, I rarely have enough capital to meet all the needs.
Enjoyed reading this one Sam.
I would suggest adding another dimension to your pyramid that would take into account geography. This dimension could be a plane stretching out into the distance from your 2-D pyramid.
That is, $200,000 may well be needed for some to live like the blockbuster FI in SF, NYC or Boston. But you could live like a king for half of that or less in many parts of the country. Even lower if you go international to some geographies in Asia or South America.
I may have to post a visual graphic on Twitter to explain what I mean with the 3D pyramid analogy…..
True. The question though is: can you truly live like a King if you don’t live in the best places in the world?
I definitely wouldn’t want to be the King of Pyongyang!
“Can you truly live like a King if you don’t live in the best places in the world?”
Agree though it all depends how one defines “best”. I put Madison, WI as one of the best places to live in the US and so do many others. Sure it’s small and not on a coast, but it’s one of the top biking cities in the US. It’s consistently ranked near the top for livability, surrounded by 4 lakes that are used year-round, home to a great public University and has a good tech scene with Epic Systems (EMR leader) and a nationally ranked accelerator, gener8tor. Plus it’s in America’s Heartland! The winters can get rough, but considering the median home price is only $220K it doesn’t take much to live large. Just light one of the fireplaces!
Perhaps its biggest asset is fresh water. Four lakes and close proximity to the Great Lakes is huge. With other parts of the country drying out, access to fresh water is only going to become more and more valuable in the future.
When you say $250k-300k in annual passive income.makes life really really good, are you referring to gross income or after tax income. In fact, some clarity around before or after tax income levels would be helpful for all the dollar figures in this post. The new tax structure significantly affects people in the Blockbuster FI cayegory, mostly on adverse ways, so.i am curious about of the targets change based on before or after tax income, especially of one does not have a small business owner properties to use for tax write offs. Thanks
Gross income, as everyone’s tax situation is different.
We are aged 52/53. Wife is retired. We are now somewhere between Baseline and Blockbuster FI. We are financially free. We have enough of investable assets to live the next 58 years but I am NOT psychological free because of my golden handcuffs to reach age 55 to double my pension and to get retiree medical coverage.
Since I am less than 21 months away to 55, it is a mental daily struggle to get thru the day, the week and the months. It is so depressing at work since all of my co-workers have been laidoff. There is no one for “water cooler” talk. Over IT 1000 ppl were laid off from 2012 to 2017. It can be stressful at times to support the IT systems by myself. I have hobbies to help take my mind a little off the countdown clock. We take vacations so that I can get mentally away. Since I work from home, we try to go out at least once a week for lunch. I read your site and RB40’s site NUMEROUS times a day to take my mind of work.
Our annual expenses were 45K for many years. In 2017, we loosen up and we spent 70K. I went overboard by spending 10K on my hobbies this year. This won’t be yearly expense. Since we are fearful of losing our financial nut, we play it safe. We are not greedy. We strive for a min of 3.5% to 4% a year.
For 2018 and beyond, we will continue to keep it simple with stress free passive investments.
Our goal is to have passive income 2-3x expenses.
– 100% of muni bonds since 2009 and no stocks since 2000.
– 1.8M of 3.75% to 5% munis bonds that will generate 80K tax free in 2018. 175K of 5% munis were called in 2017 and needs to be re-invested in 2018. Another 300K of 5% munis are callable in 2018.
– Our 401Ks are invested in guarantee fixed dollar like a savings acct. In 2018, the rate is 4.35% and interest generated will be over 80K a year. No more stocks since the dot com bubble in 2000. By age 60, we hope that it will generate 100K combined yearly.
– We have 8 years of living expenses in savings.
– Wife is retired with a 52K pension and 8K yearly for company retiree medical.
