Poll: What number would make you say "I am financially independent"?
Seeing all these deals and billion dollar aquisitions including some comments on life changing money etc, just wondering what is your number ? It is not necessarily a number to retire, but a number that will give you the financial freedom to do whatever you want. If that means working at a walmart because you want, then so be it. The differentiator is "want" and not "need".
The numbers are in USD. Of course, it could depend on where you live. So feel free to convert it into your local currency, consider inflation rate etc etc.
EDIT: To clarify, this number is the "cash" at hand and not your net worth. So if you own a million fb shares but have not liquidated any, it does not count.
88 comments
[ 3.8 ms ] story [ 130 ms ] threadWell, you can live on it assuming that unexpected issues do not arise, plunge you into medical debt and render you unable to receive the best care you might otherwise be able to afford. That can cut short your "living on 35k a year" plan... A sad story many of those 35k/year Americans can likely talk about.
Given the option of retiring now and living off of 35k/year for the rest of my life, or continuing to work for several more years, I am going to continue working.
If I had to have a rough guess, my minimum retirement target is $300,000-600,000 of personal property, plus a moneypile or otherwise low/no-work income (if I were working an insignificant number of hours at something I could stop anytime but enjoyed doing, I would still consider myself retired in the conventional sense) yielding between $20,000 and $40,000 / year.
So, using the 7% figure from the GP, that puts my target retirement assets at around $600,000-1,200,000.
You don't have the option of just withdrawing $0 on your "down" years.
p.s. if you can find a risk free 7% return on 500k, open a retirement planning business, become very wealthy.
Pessimistically, I know I can get 1% interest and easily live off $50,000 / year. Obviously, you would hope to invest in a much better vehicle, figure on paying taxes on your investment income, and hope you stay ahead of inflation.
Note that I did not mention anything about investing/markets etc. because those are not guaranteed.
Also commenting on your "note" that you added on. Investments aren't guaranteed... but putting all that money in a bank isn't guaranteed either. FDIC only insures so much.
$2M/30years => $66k/y.
So, I would calculate 200k on 5Million. Planning to actually live off your interest means having to be super conservative, because, if, for instance, your first year is one of the bad years, your calculations will end up way off. Losing 20 or 30% and having to actually eat some principle would hurt a lot. That's why some people end up putting off retirement in bad years and get very conservative with investments near retirement.
So, I suppose someone could live off about 1 million at 4%, unless they have a medical emergency, but with minor inflation, I think you'd need to grow your principal to maintain the same level.
And, if I then decided to do another startup at some point, I'd have a little bit of seed capital already handy.
And at worst, that would be enough that if I did want to work again, I could be extremely picky about what kind of work I'd take on, and when, and where. That's a kind of independence in its own right.
You also have to keep in mind that I'm an older guy (relative to this crowd) so barring major breakthroughs in medical technology, I don't have to stretch my money out as long as somebody who's in their 20's or whatever.
It gets hard to spend lots of money, especially if you are into variety. Yes living 1st class on a cruise ship and touring the world would be expensive, but I'd pretty much sick of it for the rest of my life after about six months. Then its on to camp in each national park for a month, which would take a pretty freaking long time and cost practically nothing other than time. On to the 30ft cruising sailboat until I get sick of that, again not terribly expensive. Maybe tour Europe, rather expensive until I get sick of that.
My grandparents ran out of things they wanted to do before they ran out of wealth and health, which is the best way to go. They eventually settled down in a cottage on a rural lake and just enjoyed life. I'd probably end up about the same place.
Plus, when the time comes and you no longer need it, you've got something to pass on to your kids and/or give your favorite cause a nice big shot in the arm. Not a bad way to go, really.
I looked at the wiki articles and I'm not seeing the 1.4 million spec. Are you sure you didn't make an arithmetic error and calculate 25 kids instead of 2.5 kids? I'd need psychological counseling to handle 25 kids. I never thought schoolteachers earned their pay until I had kids of my own.
The wikipedia tables don't make much sense to me. I'm in the 2 kids and dual parent and somewhat into the "More than $102,870" category (though not too far into it) and I have about a decade of experience budgeting for the kids and I'm mystified how I am supposedly spending $6K every year transporting my kids. That would be like 1500 gallons of gas or 67500 miles per year? My wife bought a relatively loaded Prius in '05 and its getting a bit worn out after 8 years of extremely heavy use so that superficially seems expensive, but she traded in a fast little 2-door and would presumably have dropped the same cash on an equally expensive, yet smaller/faster car if we didn't have kids. So the cost of transport is the extra gas she burns going to daycare? Or little league? Its just not that much. The food estimate seems about right, we eat very well, it is probably about $2K/month maybe $3K/month for the whole family. Clothing cost is more like zero for little kids, assuming you have Grandma and Auntie in the area. Grandma especially seems to feel unable to visit without some kind of textile product in hand. When the teen years hit and its not cool to wear something grannie picked out, I'm sure that cost will rise from current basically $0. The housing cost is fairly mystifying as it in no way approaches the cost of paying for the house, then again without kids we'd just have a fancier apartment for the same money so much like the car, the cost of kids is zero. Health is a bit high as we have a household deductible, unless they're counting bandaids or something, I believe its exactly $1500/x where x is the number of family members, I guess. Child care is absolutely ridiculous, its more like $10K until grade school and then it drops to practically nothing maybe $3K to cover summers and camp and stuff. Misc is hilarous $2K total per year yeah maybe for just the ITMS or cable TV or something LOL. That's probably more like $10K per kid.
