How Much Do You Really Need to Stop Working?
Back-of-the-napkin math plus real strategies to reach financial independence in 2025
Early-retirement math, a pot big enough to throw off a safe, inflation-adjusted withdrawal, hasn’t changed. Still, every input has been recalculated: contribution limits have climbed again, safe-withdrawal research has nudged the rate lower, market valuations and bond yields have reset, healthcare premiums have crept up, and key tax breaks face a 2025 sunset.
IRS limits just jumped again—you can now defer up to $23,500 in a 401(k) and stuff as much as $70,000 into a Solo-401(k) once the employer piece is added. Ages 60-63 even get a $11,250 turbo catch-up. (irs.gov, nrsforu.com)
Safe-withdrawal research was revised two quarters ago. Morningstar’s 2024 “State of Retirement Income” trimmed the baseline draw to 3.7 %, and for 40- or 50-year horizons, you should round down to ≈ 3.5 %. (morningstar.com)
Markets remain hot: the S&P 500’s 10-year total return clocks in at ≈ 180 % (≈ 11 % CAGR)—great history, but too rosy for your forward plan, which is why the numbers below assume 7 %. (axios.com)
Healthcare is inching up: ACA benchmark premiums rose 3 % for 2025. (cms.gov)
The tax code you’re using sunsets in 18 months. The 20% QBI (199A) deduction and lower individual brackets will expire after 12-31-2025 unless Congress acts. (taxfoundation.org)
In short, 2025 is the last full year of this “perfect storm” of high contribution ceilings, still-generous deductions, and pre-sunset brackets. Nail the math now, lock in the tax wins, and your money machine can run on autopilot.
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1. Your 2025 Freedom Formula—Numbers First (Deep-Dive)
The Withdrawal Rate:
Morningstar’s latest State of Retirement Income (2024) trimmed the classic 4 % rule to 3.7 % for a 30-year horizon. (morningstar.com, morningstar.com)
Stretch that horizon to 40–50 years—what most entrepreneurs need if they quit in their 30s or 40s—and the updated Trinity-style simulations converge on ≈ 3.5 % as the prudent ceiling. (thepoorswiss.com, marketwatch.com)
Why the haircut?
Valuations are rich. The Shiller-CAPE sits near 37—more than double its 150-year average of 17. (multpl.com) High starting valuations compress future equity returns, so you can’t safely pull as much out each year.
Bonds still trail inflation. Even with 2-year Treasuries flirting with 4%, real yields on longer-dated TIPS are just around 2%, limiting the ballast typically provided by fixed income.
Longer retirements. A founder who cashes out at 45 may need cash flow for 50+ years—far longer than the 30-year spans that anchored the original 4% research.
The Math:
The formula is one line:
Required Portfolio = Annual Spend ÷ 0.035Every $ 10k of annual spending now demands ≈ $ 285k in capital. Keep the mental shortcut handy: “3½ % = 28½×.”
Reality checks (rounded):
Want $ 40k/yr? → $1.15 M.
Need $ 120k k/yr? → $3.45 M.
Pin those figures where you make spending decisions—they’re the numeric translation of freedom.
Stress-testing the 3.5 % rule:
In Monte Carlo sweeps with 50/50 stock-bond mixes, a 3.5 % start rate historically clears ~92 % success over 45 years, even when front-loading the worst market decades on record. (kitces.com)
The other 8 % of paths aren’t “game over,” they’re scenarios that require temporary cuts (often <10 %) or part-time income during deep bear cycles.