– My pension will be 70K at age 55 and will get 8K yearly for retiree medical. Retiree company medical is currently $12.8K in 2018 and it increases every year. If I leave before 55 then my pension is 39K at age 55 and I would NOT get any medical coverage. I want the financial security of a higher pension and the security of having the company medical so that I don’t depend on the Obamacare which may not be around in the future.
– Combined Social Security of 36K at age 62.
– In the next couple of years, we will look to buy a 1 to 2 br co-op or condo and sell the house to down size. Pocket 1/3 to 1/2 of the money from the sale of the house.
Our Passive income at different ages
Age 52 to 54: 132K = 80K + 52K (Munis & 1 pension)
Age 55 to 59: 202K = 80K + 52K + 70K (Munis & both pensions)
Age 60 to 61: 302K = 80K + 52K + 70K + 100K (Munis, pensions, 401Ks)
Age 62 plus : 338K = 80K + 52K + 70K + 100K + 36K (Munis, pensions, 401Ks, Social Security)
There is another re-org at work. Rumour has it that I am affected it. If I have to quit because I don’t like my new boss then my pension would be 39K at age 55 w/o any retiree medical coverage. Since my wife was laid off in 2016 with a severance, I am not eligible for a severance because of company policy that they don’t laid off both spouses. Since I am so close, Wifey wants me to work until 55 and I agree. Since life always throws a curve ball, I rather be more financially secure.
With 21 months left to go and being miserable, how about aggressively asking for a raise or a better project a sabbatical or a relocation for a new adventure? Not too much left to lose, except for your pension amount at your level of net worth.
What is your fear that makes you not want to more aggressively ask for what you want at work to be more happy? Having 2-3X your annual living expenses for passive income is A LOT.
Sam, I am not miserable, just less happy. I will be in the same company this summer for 31 years. I have been doing 24×7 online support for the last 29 years and it took a toll on me. It is just that I am so antsy since I am so close to retirement. I have been planning my retirement and counting down since age 30. Having no more close friends and a backup at work makes it a struggle to get thru the day. It is basically no fun at work without my buddies since they were all replaced with Indian consultants. It has been over a year being on my own and I just have to get used to it. My parents worked in a garment factory until their 60’s so I can’t complain.
Many of my co-worker that were laid off are struggling to find another job. Some had to relocate to another state or commute daily to another state. Some are still unemployed. That is why I am so appreciative to have the same job and I am still able to build up my pension.
Since I am so close, I won’t ask for more money or be aggressive because I don’t to jeopardize my retirement at 55. Losing 31K less pension plus 8K for medical is a total loss of 39K passive income. It takes $975,000 at 4% to generate 39K. With a better pension of 70K instead of 39K means that both pensions of 132K (70K+52K) will more than cover expenses. Then we can stop buying munis and that 2M of principle can be used to buy a decent place in Hawaii if we choose to. Wife said NO to buying so I have to work on her.
More money for my salary will not make me much happier. I don’t want more stress by working on something new. I just want to support my existing systems until they are rewritten externally or until I reach 55. I don’t want to rock the boat. In fact, I am mentally prepared to not get any more raises or a bonus from this day forward and I am OK with it. What I support is considered obsolete so they won’t throw money at me which doesn’t bother me.
I am not the poster boy suckup or the golden boy on the team. Those guys work on the new stuff and they attend meetings all day to show how busy they are. They do the dog and pony shows to mgmt. I make 172K a year and I only work 10-20 hours a week from home. When there are problems or after hours or late weekend work then it can be stressful. Being on 24×7 online support sucks but that is part of the job. I am the ONLY one that knows my systems so if they want to get rid of me than so be it. I just want to gracefully try my best to make it to 55 and just retire.
My mgr just told me today that I am not being transferred. I am so relieved and less anxious now that I don’t have to break in a new boss. The other boss would have been a micro mgr and that could cause me to quit. My boss wants me to stay another 3-5 years and he also wants me to work on something new so that I stay interested. Arg, no thanks! I suspect he knows I want to retire at 55 but I am not saying so.
