The Number

Trying to figure out how much money one needs in order to simply live off the dividends of their wealth and never work again is a favorite past time of those of us who hope to retire early. The first task in trying to figure out how much money you need to save is to figure out how much money you need each year to spend. A popular approach is to make 2 budgets. First, a bare-bones budget that will provide you with food, shelter, medical care, and maybe some gas/bus money. Basically bare survival, without any traveling, fancy dining-out, or expensive concerts or theater. The second is the budget you would prefer to have that would include travel, entertainment, charitable giving, fancy car, or whatever-else-you-want type of stuff. These budgets can range from $10k/year to $100k+/year. It’s amusing that some people cannot imagine how they’d spend $40k/year whereas others can’t imagine how to spend less than $80k/year.

Once you’ve got those numbers pegged, and you have figured out your safe-withdrawal-rate (generally between 3 and 4% to make your principal last a lifetime), from there you can figure out, down to the dollar, how much you need put away in order to retire.

For me, my bare-bones budget would require about $250k in invested assets plus a home with no mortgage. That would supply me with about $10k annually, which I think I could get by on. Especially considering I will probably work odd jobs here and there, since occasional paying-jobs are bound to strike me as interesting, and friends and family are bound to ask for my legal assistance and insist on paying something. There’s always going to be some injustice that outrages me that I feel compelled to take on. And there’s no telling what other types of income my various hobbies may accidentally produce.

At the other end of the spectrum, the posh budget with ample wiggle room for replacing, rather than duct-taping things, taking frequent weekend trips to the city to catch a show and have a dinner, eating lots of organic meat and fresh seafood, giving a little away each month to select charitable causes, etc., the number is closer to $575k, plus a house with no mortgage.

I think, as long as work isn’t completely insufferable, I’ll likely breeze right past $250k and keep on trucking it to $600k or beyond. But it really depends on my means of income. If it’s semi-passive, part-time land-lording on a few small apartment buildings, it should be fairly easy to keep that up a few extra years to make my goal. If it’s a high-stress, high-hours, private law firm where I count down the days, it will be a lot more tempting to just pull the plug once I hit the bare-bones that I’ll need.

I’ll probably be better off and end up with a wealthier life, in the long run, if I pick the route that, though it provides a smaller income, is a lot easier to stick with for a few extra years while my equity piles up.

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