Wealth
From Paycheque to Freedom: How to Know When You Can Stop Working
Imagine waking up one day and realizing you never have to work again. You could still choose to—but the pressure’s gone. That’s the promise of financial independence: having enough wealth that your investments generate enough income to cover your lifestyle, indefinitely.
But how do you know when you’ve reached that point?
That’s where the 4% Rule comes in.
What Is the 4% Rule?
The 4% Rule is a simple guideline for retirement planning. It says that if you withdraw 4% of your investment portfolio each year, your money should last at least 30 years—even accounting for inflation and market ups and downs.
This rule emerged from the famous Trinity Study, which analyzed historical market data to determine safe withdrawal rates. It’s not perfect, but it’s a powerful starting point.
Your Financial Independence Number
To find your Financial Independence (FI) Number, take your annual spending and divide it by 0.04.
For example:
If you spend $40,000/year, your FI number is:
40,000 ÷ 0.04 = 1,000,000
You’d need $1 million invested to retire safely.
This number assumes your portfolio is invested in a mix of stocks and bonds, and that you’re not relying on pensions or government benefits like CPP or OAS.
Case Study 1: Liam, the Engineer
Liam is 35, earns $95,000/year, and saves aggressively. His annual spending is $45,000. He wants to retire by 50.
His FI number:
45,000 ÷ 0.04 = 1,125,000
He invests in low-cost index funds through his TFSA, RRSP, and a non-registered account. By saving $35,000/year and earning an average 6% return, he’s on track to hit his goal in 15 years.
Lesson: High savings rate + smart investing = early retirement.
Case Study 2: Priya, the Single Mom
Priya is 42, raising two kids and working as a freelance graphic designer. She spends $60,000/year and wants to retire at 60.
Her FI number:
60,000 ÷ 0.04 = 1,500,000
She uses her RRSP and TFSA, plus contributes to a RESP for her kids. She also plans to downsize her home and use CPP/OAS to supplement her income later.
Lesson: FI is flexible—housing, government benefits, and lifestyle choices all play a role.
Case Study 3: Carlos & Elena, the Late Starters
Carlos and Elena are 55 and just started taking their finances seriously. They spend $70,000/year and want to retire at 65.
FI number:
70,000 ÷ 0.04 = 1,750,000
They won’t hit that number in 10 years, but they plan to:
Max out RRSPs and TFSAs
Use CPP/OAS to cover part of their expenses
Work part-time in retirement
Lesson: You don’t have to hit the full FI number to retire—you just need enough to bridge the gap.
Final Thoughts: It’s Not Just Math—It’s Mindset
The 4% Rule gives you clarity. Your FI number gives you a target. But the real journey is about freedom—freedom to choose how you spend your time, where you live, and what you work on.
Whether you’re just starting out or halfway there, knowing your number is the first step to building a life that’s not dictated by a paycheque.
And remember: it’s not about retiring early—it’s about living intentionally.
Want to know your own Financial Independence Number?
Use our online FIN calculator to get a personalized estimate and start planning your path to freedom.