Hang in there, Adam. I’m in the similar boat as you. I’m 51, looking to retire @55 when my son goes to college (his tuition is already saved in separate 529 account). @4% withdraw rate, we have enough assets to generate passive incomes of $250K+, and our annual living expense is <$100K. Neither me or wife have pension or medical coverage, but we do have 401K and some prior HSA savings.
Work wise i'm a bit fortunate to still work at a good company and managers, so it's not a big deal to continue working, although the work can be repetitive and lack of challenge, i consider that a blessing. Still, once you know the date it seems hard to keep still, but the anxiety seems more from the retirement itself (what would I do), rather than the current work. I think for people who are fortunate enough to not worry about financials after retirement, our real challenge is the lifestyle choice and psychological change we need to adapt to.
Thanks, Eric! You guys are doing GREAT generating that amount of passive income w/o pensions and it is a PLUS that you can continue your job.
We are very lucky to have pensions and retiree medical. This is why I need to reset my brain to appreciate what we have and to get out of my funk.
Our company has gotten rid of many workers before age 55 so that their pension will be much lower. Hence my anxiety. Since I am so close to 55, I feel like a kid in a car asking “are we there yet”.
I agree with you about setting a date. I am just so antsy to get out. I have several hobbies to keep me busy so I wont be bored in retirement. I am OK just chillin in the house doing nothing. I also have many older co-workers and friends that are retired which we can visit. We also plan to travel.
I love the Pyramid. I have this discussion with my wife all the time. While it’s certainly possible to live a lower middle class lifestyle, we don’t do so now so it’s not really our retirement goal either. My goal is to get to baseline FI before losing a regular income and hopefully have hobby income and investments take me to Blockbuster (remember them?) FI later on.
I guess EBFI is the Unicorn — Early Blockbuster Financial Independence. Pretty tough to make that happen without building and selling a business, inheriting a pile of money, or striking gold with a unique patent or crypto or something.
We’re somewhere on the pyramid between Basic and Blockbuster, but living in the midwest, it feels more like Blockbuster, even though we’ve got a long ways to go to reach the minimum threshold. Still, when we travel to expensive places, we naturally become more conservative with our money.
We’re spending 23 days in February in one of your favorite places — Hawaii — and my wife was talking yesterday about packing a carry-on with groceries purchased in Minnesota. I don’t know if those habits would change with any level of FI.
That would be funny if she brought an extra bag for groceries to bring to the American state of Hawaii, where they have groceries too!
I forgot whether you mentioned you are still working part-time? If so, when will that end if you’re between Baseline and Blockbuster?
I like this approach, although the numbers are a bit skewed at the top of the pyramid due to the cost of living factor. I think you can stand to drop those numbers by up to half depending on where you live. I also assume you include traditional tax-advantaged retirement accounts when you talk about investable assets.
If that’s the case, for our household we’re currently straddling budget and baseline FI. Another 5 years and we’ll be firmly in baseline. We could reach blockbuster FI but that would require at least an additional 5 years of work, and the associated benefits would not be worth it in my opinion.
Not so much for almost half the population of America that live in expensive coastal cities. Sure, you can live off less, but the whole goal of FI is to be completely financially comfortable.
What a new way of seeing financial independence. I never thought in this way. However, I see this more like a path…where you start on a budget FI and work yourself out until reaching Blockbuster FI.
For me, true FI is where you stop worrying about the expected and the unexpected events that could eventually happen.
You’ll never stop worrying until you hit 30+ million.
Ehh, I don’t know. I’ve got around $6.5M in assets, plus own a business that makes ~$2M/year. I make like $50k/year in rental income from investment properties, $75k/year in real estate gains, $50k/year from real estate loans, money from stock market gains, CDs (2%).
I used to be afraid, but now that I have so many sources of income, I don’t really care as much. I only spend like $100k/year, so I am fine for a long time.