Anyway thats my experience of the hilarious wikipedia table based on a decade of actual experience budgeting.
Obviously the lump sum would probably be able to yield that sort of money in interest, but the interesting thing is that it should be much easier to secure the monthly passive income than it would the lump sum.
The long term 7% average often quoted isn't if you average the last 15 years rather than the last 150.
From a quick check of Yahoo Finance, it looks like the Dow dropped from 14k in July 2007 to 8k in January 2009. Sure, a fund is meant to outperform the market as a whole, and sure, most of them don't manage that for obvious reasons, but when the market plunges like that no-one's going to be safe.
No, that's not being fair at all. That's being irresponsibly optimistic. Let's say it is now 2005, you have a $1,000,000. You follow cpursley's advice, and put it in a well managed ETF/mutual fund, expecting to get 8%-12%. You get that for the first year and second year - and then you get -50% (which, if you look at your starting sum is "just" -40%). Now, you need 8 good years just to go back to where you started.
2005 is unfair? Go back to 1999, and check yourself at the end of 2001.
1999 is unfair? Go back to 1986.
My point being, the "common knowledge" 150 years long term average of 7%/year is irrelevant, for two reasons:
a) market dynamics have changed significantly in the last 10 years or so; the 140 years before that aren't as informative as the last 10 - and the last 10 are abysmal.
b) even if the 150 year statistics were relevant - what you care about is your 10-30 year horizon. There are just too many unlucky events during those 150 years that you are very likely to have a 30-50% loss in one of the years of your 10-30 year horizon -- which might take you 50 years (that you don't have) to average out and come out on top.
Anyone who really believes the 8%-12% numbers can borrow at <6%, invest at >8%, leverage ad absurdum and basically print money. Which, incidentally, is the empirical proof that 8% is not attainable.
(P.S - CALPERS assumed a modest 8% return. That's why they're now only 50% or so funded http://www.calwatchdog.com/2012/03/22/calpers-funding-might-... . If you can get them 8%, they'll give you $20M/year in salary. Really.)
And the higher the payout the less passive/safe it becomes (i.e., CD > Real state > businesses > web apps > ???)
And "time" is work. Building a house also requires just some materials and some time :). Even real state needs management (things break, rents have to be collected, risk of lawsuits, tenants that dont pay).
That said, $5,000 a month is $60K a year, or 6% of $1,000,000. I'd probably take the $5k also since it's a reasonable (and 100% guaranteed) rate of return on the lump sum. I wouldn't feel much safer because it's "cast iron" -- it could still be worthless in 30 years. It's just a slightly better deal in your example.
Pretty much all I'd have to spend money on would be food, taxes and internet, maybe a computer every half decade to a decade and a few books here and there. Buy a couple of flats or something to set me up with some trickle income to cover the necessities and... yeah. I can see being able to go off and work on the projects I'm interested in with a few hundred k in hand.
For how long? If I were to somehow come across 3-5 years salary, I would probably be tempted to quit my job and work on something else for a while.
Also, if you are into minimalism, you can really live on quite a small amount of money, so that can reduce the amount of work you have to do even further.
When thinking about a startup exit, lottery win, or finding out that I'm a long lost heir to a fortune though, I'd like to be able to buy a house and start or buy a small local business (restaurant, cafe, club, etc.) with the $4M left over. In SF that probably puts me in the $6-8M range.
Looking at the life experience of local pro athletes, the most likely way to retire with a very small fortune while owning a small business is to start it with a very large fortune. There's actually a business model oriented around taking money from athletes and home equity loan cash out refinancer types, then buying the asset back for pennies on the dollar at the bankruptcy to resell back to the next sucker with some money. At least in the cash businesses, you can never undercut the people who are a front for laundering money, like the recently busted local candle (and weed) store.
Also the experience seems to bifurcate where the owners are either stuck working 80 hour weeks, or they hire someone else to be the general manager in which case owning the business but having nothing to do with day to day operations has all the interest and excitement of buying stock online.
If you're willing to relocate someplace cheaper, the number is going to be a lot lower.
It's really very similar to retirement planning. A 5% withdrawal rate should be sufficient to preserve principal, so that's a good starting point for the necessary math.
The explicit assumption in the OP is that you achieve this freedom though some form of large payoff. But how about achieving this freedom through a ratio, rather than a lump sum.
For me, this is the ratio of how many days I need to work to earn a month's rent (currently 0.5 days for 1 months rent). This figure embodies both my earning power, and how much I need the money.
I could become 'freer' (from work) by downgrading my living standards, or I could find a way to earn more per day. But, importantly, working more will not change this ratio.
Of course, if learning to fly an airplane is your thing, then you could substitute rent for flying lessons.