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[Ask HN] What is the minimum amount of money you would need to quit working?

11 points by fgimenez ↗ HN
I was inspired by this reddit post: http://www.reddit.com/r/AskReddit/comments/a1gyi/askreddit_how_much_money_would_you_need_to_quit/ , but it seems most of the answers are just one liner jokes.

Here's the original question:

I'm in the late stages of my college career and wanted to know how much money I would need in my bank account to be financially stable for the rest of my life without any other source of income. Obviously this depends upon my lifestyle and current age, so feel free to make liberal assumptions with either.

I've been wanting to know because I have no real concept of money beyond a few thousand dollars. I feel this would give me a grounding for things like job salaries or just general financial well-being.

Thanks

9 comments

[ 2.7 ms ] story [ 35.9 ms ] thread
s3graham
I'd say about 2M.

*0.04 == 80k from passive investments, and put half of that back into the principal to combat inflation.

ganley
You plan to live indefinitely on $40K/year? Where I live, that's below poverty level for a family.
patio11
This formula is really, really simple:

S = 25 * N

Where S is the amount of savings you need, denominated in anything you want (present dollars, bars of gold, whatever) and N is the amount you want to spend per year.

The derivation of this formula is decidedly less simple. It comes down to "The overwhelming majority of portfolios with a standard 60:40 stock/bond allocation which model the historical returns of the US stock market will not be depleted within a human life span if you restrict the withdraw rate to 4% per year. Go above that and things start to become dicey, quickly. This is backtestable but, obviously, not forwardtestable."

Thus, if your desired standard of living requires (present day dollars) $40k a year, you would want a million present day dollars saved to retire today.

fgimenez
That's exactly what I wanted to know! Do you know what this formula is called and/or where is is formally derived?
raintrees
Conservatively speaking, shouldn't 3% more be added in to account for inflation?
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ganley
Clearly this depends on how much you need to make per year, and on how much risk you're willing to tolerate, but given those variables it's not hard to calculate. We can get 5% return at basically no risk, which is on average 2% real yield post-inflation, so you need 50 * N where N is your 'salary' per year. Which is twice what @patio suggests, because I'm allowing a lot less risk than he/she is. So if you want $100K/year, you need $5M.

As has been mentioned in other similar threads, that's "do nothing" money. You'd need a lot less for "do anything" money, where you would continue to work but could choose most any job regardless of what it pays, and/or could work less than full-time.

mark_l_watson
This is more complicated than you may think. For example, if you live in the USA, how do you estimate the dollar's fall in value over the next 10 to 20 years?
mark_l_watson
Also, here in the USA, our government (for very good reasons) underestimates inflation. In the last decade, stuff like the cost of food, medical expenses, and housing have been removed or diminished in the inflation rate calculations. Stuff like the drop in consumer electronics is factored into this calculation with a strong weighting factor.