Freedom Isn't a Dream — It's a Bill You Can Actually Calculate

July 10, 2026 9-minute read

Long-term investingHousehold cash flowFinancial freedomInvestment compoundingRetirement planning

Start by Asking How Much You Need in a Year

A lot of people want to achieve financial freedom, but very few have seriously done the math:

If one day I no longer depend on a salary, how much does my family actually need in a year?

It’s not a romantic question, but it’s far more useful than “I want to make ten million.”

Financial freedom isn’t a fixed number. It depends on what a family truly spends each year, and how much cash flow that pool of assets can sustainably provide every year.

The simplest way to calculate it is:

Principal needed = Annual spending ÷ Initial withdrawal rate

Suppose a family no longer has a mortgage and needs RMB 120,000 a year to live on. At a 4% initial withdrawal rate:

Initial withdrawal rate	Principal needed
4%	RMB 3 million
3.5%	About RMB 3.43 million
3%	RMB 4 million

If we convert at roughly RMB 7 to USD 1 for now, RMB 3 million is about $429,000. To stay consistent with calculations I’ve done in the past, I’ll keep using $425,000 as the example target in what follows.

What really matters isn’t the number $425,000 itself, but that for the first time, “freedom” turns from a wish into a problem you can calculate.

RMB 3 Million Is Only the First Draft of an Answer

I used to easily misunderstand the 4% rule as: as long as you have RMB 3 million, you can steadily spend RMB 120,000 a year, and financial freedom is done.

Later I realised that reading is far too simple.

The so-called 4% rule usually means withdrawing 4% of your assets in the first year of retirement, then adjusting the withdrawal amount for inflation in the years after. It comes from research on historical U.S. stock, bond, and inflation data, and it asks whether a portfolio can last through a retirement of roughly 30 years — it does not guarantee that the principal will never shrink.

William Bengen discussed this historical withdrawal approach in his 1994 research. By 2026, Morningstar’s baseline initial withdrawal rate for fixed, inflation-adjusted spending was around 3.9%. These numbers are better treated as starting points for planning, not as promises.

For a family hoping to stop working in their early forties, retirement might not be 30 years — it could be 40 years or even longer. Chinese families also have to face healthcare, supporting elderly parents, children’s education, taxes and fees, and exchange-rate risk between different currencies.

So RMB 3 million is better understood as:

On the premise of RMB 120,000 in annual spending, the housing problem already solved, and a relatively stable family burden, a “basic freedom line” that’s worth working towards.

It’s not a finish line after which you never have to think about anything again.

From $50,000 to $425,000

Once you know the target, the next step is to calculate how far you are from it.

I once made a set of assumptions like this:

Starting principal: $50,000;
Monthly contribution: HKD 8,000;
At a rough conversion at the time, about $1,025;
All returns reinvested;
Taxes, transaction costs, and exchange-rate changes not included for now.

Recalculated with contributions made continuously at month-end, the results are as follows:

Years	10% annualised	12% annualised
10 years	About $335,000	About $383,000
11 years	About $381,000	About $442,000
12 years	About $432,000	About $508,000
13 years	About $488,000	About $582,000
14 years	About $549,000	About $664,000
15 years	About $617,000	About $757,000
20 years	About $1,073,000	About $1,416,000
30 years	About $2,987,000	About $4,626,000

Under these assumptions:

At 10% annualised, it takes about 11.9 years to reach $425,000;
At 12% annualised, about 10.8 years;
At 8% annualised, about 13.4 years;
At 6% annualised, about 15.3 years.

What this table really gives me isn’t “freedom in twelve years, guaranteed,” but a roadmap I can track.

I no longer just stare at how much things went up today. I know what the principal, the ongoing contributions, and time are each doing.

Returns Aren’t a Plan — They’re Scenarios

The biggest risk in this kind of calculation isn’t getting the formula wrong — it’s treating 10% or 12% as a given.

Markets don’t move forward at a fixed annualised return. Two paths with the same long-term average return can end up completely different if the downturns happen at different times. Especially in the early years of retirement, a major drop combined with ongoing withdrawals makes it much harder for assets to recover. That’s sequence-of-returns risk.

VGT might deliver very high returns in a tech boom, but it is, after all, a sector-concentrated asset. Extrapolating the tech sector’s high past returns directly across the next thirty years makes it very easy to overestimate certainty.

So now I prefer to treat 6%, 8%, 10%, and 12% as different scenarios, rather than taking any one of them as a promise:

6% is a more conservative stress test;
8% is a neutral planning scenario;
10% is a more optimistic scenario;
12% is a result that might only appear when growth assets perform exceptionally well.