Can you share your thoughts on your small spending As a percentage of your net worth and whether you struggle to spend more? I’ve had a struggle for several years now, but I feel that at eight or 40, I will be able to spend a higher percentage.
You don’t worry because your business brings in $2M a year.
I have $15M in assets, but I worry because I don’t have business income. My asset appreciation has been enormous these last two years, but I generate almost nothing in passive income… less than $120k. That asset appreciation could disappear in the blink of an eye. I’m working on it. :-P
I don’t know what the bulk of your assets are in, but you could definitely significantly increase your cashflow with that much in assets.
Mostly public equities. I have massive gains, so reallocating capital means paying huge tax bills. You may have the same issue if you were to ever sell your business. My hands are somewhat tied due to tax liability.
I also have close to 4 million real estate equity, but those are sitting on hefty capital gains as well. My cost basis is 1.1 million (some of it bought in 2012).
It seems you’re not taking into account inflation into your calculations. For example, in your second criteria for FI you are assuming someone that lives off of $100k can continue to do so for 30 years because they have a net worth of $3M. In 30 years, the purchasing power of $100k will probably be less than half of what it is today.
The same applies when you calculate the net worth required for the yearly withdrawals at each FI level, you are not taking into account inflation, taxes and other costs, which could be misleading.
I would suggest a different, commonly used, approach to calculating withdrawals with the 4% rule (I believed you’ve blogged about this in the past). What is not so often explain is that in order to achieve yearly withdrawals of 3%-4% to live off of, you need to obtain investment returns upwards of 5%-8% to account for inflation, taxes and other costs.
Lastly, the following statement in your article is misleading:
Given the 10-year bond yield is at ~2.5%, everybody should make at least 2.5% a year on their investable assets risk free. If you’re losing money during your financial independence years, you haven’t been investing properly.
You are suggesting that because the risk free rate of return is 2.5% anybody who is not obtaining that return is not invested “properly”. However, risk is a real thing and it affects investment returns, and everybody invests with different objectives in mind. I would argue that anybody pursuing financial independence that is 100% invested in ten year bonds is not properly invested because the return from that portfolio will likely only keep up with inflation (if that). Whereas somebody who is pursuing financial independence would be better served in a balanced portfolio including stocks, bonds and maybe other asset classes. This portfolio is more than likely to return less than 2.5% in any given year, but is a more “proper” asset allocation to meet his objectives than is investing 100% of the portfolio in 10 year bonds.
I’m a long time reader and fan of your blog, and felt I should point out these glaring issues with this article.
These are minimum guidelines and I do talk about inflation. If your investable assets generate at least the 10-year bond yield, you are by definition beating inflation almost all the time. And the 10-year bond yield is the minimum of the 2.5% – 5% suggested range.
When you’ve won the game, hitting singles will do. You’ll love the topic of my next post.
When did you reach FI, how old are you, and what type of risks are you taking with your investable income? Might input your response in an upcoming post!
Just recently after the sale of a business. I’m 32 and an aiming for 8% return on my portfolio, which accounts for a 3% withdrawal rate, 2% inflation factor, 2.5% generational factor (for each of my kids to have the same wealth as I do in 30 years) and 0.5% for advisory fees and expenses.
Looking forward to seeing the topic your next post!
I’m not sure why people get so worked up over inflation. Even if you only invested in T-Bills (maturity less than one year), and kept rolling them over, you beat inflation by 0.1% over the long run.
This is an incredibly low hurdle to beat if you’re invested in any reasonable portfolio.
Awesome post and a dose of reality!
When you define income in this example is it the total of dividends and other passive income AND investment returns? Seems to be so but I wanted to confirm.
Good question. My original belief is all non-working INCOME, and not investment returns, nless one is actively drawing down principal to pay for life (second definition of FI in the intro).
I’d try not to draw down principal for as long as possible.
This is an interesting categorization. I have never thought of FI this way. We will end up probably between Baseline and Blockbuster FI.
