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Un-Borking FI and Debunking the Middle Class Trap

bryano · May 15, 2026 · 17 replies

Ever since I found FI, I've been growing increasingly annoyed with the complexity and caveats of the "Am I FI" questions and explanations when someone talks about their "FI number." Am I good at 25x expenses, and is that really a good number? What if I have rental properties? What about a pension?

Let's fix the terminology! Your FI number is your cash flow requirement (i.e. your expenses), end of story! Period! Full stop! Done and dusted. Case closed. What is the absolute, #1 most foundational number required for anything FI? Yep, your expenses. What is the only number you cannot even begin to calculate or speculate on if you're FI? Yep, your anticipated expenses. What number does the FI community call the FI number? Some result of an equation using a multiple of their expenses, that unless they caveat it to heck and back, will never accommodate other streams of income and thus always be inaccurate. Can we just stop with that? What was the only number that was mandatory? Yes, their expenses. Let's redefine "FI number" as your expenses, or the projected expenses necessary to be FI.

I'm not saying you throw away the 4%/25x rule, I'm just saying it's value is only in calculating projected, sustainable cash flow. It has only and will only ever be one number that you use to add to every all the other possible cash flow numbers that you use to see if you out-earn your expenses, which is what we call reaching FI, which is why your FI number is your expense requirement.

Middle class trap? It's not real if we use a "proper" FI number. It doesn't exist. It doesn't even make sense. Take a base example today: Someone has $750k in home equity and $2m in traditional IRA. Depending on which way you calculate your "FI number" (the silly one we use today), you're either $2m or $2.75m, which means $80k or $110k/year, which means you're FI with $80k expenses, but you're TRAPPED! OMGshockHorrorHeadlines and a few more podcast episodes!!! Let's do it with the right FI number: $80k. Let's see... the house cash flow is... yup, $0. The $2m in trad 401k could provide: $2m - 10% penalty (because it's "trapped" and you'd have to early withdraw) = $1.8m. Throw some 4% maths at that and it's $72k/year. Add in your other streams of income ($0 because it's "the trap" right?). The total is $72k/year. You aren't FI. Done. End of story. You aren't trapped, you aren't a victim, FI still works in every case because we removed the flawed foundational assumption, and you simply move on with your plans to FI.

Can we please make a movement to fix the wrong definition of the FI number? Your real FI number is the easiest number to know in all of FI. Let the complexity live where it belongs, in figuring out durability and reliability of your income streams: monte carlo sims for your invested cash, cash flow calculators for your rental properties, financial statements from whoever holds your pension, etc. etc. etc.

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Replies (17)

BeckyOColorado

2 months ago

I really appreciate this conversation. I started a similar thread a while ago:

::embed{discussion:calculating-your-fi-number-can-we-please-be-more-nuanced}:: I like what Bryano is saying because the emphasis is on expenses, which also points our attention to the fact that 1) to a great extent we have control over our expenses, and 2) our expenses are going to vary throughout our lives. How much I spend when I'm 45, 55, 65, etc. is going to vary. The only way I was able to figure out my FI number and have confidence in being able to quit working (which I did last year), was to spreadsheet out my life year-by-year from now until my mid-90s. I could then play around with my various income sources and expenses and figure out if each year I'd have enough income to cover expenses. I think the 25x is a simplification just in the way that a compounding interest calculator is a simplification. It gives you some info, but then you need something like a simulator (e.g. Projection Lab) to really figure out what works for you. I do understand the need for something simple for newcomers to start to get their head around it, but I wish that "something simple" was more along the lines of what Bryano is proposing.

1 month ago

I use Projection Lab also, to give me a more realistic roadmap on my FI journey. I have 4 brokerage accts (401k, Roth IRA, current employer 401k, and Taxable acct), plus VA Disability compensation and (future start date income streams) Military reserve pension, Social Security. Since some have varing Start and stop timelines (until that bucket is depleted); I really wanted to see a comprehensive visual. This was wonderful to see how it all flows together, and made it seem simpler than I originally expected. I can project for additional future needs, and have a more Realistic savings goal.

UncleFrank

2 months ago

Yeah, this was never that hard. But a lot of people like to make it harder to (1) sound smart, because pessimism sounds smarter; and/or (2) justify hoarding and hustling behaviors.

Traditional personal finance is actually built on hoarding and over-accumulation as the real strategy, not any particular investments or ever getting to "enough". Your typical traditional personal finance guru has either worked an extra decade to save twice as much as they need (and is quite proud of it) and/or continues to hustle for money "because they love their job so much just like Warren Buffett." Yeah, right.

The real ethos of FI is not about Hustling and Hoarding – its not traditional Boglehead Hoarding finance. It's about Harvesting your resources and conserving your time for more important things than Hustling for more money you don't actually need.

CincyFlyer

2 months ago

Expenses minus guaranteed income, which some sources call the “shortfall”. That sidesteps all the useless “how does my pension/SS/other annnuity affect my FI number” questions.

Roberto Sánchez

2 months ago

While this approach does simplify things a bit, things aren't always so simple. If there is a possibility that the company may default on its pension obligation, then the risk of that possibility needs to be factored into the plan. There is also the need to think through how various aspects of the particular pension (e.g., whether or not healthcare is covered and if so how much, whether or not the pension is indexed for inflation, etc.)

UncleFrank

2 months ago

This response is a good example of the cognitive bias known as "The Possibility Effect", where any remote possibility is elevated to an actionable probability. It is not reality based. It's fear based. It's Rain Man thinking – one plane crashed, so we need to panic about that every time we fly.

