Methodology

1. Overview

FVequals builds your financial independence projection from the ground up — starting with your actual spending, inflating each category at its own historical rate, calculating the portfolio required to sustain that spending indefinitely, and testing your plan against every historical 30-year market sequence on record.

The core engine runs three sequential calculations:

1. Budget projection — inflate your current spending to your retirement date using category-specific CPI rates
2. FI Number — divide projected annual spending by a safe withdrawal rate to get the required portfolio
3. Portfolio trajectory — compound your current savings and annual contributions forward to retirement, then compare against your FI Number

A fourth layer — historical SWR simulation — then stress-tests your withdrawal rate against real market data rather than relying on theoretical averages.

2. CPI-Based Budget Inflation

The most common simplification in retirement planning is applying one average inflation rate (typically 2–3%) to your entire budget. FVequals does not do this. Instead, each spending category is inflated at its own historical Consumer Price Index rate sourced from the U.S. Bureau of Labor Statistics.

This matters because spending categories inflate at meaningfully different rates:

For each category i, your projected monthly spending at retirement is:

Your total projected monthly spending at retirement is the sum of all inflated category values. This total is then adjusted by your chosen retirement spending model (Conservative, Average, or Risky) to reflect how your lifestyle changes when you stop working.

3. FI Number Calculation

Your FI Number is the portfolio balance at which you can sustain your projected retirement spending indefinitely through portfolio withdrawals:

Fixed income sources — pension benefits, Social Security, and passive income streams — are subtracted before dividing. A $60,000/year retirement budget offset by $18,000/year in Social Security requires only a $42,000/year portfolio withdrawal, significantly reducing the portfolio you need to accumulate.

FVequals also calculates a historical failsafe FI Number — the portfolio required at the historically safest withdrawal rate, which serves as the most conservative benchmark for your plan.

4. Portfolio Projection

FVequals projects your portfolio forward from today to your target retirement date using compound growth:

The expected return is derived from the current TIPS (Treasury Inflation-Protected Securities) yield plus an equity risk premium, adjusted for your portfolio's asset allocation between stocks and bonds. This produces a real (inflation-adjusted) return, which is appropriate because your spending targets are already expressed in today's dollars and inflated separately using CPI.

Each tax-advantaged account type (Traditional 401k, Roth, Brokerage) is projected separately using its appropriate growth rate and withdrawal tax treatment. For example, Traditional 401k withdrawals are taxed as ordinary income at retirement, while Roth withdrawals are tax-free.

5. Safe Withdrawal Rate Simulation

The 4% rule — the idea that you can withdraw 4% of your portfolio annually in retirement without running out of money — originated from the 1994 Bengen study and was refined by the Trinity Study (1998). FVequals goes further by running a full historical simulation rather than accepting a single rule of thumb.

The simulation tests your withdrawal rate against every rolling historical period in the dataset, using actual sequences of stock and bond returns rather than averages:

• Each "cohort" starts at a different year in history (e.g., retiring in 1929, 1966, 2000)
• The simulation withdraws your specified rate from the portfolio each year, adjusted for inflation
• It tracks whether the portfolio lasted the full retirement horizon (to age 100 by default)
• A rate "fails" if the portfolio reaches zero before the end of the horizon

The output is a historical success rate — the percentage of all historical starting years in which your plan would have survived. A 95% success rate means your plan failed in 5% of historical starting points, which includes some of the worst market environments on record (Great Depression, 1970s stagflation, dot-com crash).

6. Historical Failsafe Rate

The historical failsafe is the highest withdrawal rate that has never failed across all historical periods in the dataset — a 100% historical success rate. It is more conservative than the 4% rule because it must survive even the worst historical sequences, not just most of them.

FVequals displays both your user withdrawal rate (derived from your actual spending and projected portfolio) and the historical failsafe side by side, so you can see exactly how much margin your plan has relative to the most conservative historical benchmark.

