What does it cost to be you?

How to think about the nest egg you're aiming for

In the financial world, there is a lot of discussion about reaching “financial independence.” Usually this is the point when you could pull out a “safe” percent of your assets annually (often 4-5 percent in the models) and those withdrawals would cover your expenses. So if you planned to live on $50,000 a year, you would need a nest egg of $1-1.25 million. If you planned to live on $100,000 a year, you’d need a nest egg of $2-2.5 million.

This concept has been popularized by what’s known as the FIRE community — people who are into the idea of “financial independence/retire early.” In portions of this community, there is something of an anti-work streak, and so you’ll often find advice on trimming expenses with the goal of achieving “FI” earlier. After all, if you can trim expenses now, you can save more of your income, and lower expenses also means that the number you need to accrue to achieve financial independence can be lower. If someone who’d initially thought they’d need $100,000 a year could lower that to $80,000, for instance, the target number would fall from $2-2.5 million to $1.6-2 million. That could potentially move up the timeline on retirement a lot.

All this is true. But in figuring out expenses, I think it’s important to ask the right question.