A plan should still hold up under the more conservative scenarios. Higher returns can bring freedom earlier, but they shouldn’t be a prerequisite the family system has to depend on.

Accumulation and Withdrawal Are Two Different Systems

The easiest mistake in the accumulation phase and the retirement phase is to use the same asset allocation logic for both.

In the accumulation phase, you still have salary income and you’re still buying. A market drop hurts, but it lets new money buy more assets. At this stage you can keep a higher allocation to stocks — but only if the family’s cash buffer is already in place, and you won’t be forced to sell at the bottom because of unemployment, a mortgage, or children’s expenses.

I once imagined a “90% VGT + 10% SGOV” portfolio. It expressed a very aggressive personal choice: use tech assets to chase growth, and use short-term bonds to keep liquidity.

But it cannot be called Buffett’s 90/10 allocation.

In Berkshire Hathaway’s 2013 shareholder letter, Buffett’s instruction to the trustee was 90% in a low-cost S&P 500 index fund and 10% in short-term government bonds. The S&P 500 is a broad large-cap portfolio, while VGT is concentrated in the information technology sector. The risks of the two are not the same.

This distinction matters:

90% VGT is an active bet that tech wins over the long run; 90% in the S&P 500 is closer to passive participation in the long-term growth of American businesses as a whole.

Once you enter the withdrawal phase, the problem changes again. There’s no ongoing salary to buy the dip, and the assets have to support daily life on a regular basis. The biggest risk isn’t just a market drop — it’s still having to sell stocks when the drop happens.

That’s why the retirement phase usually needs more of a buffer in cash and bonds. For example, you can keep one to several years of basic spending in cash or short-term bonds, and let the rest take on long-term growth. The exact split doesn’t have to be fixed at 70/20/10, but the family must have the ability to “live for a while without selling stocks” in a bear market.

What a Family Really Needs Is Freedom in Layers

The term “financial freedom” makes it easy to think that only not working at all counts as freedom.

For a regular family, a more realistic approach is to divide freedom into layers:

Layer One: Survival Freedom

Cash and low-risk assets can cover 6 to 12 months of household spending. Even if work is interrupted, you don’t need to sell long-term assets right away.

Layer Two: Choice Freedom

Investment returns or side-income can cover part of your basic spending. You can turn down work that isn’t right for you, and you can leave yourself time to change direction.

Layer Three: Basic Financial Freedom

At a relatively conservative withdrawal rate, your assets can cover core spending such as housing, food, transport, and basic healthcare.

Layer Four: Lifestyle Freedom

The cash flow from your assets doesn’t just cover survival — it can also support travel, education, interests, caring for family, and higher-quality healthcare.

At RMB 120,000 in annual spending, RMB 3 million might be close to the starting point of the third layer — but only on the premise that there’s no large mortgage, and that children’s education, supporting elderly parents, and major medical costs haven’t been excluded from real life.

If you want to spend RMB 200,000 a year:

Initial withdrawal rate	Principal needed
4%	RMB 5 million
3.5%	About RMB 5.71 million
3%	About RMB 6.67 million

If you want to spend RMB 300,000 a year, the corresponding principal is roughly RMB 7.5 million, RMB 8.57 million, and RMB 10 million.

The freedom line isn’t an answer handed out uniformly by society. It’s the price of a family’s lifestyle.

Turn Freedom Into Your Own Roadmap

Anyone can start by calculating four numbers:

How much did your family actually spend in the past twelve months?
If you stopped going to work, which expenses would go down, and which would go up?
At withdrawal rates of 3%, 3.5%, and 4%, how much principal would you need in each case?
With your current principal and the amount you can contribute each year, how many years would it take under 6%, 8%, and 10% scenarios?

Beyond that, there are a few issues you have to handle separately, because they can’t be hidden inside average spending:

Is the mortgage already factored in;
How much is needed for children’s education and supporting elderly parents;
Whether healthcare and insurance are sufficient;
Whether your assets and your future spending are in the same currency;
If a bear market hits in the very first year, can you still get by.

Once you’ve done the math, financial freedom is no longer a word that only creates anxiety.

It becomes a set of concrete milestones: first build the cash buffer, then accumulate the first RMB 1 million, then let investment returns cover part of your life, and only at the end decide whether to leave the salary behind.

Freedom isn’t earning a number that sounds big enough. It’s knowing how much your life needs, and building a system that can keep paying for it over the long term.

What may be truly worth pursuing isn’t declaring retirement as early as possible, but gradually gaining choices: you can leave a job you don’t like, you can take care of your family, you can put your time into what really matters.

That’s the point of doing this math.