Hubby and I have been talking about moving to a cheaper state for a while. We live in DC and feel that it’s a bit expensive. Onwards to FI!
I like these stages, they remind me of the Stages of Financial Independence (or Freedom) but only focusing on the actual part that you’re FI at.
I think we will probably start considering quitting once we hit Budget FI, but with how risk-averse my wife is, I wouldn’t be surprised if she’d prefer to keep working until Blockbuster FI. I don’t have that in me though :)
Were already in budget fi. I will be somewhere between the top two when I pull the plug.
The thing that always pops into my mind is fi is also psychological. Even if you meet the math definition of fi if your still deeply worried about money has it really mattered? I’m not talking about 1 more year like Joe. I’m more talking about those who are obsessed with the fear of running out in retirement. I’ve met some.
Interesting thoughts Sam,
But who in the hell would just want baseline FI?
Or Budget FI I should say.
The average wage slave would be thrilled to achieve Budget FI.
Many people want that level of FI. MANY people.
Yeah, there are lots of people who are content with baseline/budget FI. They have “enough.” And are content with ‘enough.”
I hold my hand up and say that I’m one of the odd ones who would be content with enough. That’s not to say there is anything wrong with those striving for more than enough. For me, I’m not convinced it is worth my time and effort, nor will it give me much more satisfaction or happiness in life. The term ‘enough’ is interesting in itself. It’s all relative. One person’s enough is another person’s ‘plenty’. Even at Budget FI, without a car finance or mortgage, I consider that to be a very healthy financial position to be in. I might change my mind in 7 years time when I reach my number, but that’s okay. Everyone’s idea of FI will be different and we all reserve the right to adapt our plans to suit our changing needs.
The vast majority of Ameerica will sadly never get to even the first level. Their retirement will funded almost entirely by social security. We on this blog are not representative of the country and that is sad. I have talked to countless individuals about making better decisions with their money and I can only think of one couple, in the 90’s, who took it to heart. They are now well off. The rest just kept making the same bad decisions over and over again.
The Mr’s number is 3 million if stress levels and everything stay the way they are. I consider that basic FI because we will live on $80K a year which is $1K above the definition of middle class in Seattle metro. (Although we plan to move & travel aboard).
We would be happy with budget FI. $40k in America’s heartland is still great money. I have a blockbuster dream though. Which is all well and good because it’s just fantasy for now. Hubby isn’t on board with anything above 3 million so I told him the first 3 is his, the rest is on me :) Maybe Joe has the same pact with his wife.
A couple of years ago, I made a long post to /r/financialindependence about what I called the six degrees of financial independence. (The anchor text is in strange place there because I intend to re-write about this at GRS, and would prefer the link juice to got to me, not reddit haha.)
My main point was that financial independence isn’t a single point or event. It’s a continuum. Each dollar we save grants us greater financial freedom. There are a variety of major milestones. For instance, achieving positive cash flow (earning more than you spend) brings one type of financial independence. Getting out of debt brings another. And so on.
I suggested that once you achieve F-U money (another level of FI), there’s a large gap lasting many years until you reach what I call security — having enough to support a bare-bones lifestyle for the rest of your life. (This probably maps to someplace just below your “budget financial independence”.) Reddit folks might consider this leanFIRE.
Next, there’s independence, which is what most people think of as FI (and what you call basic FI). Your investments can support your CURRENT lifestyle for the rest of your life — in theory. Lastly, I suggested that abundance was the level at which you can essentially do whatever you want without ever again worrying about money. Redditors would call this fatFIRE. You call it “blockbuster FI”.
I think too many people become over-focused on their number, on achieving what you call basic FI and I call independence. They’re so dialed in on that that they ignore the fact that they’re gradually achieving greater independence all the time. That’s too bad. I think folks would be happier if they could take the time to appreciate their state, you know?
