A colleague asked me how much I would need to retire, and if I had that much, would I quit my job. This is a hard question to answer of course, because it has to factor in a lot of unknown variables, as well as predicting what kind of lifestyle will be wanted in the future.
For instance, while it would be easy to say "cover my salary passively", I still have about twenty three years to go in my career before technical retirement, and a lot can change in that time with cost of living. So at the very least, I would want to start off completely debt-free, with nothing owing on anything at all. With the mortgage, that is about 350,000 all up to be on the safe side.
Then I would be starting from scratch.
However, at this point, if I was debt-free, the monthly overheads would be quite a lot lower, which means my current salary would go much further. With this in mind, if I could cover my current salary from a debt-free position, it would be quite comfortable - but for how long?
The current inflation rate is around 3.5 percent, which means that the purchasing power of money will half in around twenty years. That rate can go up or down of course, so that is another unknown variable to consider. However, this has to be factored into the calculations for the investment return needed. So for instance, if a million dollars earns 10% a year, it is actually earning 6.5% a year after allowing for the inflation rate. This is before tax, so after tax, there will likely be around 40-50K left.
Is that enough?
Probably not. And that is on a 10% average return, which is also going to fluctuate year to year, meaning that there has to be some padding in there to cover the leaner periods, that might last for several years. The padding is both in the principle and the return, so that the principal on average will return more than needed, and that extra would be rolled in to increase the principle. If the stars align, the floor return in the lean times, will amount to the same or more than is required, so that ground isn't lost and preferably, more investments can be made in the dips.
Damn it. That means more is needed!
And then, what about the changes in salary? If I am basing it on what I currently get, what I get should change upwardly in the future. And, even if lifestyle remains relatively unchanged, the same isn't going to be enough. Of course, not carrying debt would mean that extra could be put into investments also. But, there will likely need to be a ramping growth in the return, to both cover inflation, and cover any progression in life we might want to make beyond that. And then of course, if I were to retire, that would heavily affect my pension, as I wouldn't be contributing into that for the next nearly thirty years.
Then there is my wife.
What the hell would I do with myself for the next three decades if I were to retire, but my wife had to keep on working for a slave wage? It would be amusing for a while, but not for long. So, essentially I would want to have her wage covered also with all the precautions, so that we could retire together.
We would need between two and three million, I suspect.
Without lottery, that seems unrealistic. But, the other part of the question was, "would I quit my job?", and this is the most important thing to consider in my opinion, and it is an easy answer.
No.
There are several reasons for this:
- I quite like my job
- It provides another income stream
- It gives relevance meaning
- I like my colleagues
- It is a great security feature
- It is a good example for my daughter
But as I was saying to my colleague today, work is pretty much only bad when it has to be done. Work isn't nearly as bad when a person knows they can walk away at any time without it affecting their financial position. When we have to work in order to make ends meet, there is stress in the job, because there is stress in having to keep it, and stress in the thought of losing or leaving it. From my experience, often the people who earn the most in a company, are also amongst the hardest working, because they both get more out of it, and they don't have the stress of having to do it. They end up working longer hours, but they also tend to get into the weeds more. They don't have to keep their heads down to protect their position, they can be bold, they can try things, they can take risks.
That is a great position to be in.
So no, I wouldn't quit my job, I would likely work harder at it in order to make more impact. Not out of greed for more money, but for a personal sense of relevancy from outside of my family. It is part of being in a community and adding value to others.
But, if we were able to cover one of our wages with passive income through our investments, that would give us both 50% (or thereabouts) of freedom in the workplace to take risks. It isn't everything and work would still be needed, but the type of work required would change, meaning that we could cover our costs even if we both took jobs that paid half as much. This gives us some freedom to take risks in the positions we have now.
So for me, 2,000,000 UD in a lumpsum would cover debts and with an average investment return of 10%, after costs, it would be enough to buy our freedom from compulsory work, but still mean we would need to work into the future. However, rather than for another twenty five plus years, we might be able to cut it short to fifteen years and then travel the rest, slowly bleeding value back into the economy, and into the opportunity pocket of our daughter.
So, how much for you?
Taraz
[ Gen1: Hive ]
As potential and new employees, we all start our careers with some kind of plan to establish employment, gain promotion, and work towards our own idea of success. Yet how many of us give the same consideration to retirement? Similarly, many business owners fail to plan an exit strategy.
I certainly should have started planning my own recent retirement about 30 years ago. And, as you say, it's about a lot more than financial plans.
For most, it is a late afterthought, myself included. But, I am getting there piece by piece now.
If you could go back and give yourself advice thirty years ago, what would it be? Also, now that you are close to retirement, what other things outside of money is important?
I believe it is valuable to get perspectives from experience.
My best advice would be phased retirement. Obviously, some people just want an immediate change. But for me, I wish I had reduced my hours by one or two per week. Maybe retiring completely at 2 days per week.
Spending more time with friends and family is much more important to me than money. Between social and financial considerations, I value travelling locally by foot, bus, train, or taxi. Because driving has lost all pleasure for me.