Nice excuses for hoarding. Dogs and cats may start living together, too. What on earth will you do?

Roberto Sánchez

2 months ago

Hi @UncleFrank I'm a bit disappointed by your comment. Having read Grumpus Maximus' book "The Golden Albatross" I am aware that there are a dizzying array of differences between various pensions. It is useful to think through those aspects from a risk management perspective (something I'm sure you recognize the need for). Far from advocating for hoarding, I am advocating for a reasoned understanding of how a pension might fit into a FI plan.

To take one specific point that is relevant in the life of a close relative, a pension that is not indexed for inflation has a diminishing value over time. For a time horizon of 30+ years, it could be unwise to mix a pension pay out of, say, $2000/month into a plan without realizing that in 25 years or so that $2000/month will still be $2000/month nominally and likely will have lost half its purchasing power. In a case like that, the draw on the portfolio might need to increase to cover both the inflation on the portfolio spend amount and also to cover the inflation induced-gap created by the reduced buying power of the pension.

BostonFI

2 months ago

My experience in discussions about the FI number has been different. In discussions I've seen, FI number has always taken into account income. If you'll have sustained income in retirement (social security, pension, rental income, etc.), this income is subtracted from your planned expenses before multiplying by whatever factor you're using (25x, 30x, something else). If I anticipate having $100K in expenses annually but social security and a pension will together provide $40K of income annually, my savings need to cover only $60K of my expenses annually.

The reason FI number isn't just expenses is that FI number is meant to be a savings target that a person can aim for. "I need to cover $60K of income annually. I'm retiring at 60 so I'll use 25x. My FI number is $1.5M." As with anything, the output is only as good as the inputs.

Illiquid assets like your primary residence are part of your net worth calculation, but they're excluded from the FI number calculation. Only liquid assets that you can sell to cover living expenses should be part of the FI number calculation.

bryano

2 months ago

Exactly! It's almost as if the number we're calling our "FI number" today is just a savings target to give us particular cash flow. That number is added to our other cash flow numbers until the total is… our real FI number, which is our expenses.

BostonFI

2 months ago

…the number we're calling our "FI number" today is just a savings target to give us particular cash flow.

Yes, this is correct. The FI number is a savings target. It's the amount you need to save on your own to meet your future spending needs. Your FI number doesn't include sustained future income streams because you don't need to save that. This is why, for example, a BaristaFI number is smaller—because the person's savings need is smaller. You're going to have a tricky time communicating with others if you redefine established terms.

Note the concept of a FI number is independent of the 4% rule. The "4% rule" was a simplified take by the media to make Bill Bengen's research easier to communicate to audiences. The rule contains assumptions that are often left out of mentions of the rule like a 50/50 asset allocation and a worst-case scenario. Using the 4% rule to determine FI number is—like the rule itself—just a simplified guideline to help people who are just getting started aim for something.

Henry

2 months ago

"It's almost as if the number we're calling our "FI number" today is just a savings target to give us particular cash flow."

This is literally the definition of what the FI number based on the 4% rule is, and this is all it has ever claimed to be. It's an amount that will give you the annual cash flow that you need based on a 4% withdrawal rate. I don't understand what we are ranting about here….

bryano

2 months ago

Correct. "Based on the 4% rule." This only works for those people that have NO other passive income sources, which is wildly myopic in today's world. It's essentially the FI community saying they only support the stock market. Anyone else has to go jerry-rig the numbers because they're weird. There is more than 1 way to skin the FI cat, and having the FI number be based on the 4% rule is narrow-minded, and I'd say particularly painful given that people thinking of FI tend to be financially intelligent.

Henry

2 months ago

"This only works for those people that have NO other passive income sources"

You're throwing the baby out with the bath water. The 4% rule of thumb applies to everyone who is going to rely on an investment portfolio for some part of their needs in order to be FI.

Obviously if you have some other passive income source then you need to take that into account, and this comes up all the time. That's part of the planning you need to do, but it does not invalidate the concept of the 4% rule.

bryano

2 months ago

The 4% rule is super valuable, which isn't actually the discussion. My issue is with the specific term "FI number." In the FI community, that number is equated with 25x your expenses, which is silly in a world where there are multiple passive income streams possible. All the math and simulations that led to the 4% rule (and it's more recent incantations) is downright wonderful; we just use a term in a bad way.

Henry

2 months ago

It's 25x the expenses you need your portfolio to cover. It's shortened for simplicity as it should be glaringly obvious that you don't need to save as much if you have other guaranteed income streams through retirement.

Jonathan Mendonsa

2 months ago

I use "FI Effective Need" in the FI planning tool that I built on this site - and I use it to compare to the fi number static calculation which has limited value for proper forecasting … the issue is really that proper forecasting needs projected timelines of data mapped against each other

long winded way of saying yes FI number fantastic starting place … but you can't stop there once you start mapping your actual life to it

bryano

2 months ago

Absolutely. All the calculations we run are to give a "good" cash flow number (which include your time horizons: time before you want to FI and how long you need to remain FI), but the actual FI number remains basic. I totally agree with you! I also agree that those calculations are part of determining how much you trust your cash flow prediction, but aren't actually relevant to what your FI number is. I think the mal-definition of "FI number" scares a lot of people away: many that see the formula(s) and aren't sure why it is what it is, and many (I fell into this) that had other income streams and thought, "What a naive / ignorant / limiting way of looking at FI for anyone who does anything except invest in the market."

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Un-Borking FI and Debunking the Middle Class Trap

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