Rule of 25 = concrete definition of Financial independence?

[FIREin2018]

that's what this article says:
https://twocents.lifehacker.com/the-basics-of-fire-financial-independence-and-early-re-1839417389

ie:
if annual expenses = 30k/yr
then you can FiRE if your net worth is 25 x $30k = $750k?

For all the years i've been here, i dont recall the Rule of 25??

[RWD]

Rule of 25 == 4% rule in reverse.

100 divided by 25 is 4.

[John Galt incarnate!]

that's what this article says:
https://twocents.lifehacker.com/the-basics-of-fire-financial-independence-and-early-re-1839417389

ie:
if annual expenses = 30k/yr
then you can FiRE if your net worth is 25 x $30k = $750k?

For all the years i've been here, i dont recall the Rule of 25??

Neither do I.

However,  1/25 = 4%  so the "Rule of 25" may be the way some think of the 4% SWR.

[FIREin2018]

Rule of 25 = 4% rule in reverse.

100 divided by 25 is 4.

ahh.. so it's the same as the 4% rule.

thx!!

[SwordGuy]

Rule of 25 = 4% rule in reverse.

100 divided by 25 is 4.

ahh.. so it's the same as the 4% rule.

thx!!

No, @FIREin2018 , it's NOT the same as the 4% "rule".    The 4% "rule" refers to what percentage of your stock/bond portfolio you can spend and (most likely) not run out in 30 years.

It is NOT 4% of "Net Worth".   

Net Worth is an unsuitable number to calculate FI with.   

[FIREin2018]

Rule of 25 = 4% rule in reverse.

100 divided by 25 is 4.

ahh.. so it's the same as the 4% rule.

thx!!

No, @FIREin2018 , it's NOT the same as the 4% "rule".    The 4% "rule" refers to what percentage of your stock/bond portfolio you can spend and (most likely) not run out in 30 years.

It is NOT 4% of "Net Worth".   

Net Worth is an unsuitable number to calculate FI with.   

ahh.. net worth includes non-stock/bonds like your house?

so 4% rule is better than the 25x rule??

[ToTheMoon]

I have usually heard it referred to as 25x your investable assets...not your net worth.

[SwordGuy]

I have usually heard it referred to as 25x your investable assets...not your net worth.

I have real estate investments and the 4% rule or the 25x idea have nothing to do with them.
Nor does it have anything to do with my social security benefits.

Each type of investment has its own guidelines.

[FIREin2018]

I have usually heard it referred to as 25x your investable assets...not your net worth.

I have real estate investments and the 4% rule or the 25x idea have nothing to do with them.
Nor does it have anything to do with my social security benefits.

Each type of investment has its own guidelines.

never heard about guidelines about real estate investments/pensions/social security.
just assumed that if you have the 4% rule for your investments, then real estate investments/pensions/social security would be a good safety net.

so what are these guide lines?

[mathlete]

As other astute forum members have pointed out, 25 is simply 1 / 0.04.

To the rest of the thread title though, regarding a concrete definition of financial independence:

One of MMM's biggest and best contributions to personal finance was the following, from his "Zero to Hero" post;

If you can get 25 times your annual spending saved up and working for you, that is enough to live off – forever. Don’t worry about the details – just do the saving for now

The bold is important because it keeps people from getting paralyzed between the equities vs. securities vs. real estate vs. mutual funds vs. ETFs when really, the first thing we need to do is learn how to save.

That said, all but the luckiest of us will be working for several years while we're financially independent, and during that time, I strongly encourage everyone to dig into the details and eschew hard and fast rules for what financial independence means. Of course, there is always the possibility that the future movement of US equities goes careening off the data set used in the Trinity Study, rendering the 4% rule useless. We don't think that will happen, but even if it doesn't, there are other risks that are at least as non-trivial.

If you're an American, there's a very real possibility that more legislation is passed that up-ends the path towards manageable, pre-65 healthcare costs. If you plan to become an expat, how much do you really know about the financial system of the country you're moving too?

[vand]

There is no "concrete" definition for financial independence, because you are dealing with the uncertainty of economics, markets, and personal circumstances. x25 has worked as a conservative multiple in the past but even William Bengen has recently said that it may well be a little on the low side to what he would recommend today.

Ultimately if you are happy with your pot, your drawdown plan, and the risks then you can consider yourself FI. No one's going to mark you out and call you a charlatan if your pot is only x20 or whatever.

[toocold]

I have usually heard it referred to as 25x your investable assets...not your net worth.

I have real estate investments and the 4% rule or the 25x idea have nothing to do with them.
Nor does it have anything to do with my social security benefits.

Each type of investment has its own guidelines.

never heard about guidelines about real estate investments/pensions/social security.
just assumed that if you have the 4% rule for your investments, then real estate investments/pensions/social security would be a good safety net.

so what are these guide lines?

A better rule of thumb would be (Annual spend - Passive income) * 25.

Annual spend includes taxes.  Passive income is inflation adjusted.  So if you have an COLA pension plan that covers your annual spend, your investable assets can be 0.  SS is like a pension that starts at various ages.

Many people use real estate, such as myself, as a semi-passive income.  Right now, my real estate portfolio covers my annual spend, and my investments are used for wants (e.g. $25k travel budget), so technically my investments are my back-up and not the reverse.

[wageslave23]

I have usually heard it referred to as 25x your investable assets...not your net worth.

I have real estate investments and the 4% rule or the 25x idea have nothing to do with them.
Nor does it have anything to do with my social security benefits.

Each type of investment has its own guidelines.

never heard about guidelines about real estate investments/pensions/social security.
just assumed that if you have the 4% rule for your investments, then real estate investments/pensions/social security would be a good safety net.

so what are these guide lines?

A better rule of thumb would be (Annual spend - Passive income) * 25.

Annual spend includes taxes.  Passive income is inflation adjusted.  So if you have an COLA pension plan that covers your annual spend, your investable assets can be 0.  SS is like a pension that starts at various ages.

Many people use real estate, such as myself, as a semi-passive income.  Right now, my real estate portfolio covers my annual spend, and my investments are used for wants (e.g. $25k travel budget), so technically my investments are my back-up and not the reverse.

+1  Correct.

[CCCA]

I have usually heard it referred to as 25x your investable assets...not your net worth.

I have real estate investments and the 4% rule or the 25x idea have nothing to do with them.
Nor does it have anything to do with my social security benefits.

Each type of investment has its own guidelines.

never heard about guidelines about real estate investments/pensions/social security.
just assumed that if you have the 4% rule for your investments, then real estate investments/pensions/social security would be a good safety net.

so what are these guide lines?

A better rule of thumb would be (Annual spend - Passive income) * 25.

Annual spend includes taxes.  Passive income is inflation adjusted.  So if you have an COLA pension plan that covers your annual spend, your investable assets can be 0.  SS is like a pension that starts at various ages.

Many people use real estate, such as myself, as a semi-passive income.  Right now, my real estate portfolio covers my annual spend, and my investments are used for wants (e.g. $25k travel budget), so technically my investments are my back-up and not the reverse.

It can be a bit more complicated if you are retiring well before SS kicks in. Then you can't do a simple calculation like 4% or net spending x 25. Then you probably need to use a more complicated retirement calculator to figure out what amount you might need to save.