Additionally, FVequals calculates the PMT ceiling — the maximum annual portfolio withdrawal consistent with a 100% historical success rate, given your portfolio size and retirement horizon. This is the upper bound on how much you can sustainably spend from your portfolio.

7. CAPE-Adjusted Risk Assessment

The Shiller Cyclically Adjusted Price-to-Earnings Ratio (CAPE) — also known as PE10 — is a valuation measure that averages corporate earnings over the prior 10 years to smooth out business cycle noise. High CAPE readings historically precede periods of lower equity returns; low readings precede higher returns.

FVequals uses the current CAPE value (updated weekly from the Convex database) to segment historical retirement cohorts into three valuation environments:

This allows FVequals to show you not just the overall historical success rate of your plan, but specifically how it performs when the market is starting from a valuation environment similar to today's — a more relevant subset of history for someone retiring now.

8. TIPS Yield and Real Returns

Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds whose principal adjusts with inflation. The TIPS yield represents the real (inflation-adjusted) risk-free rate of return in the economy. FVequals fetches the current 10-year TIPS yield weekly from the Federal Reserve Economic Data (FRED) API.

The TIPS yield serves two functions in the app:

• Bond return assumption — the expected real return on the bond portion of your portfolio is set to the current TIPS yield, reflecting what investors can actually lock in today rather than using a historical average that may not reflect current conditions
• PMT ceiling calculation — the maximum sustainable withdrawal from a bond-like portfolio serves as a conservative lower bound on what your portfolio can safely produce

The equity return assumption adds an equity risk premium to the TIPS yield, calibrated to long-run historical excess returns of stocks over bonds. This produces a blended real return for your overall portfolio based on its stock/bond allocation.

9. Coast FIRE Calculation

Coast FIRE is the point at which your current portfolio — left entirely untouched, with no additional contributions — will compound to your FI Number by your retirement date.

Once your portfolio exceeds your Coast FIRE Number, you have technically "coasted" — additional savings accelerate your timeline but are no longer required for you to reach FI. The app shows whether you have hit your Coast FIRE Number and, if so, how far ahead of schedule you are.

Coast FIRE is particularly useful for users following a Barista FIRE or Coast FIRE strategy, where the plan is to stop aggressive saving early, let the portfolio grow, and cover current living expenses through part-time or lower-stress work.

10. Tax Modeling

FVequals estimates your federal and state income tax using your gross income, filing status, and state of residence. The tax model applies current federal tax brackets with standard deductions and estimates state income tax using each state's approximate effective rate.

Payroll taxes (Social Security and Medicare) are calculated separately: W-2 employees pay the employee share (7.65%), while self-employed users pay both employer and employee shares (15.3%), with the above-the-line deduction for half of SE tax applied.

The after-tax income figure drives the annual contribution calculation — how much you have available to invest after taxes and spending determines how quickly your portfolio grows toward your FI Number.

11. Data Sources

12. Limitations

FVequals is an educational planning tool. The following limitations are inherent to any projection-based approach:

• Historical data is not predictive. Future market returns, inflation rates, and interest rates may differ substantially from historical patterns. The historical simulation tells you what would have happened in the past; it cannot tell you what will happen in the future.
• CPI rates are averages. Your personal spending may inflate faster or slower than the category averages, depending on your location, health, and lifestyle choices.
• Tax modeling is approximate. The tax estimates do not account for itemized deductions, tax credits, Roth conversion strategies, or changes in tax law.
• Life is not constant. The model assumes stable spending, consistent returns, and no major disruptions. Actual retirement is subject to healthcare shocks, market volatility sequences, and spending changes that a projection cannot fully capture.
• Social Security projections are user-supplied. FVequals uses the benefit amount you enter; it does not independently project your Social Security benefit based on your earnings history.

Nothing in this methodology constitutes financial, investment, tax, or legal advice. See our Terms of Service for the full disclaimer.