Anyhow, I do intend to write about this concept sometime soon. I’ve had it on my editorial calendar for January 29th, but my editorial calendar is really only a loose guide. When I do write the article, I’ll be sure to link back to this piece!
Looking forward to reading the post! 6 stages is a lot! I can barely remember 3. It’s why airlines have Coach, Business, and First.
I’ve never spent any time on Reddit before. Hope folks are nice over there!
That’s a pretty good insight
Hi J.D. –
That’s a good point about only thinking about that end goal, and losing sight of the progress. I had a really great year in 2017 but because I feel so far from my overall goal, it feels insignificant. I’m trying to relax more and focus on smaller steps.
Don’t forget about F-Everybody tier. That’s a Mark Cuban term.
I’d consider FI to be having enough passive income to cover all of one’s expenses (including any “and then some items”), regardless of net worth.
If someone has $100,000 or $1,000,000 a year in expenses and their passive income can cover those expenses, I’d consider them financially independent.
As you mentioned, Sam, this will vary by individual.
You can reach Blockbuster FI by selling your business and investing the proceeds in passive income generating investments. No more long hours of blogging, and more time to devote to your child and other pursuits?
True, he could do that, but then what would he actually do? Kids are great, but until they get a bit older, they’re boring. Plus, he’s already said that this blog is already his passion project, so why give that up? Finally, this could serve as a last defense against a great depression. If stocks suddenly go in the negative, people are still going to have some free time to look stuff up online. This blog could then be the difference between him having to go back to work or being able to maintain some semblance of his lifestyle and still feed his family.
It’s funny, because I just found out a couple peers sold their sites for $5.8M and $7M, respectively. They are both about the same size as FS.
It gives me something to think about, because I do have a couple other sites I could simply leisurely write on. Could be fun to cash out. But I don’t think $6M – $7M would change my life at all. I’ll write a post about it.
I’ve never considered the concept of breaking it down into “levels” but regardless, how can anyone truly feel 100% financially secure? The market – and the world itself – is unpredictable. One day you could also wake up to find your leading financial account hacked to 0 by some anonymous cyberspatial villain!
Regardless of how high up I could get, I would never change my frugal/efficient ways of living; it’s a way of life for me.
If the world truly is against you to the point where the entire market is upside down, or the world is going crazy, you can’t be sure your assets will remaining with you. I always tell people “If you’re index investing or properly diversified in the entire world, I’d argue you’d have bigger problems if your portfolio went to 0, like where and how to get food”
Efficiency and frugality are honorable goals, just be careful not to sacrifice your enjoyment of life due to fear.
Devin – I agree with this wholeheartedly! I like to make wise financial decisions like everyone else and always look for a deal. However, when I see things like on the internet like “family of 4 survives on $10,000 a year”, my first thought is “who would want to” and what kind of life do they have in the end?
As for Sam’s levels, this is the reason I started to pursue more sources of passive income. I wanted to at least partially break the chain of being tied totally to a market return. I am nowhere near Sam’s league in terms of assets or passive income but it now represents a decent amount of our total income. I worry less about market returns and more about the viability of the income stream persisting. I use 3 fintech platforms for real estate which represents about 12% of my overall portfolio, a closed end fund designed for income, a high quality MLP and at this time a boatload of cash since I think bonds represent a bad value.
I am still a believer in indexing and market based investing. It is just that I no longer believe it is an all or nothing proposition. It is clear to me that a portfolio can achieve both. That way, I am not worried so much about the returns of the market as long as I have the buffer of passive streams of income. That is thanks to Sam.
True, the world is a bit unpredictable. That said, if you’re invested in a very broad index (like VTI, VTSMX/VTSAX), you are as protected as possible. If those indexes collapse/devalue, there are far greater issues going on than money. You would be fighting to eat and survive at that point, and money would be worthless. So, other than the world ending as we know it, you can be FI and have 99.9% assurance you are financially safe.