A staggered retirement would be great! I think that this would also be perfect if combined with grandchildren, in the sense that they would be able to spend a lot of time with grandparents, giving some space to parents, but also setting up the scene for experienced knowledge transfer in the things that are important.
I believe that one of the reasons the world is the way it is now, is because a lot of knowledge is not transferred, as we live so isolated from each other, even within families. We used to all be in the one house.
I've picked $3M USD. In my head I've been aiming towards $2M AUD with a house completely paid off - which would give me about $60K a year at 4% interest... which is similar to your 10% minus inflation but a bit more conservative to account for the peaks and troughs of the boom and bust market cycles.
I totally agree with you that the financial freedom would change your mindset around work, I'm glad that you like your job, and I like mine too, but I think I would probably look for a job that pays terribly but has a big societal impact. I think what I'd like to do is something in the climate change resilience arena... help communities prepare for extreme weather events. I don't have any experience but I think I'd find that work valuable in a non-monetary way and hopefully build a legacy I'd be proud to leave behind.
This sounds good, and would likely suit you :)
It is obviously (for some at least) going to have a lot more need in the not too distant future. Most people are avoiding even talking about it.
What I do think would happen given the "no need" scenario, is that I would likely change what I do over time naturally. Probably start where I am and since I could be more risk-taking, gravitate into something more impactful. Not sure what that would be for me, but the last few months I have been thinking about building a local community of sort, where people are able to get help to be their best at something they really want to pursue through reference groups and mentoring from the group. There are so many unhealthy communities online, it would be good to be part of a healthy one in the real world.
The idea of a real mentoring community sounds amazing. You could potentially find experts to speak to the group about various different fields... financial, legal, woodworking, etc.
This is the idea. A community of people who both learn skills, and can share skills and experience.
Btw, this is my first poll like this, did it work okay?
Does it only work on Peakd?
It seems to work okay for me... but I can only see my vote:
Is that what you can see? Or do you see something different?
I'm using PeakD, and I can see that someone else said they picked 2 million, but I can't see that.
Has it changed now? You were the first one to vote, and I think the other person chose 2M based on the writing only. There are more votes.
Ahhhhhh.... you're right, it looks much more comprehensive now.
Pity it is only on Peakd - would be nice to have it platform agnostic.
I think I might quit my job if I had $1 million or much 😄 However, working is something different. One has to fulfill its places in case such situations as well as retirement, like gaining new hobbies, travelling alot, playing their own game.
Yeah, there are different kinds of work for sure, but I would also Want to be sure I wouldn't be in trouble later. Another decade of decent work on top of a lumpsum, would do that.
I voted for 2m, but I am not sure if it registered. I don't think I would retire. I technically can in three years, but I am not even sure I would do that. It just doesn't make sense when I don't hate my job and I seem to be doing alright at it. My wife still has several years. I agree with you it would get old after the initial excitement.
2 million sounds about right for people who have been already working consistently and are nearing possible retirement. Even spending 100K a year without investing at all, it would be 20 years. Though, that isn't far enough for me - I assume :D
As you said, 1 million could put you in a bit of a pinch. Cost of living is quite low where I live, but inflation is making it higher every day. At even 7% interest, 1m would be comparable to my current salary. I'd hate to see that decrease too much. The other number just gives me more wiggle room.
I am hoping when I retire, I won't have to worry about how much I treat the grandkids
A good goal!
I voted for $2 million, only because a million isn’t what it used to be. 😉
But unless crypto moons, no $2 million for me.
My math teacher at school was talking about 1M and living off the interest. Easy when the interest rate was 9%!
Same for me. Fingers crossed for all of us.
I think double what I'm earning after paying off all debt is a safe answer. If one is living comfortably with the current salary, doubling that can already get some additional comfort. As for the poll, you can never have too much money, so if given the choice, the more money the better.
I should have added "bare minimum" in the pole title. Though the title comes from the post title, which I don't like. It should be separate.
Double salary is a good bet. It means that it will be worth about the same as now in 20 years, but if the difference is used wisely until then, it would have also grown significantly.
I picked 2 Million USD, 2 million invested in the stock market with dividend paying stocks, should be enough to sustain my current lifestyle even with the cost of things.
But this is based on me having a house paid off and not other debt :D
The "no debt" is such an important factor, isn't it? People are buying later or not at all, which means they own outright later, or always have rent obligations. That is going to get very difficult in retirement.
I just look at my parents which have a favorable morgage 1% rate and have just slowly been paying it off for 30 years but they still need 20 years or so, because they extended it to use the equity in the house to expand the house.
So the house is worth more, but they getting into retirement and still have something like 1 million left in Morgage even with 1% it doesn't sound fun to own that much on a house with the monthly payments x)
So, nope! Gotta stay out of debt as much as possible :p
Yeah, that is still not a fun amount to have to pay off, regardless of the low rate. It would scare me!
Well, we have different ways we think and I love your point saying you wouldn’t retire due to the fact that you love your job and some other reasons.
