#### How it Works

For our purposes, Financial Independence will be defined as **not having to work for money** i.e.
having enough money to live comfortably off of your investments alone. “Comfortable” will vary
from person to person, but the idea is if one’s annual expenses total to, $50,000, then they can retire
once their assets alone produce $50,000 a year.

The above formula calculates a retirement number that allows you to safely withdraw 4% per year. Where does the 4%
come from? It is a conservative number assuming your investments on average yield 7% per year (Since 1970, the S&P 500 average return has been 10.47%). 7% –
3% for inflation = 4%.

The magic number is 25. If your annual
spending is $50,000, multiply $50,000 by 25 = $1.25 million. $1.25 million is how large your nest egg should be in order
for it to last forever. How did we get to 25? Set up a proportion and solve for x. (50,000/4%) = (x/100%)