Financial Independence
A state in which passive income and investments cover all living expenses without needing employment income.
What is Financial Independence?
Financial independence (FI) is achieved when an individual's investment portfolio, passive income streams, and other non-employment income are sufficient to cover all living expenses indefinitely — meaning work becomes optional. The FIRE movement (Financial Independence, Retire Early) has popularized this goal, especially among younger professionals who pursue aggressive saving rates to reach FI decades before traditional retirement age. The most widely used benchmark is the 4% rule: if annual expenses equal 4% of a portfolio, that portfolio is considered sufficient for a 30+ year retirement. Financial independence is distinct from wealth in that it focuses on cash flow sustainability relative to spending needs.
Example
A household spending $60,000 per year needs a portfolio of $1.5 million to be financially independent under the 4% rule ($60,000 ÷ 0.04). Reaching that goal on a $100,000 salary with a 50% savings rate and 7% average returns takes approximately 17 years from zero. The same person saving 20% would need roughly 37 years — showing how dramatically savings rate affects FI timeline.
Source: SEC — Saving and Investing