Becoming financially independent: six thresholds, each with its own figure

Being financially independent means your spending is covered without you having to work for it. Work then becomes a choice.

But that's an endpoint, and it isn't the case that nothing changes until you reach it. Along the way sit thresholds that each deliver something different, and the most valuable of them sits surprisingly low.

This article lines up six of them, with the figures attached.

What it actually means

Two things often get conflated.

Financial independence is a state: your wealth can carry your spending. That's a number you can calculate.

Stopping work is a choice you can make afterwards. Plenty of people who are independent keep working. They just do it differently: fewer hours, a different field, or the same work without the pressure that it's compulsory.

The useful part is the first. Independence is an amount with a date. What you do with it afterwards needn't be decided now.

The six thresholds

We'll work through someone aged forty spending €40,000 a year, receiving €18,000 of state pension at sixty-seven, with €12,000 of accrued occupational pension.

The third row is the most interesting, and it receives too little attention in the Netherlands.

Why Coast is the most important threshold

With €86,704 at forty, your old age is in principle arranged.

That amount grows on its own to €250,000 across the twenty-seven years to your state pension date, and that's precisely the capital covering the gap between your spending and what the pensions deliver. You needn't contribute anything further for your retirement.

Eighty-six thousand isn't a small amount, but it's a fraction of the six hundred thousand full independence demands. And it's the point where the pressure lifts: every euro you save after it goes towards stopping sooner rather than being able to stop at all.

Why that amount is so low in the Netherlands is covered in the article on Coast FIRE. In short: state and occupational pensions do the heavy work in old age, so your own capital only has to fill a gap.

What each rung costs relative to the last

The distances between thresholds are highly uneven:

The jump from Coast to Barista is the cliff. Three quarters of the entire distance sits in that one step.

That's also where most people drop out, and it explains why Coast is such a useful intermediate goal: it's achievable, it's measurable, and it's reached before the cliff begins.

Your stopping age is an outcome, not a choice

Now the point that makes the whole ladder read differently.

Every threshold has not only an amount but a date. The target for stopping at fifty is €614,970, but you have to hold that at fifty. Reach it at sixty-three and you can stop at sixty-three.

Worked through, for various starting points:

Our forty-year-old with €60,000 and €15,000 a year stops not at fifty but at fifty-seven and a half. That's the honest outcome, and it's more useful than a target without a date.

How to make that calculation yourself is in the article on calculating early retirement.

Which lever does most

Two ways to bring that stopping age forward, and they aren't equivalent.

Contributing more:

Spending less, with the saved amount going into your contributions:

Compare the second row of both tables. At €20,000 of contributions you stop at fifty-five and a half if you keep spending €40,000, and at fifty-three and a half if that €5,000 comes out of your spending.

The same contribution, two years of difference. Because spending less works twice over: you contribute more and you need less. That pattern recurs throughout this series and it's the strongest lever you have.

What independence isn't

Three misconceptions that cloud the picture.

It isn't the same as being rich. Someone spending €30,000 with three hundred thousand is more independent than someone spending €80,000 with six hundred thousand. Independence is a ratio, not an amount.

It isn't the same as doing nothing. In practice a large share of people who reach it keep working, and that's usually a choice rather than a necessity.

It isn't a finish line. Your spending changes, your returns land differently than planned, and state pension age can shift. Independence is a position you maintain, not a certificate you earn.

Where you start

Three steps, in this order.

Measure your spending. Every threshold on this page is a multiple of that figure. Be twenty percent out and your target is more than a hundred thousand out. Use what you actually spent over twelve months, including holidays, the dentist and broken appliances.

Total your wealth. Everything: savings, investments, crypto, and your property with the mortgage underneath. For most people this sits in four or five places and nobody has the total.

Establish your next threshold. Not the sixth. The first one you don't yet have. That's the only goal that changes anything about your behaviour in the short term.

How Gylder fits in

The first two steps are where this usually stalls. Almost nobody knows their annual spending and almost nobody knows their total wealth.

Gylder totals your wealth daily across bank, broker, crypto, precious metals and your property with the mortgage underneath, and categorises your spending automatically with a model running entirely on its own servers. That gives you the two figures every threshold on this page rests on.

With the bridge calculator you then work out your own threshold, with your state pension amount, occupational pension and intended stopping age included, and save it as a wealth target. You then see daily where you stand relative to the rung you're currently working on, rather than relative to an endpoint twenty years away.

What this doesn't tell you

The amounts apply to one example situation. €40,000 of spending, €18,000 state pension, €12,000 occupational pension. Change any one and all six thresholds shift.

The real return is an assumption. This calculation uses 4% after inflation. At 3% every amount is considerably higher.

The pension amounts are examples. Your own depends on your accrual years and whether you live alone or with a partner.

Independence doesn't cover setbacks. Disability, a divorce, a partner falling ill long-term. A plan that only works if nothing goes wrong isn't a plan.

Frequently asked questions

When are you financially independent? When your wealth can carry your spending without you working for it. In this page's example that's €614,970 to stop at fifty, or €430,062 to stop at sixty.

How much money do I need to be financially independent? It depends on your spending, your stopping age and what arrives after your state pension date. Use your own figures, because differences between people are large.

At what age can I be financially independent? That's an outcome of your wealth and contributions rather than a choice. Someone aged forty with €60,000 and €15,000 a year lands around fifty-seven.

What's the first step? Measuring your annual spending. Every target is a multiple of it, so a wrong estimate carries through everything.

Do I have to stop working once I'm independent? No. Independence makes working a choice. Plenty of people keep working, but differently.