Your Freedom Number

5 min · Planning · Updated September 28, 2026

Your Freedom Number is the portfolio size that, at an assumed distribution rate, would produce enough income to cover your spending. It is a planning target, not a promise.

The formula

1. Start with monthly spending.
2. Subtract steady income you will have anyway (a pension, rental income, Social Security).
3. Multiply by 12 for the annual gap.
4. If you want to set money aside for taxes, divide by (1 minus your tax reserve).
5. Divide by the distribution rate you assume.

Example (hypothetical): $15,000 a month of spending, no other income, no tax reserve, and an assumed 10% distribution rate.

$15,000 × 12 = $180,000 a year. $180,000 ÷ 0.10 = $1,800,000.

At an assumed 8%, the same spending needs $2,250,000. At 6%, $3,000,000. The rate you assume moves the answer more than anything else.

Assumptions that change the answer

• The rate itself. A higher distribution rate shrinks the number on paper, but only matters if total return keeps up. A fund that pays 12% while its price slides is not really delivering 12%.
• Taxes. Return of capital can defer tax, but not forever. A tax reserve makes the number more conservative.
• Inflation. Spending rises over time. Income needs to grow too, which is why the streams are chosen to keep growing, not just pay out.
• Sequence of returns. A sharp market drop early on hurts more than the same drop later. Steadier streams such as Treasury bills, and a few months of spending held in cash, are what keep you from selling into it.

Use it as a compass

The number tells you the size of the gap between where you are and where you want to be. Tracking the percentage of your spending your portfolio already covers can be a motivating way to measure progress.

Try the Freedom Number calculator

All figures are hypothetical. Distribution rates are assumptions, not forecasts. Distributions are not guaranteed, can change, and may include return of capital.