As for me, a dollar is a whole lot of money here in my country so if I have $5,000,000 I may retire. That also depends on the job I’m doing. If it is something I really love, even though I may want to retire, one thing or the other will keep on dragging me back. That’s for sure
So, would a million be enough then? what is the minimum to make it through until 80ish?
Let me just say $5,000,000 will be enough till eighteen and that’s if I want to live my normal life
I think i would have a similar amount as you. There is so much going on and I think the fact that you need to take out more money due to living costs adds up. Also, you never know what accidents could happen so you have to add in the cost for health insurance as well. I don't think there is any point we could stop without work unless you have over 10 million dollars.
It is funny when people talk about how little people can live off, until something happens. A bit of padding is always good.
If you have a million on the side which gives a decent return if you invest it properly, going to work won’t cause as much stress as it would if have nothing on the side. So, I would settle for that!
A million on the side would be decent - it would cover a fair chunk of both our salaries, but wouldn't let us live large - til retirement :)
Well, I could live properly with that, I guess that’s all personal 😎
60k HBD is enough for me and an income of 1000 HBD per month.
I am not sure if that would cover food here. The location matters so much.
One thing is you could go somewhere cheaper for your retirement. I am sure 1 million dollars would go a long way in one of the many tropical countries in America, Asia or Africa. I live in Honduras and have known quite a few foreigners who have decided to retire here because their money just goes much further. Of course this depends on what each individual has visualized they want for a retired life,
That is possible, but it is another choice to be away from family, isn't it? If I happen to have grandchildren, I would want to be where they are, but it isn't usually the way that my child could or would move to where I would be. It is an interesting choice to make though.
I chose the last option, living in my country is expensive, although there is hope that things will improve, the reality is that in life you cannot take everything for granted.
I have thought as much as you about how much money I will need, so I partly take advantage of my youth to work to generate a way that allows me to continue earning money over time, until I reach the point where I don't have to work to live.
Thank you, today I was thinking about what to write, I had not found inspiration until I saw your post.
Where are you living?
Don't waste your youth worrying about money, use it to make sure you never have to worry :)
Glad to hear it!
For me personally, I would say 1 million, together with my wife, I would say 2mil. Though as inflation is a thing, that goal has to be adjusted for inflation as well each year...
It depends a lot on living location. If I was in a cheaper country, the needs go down a lot. 3M would be plenty here though.
What would be the bare minimum to get a decent amount of benefit for you?
1 million + house (paid off) would be my bare minimum I think for me and my wife. 60k spending a year, counting for a roi of 7%-8% would even give me some extra level of security. That would let me spend about 5000 each month which should definitely be doable in West Europe in my opinion. Probably I would live cheaper and keep on growing my funds.
Although, I agree with you that I would probably not quit my job, although working halftime would be an option.
Ofcourse it's all spoken out easily but would have to see what I would do if I would reach it.
From what I remember from talking with you about electricity prices It seems that things are cheaper here than in Finland. I think I would be quite comfortable with maybe 600-700k. Provided that I would invest most of it it well.
Finland is pretty expensive for many things. The investing well is the hard part. Many people seem to waste what they get.
I was about to say it's the million dollar question that everyone wants to know but doesn't know at the same time - and then yes, I saw a poll!
I think it's something that each individual has to think for themselves, and I went through this process as well. But complicated maths aside, I picked 1 million USD because I think it's more than sufficient for me. At 4-5% return a year, that's 40-50k USD of interest/passive income annually.
The amount depends so much on location. And while it seems like an easy decision to move somewhere more affordable, that comes with its own costs. If I had grandkids, would I want to live far away from them?
Yeah I think it's also the lifestyle we want... Of course, the trade off is having to work longer.
I only voted in assumption. In reality, life doesn't have a price tag. We tend to need more as we grow. The projections of today might not be anything significant in few years to come. I think one just needs to keep working as long as you have the strength. Besides we don't just work for the fund, there are fun and physical benefits in being active daily.
There are heaps of benefits to work - something too many young people might never realize until it is too late.
You should probably post more than 3x a day. Milk is soo healthy for YOU! 😉💰
Your attention seeking is sad and unattractive.
Because I live in a 3rd world country I pick a million dollars, but more always is better 😅
Strictly speaking about how much money would you need to have to retire. And sticking strictly to the authentic reality of things. You would really be surprised to learn how little is truly required and needed to live a full and satisfying life when you retire. Especially if you realize that nothing you have and enjoy now really belongs to you and will last you a lifetime as something of your sole and exclusive property.
Firstly, I chose $5,000,000 because I so much love money and at the same time, it’s a lot of money here but with the retirement plans I have in my head, it is a little amount of money.
I’m presently into what I love and I don’t think I’d be stopping anytime soon even when I get to my retirement age
If you love money so much, what happens when you don't have enough?
I voted for over 5 million and definitely would love to have 100 times more😂 The idea of having financial freedom to take risks and pursue meaningful work resonates with me alot. I think I'd also want to focus on something impactful, like building a supportive community or working on climate resilience.
So, the same things that were mentioned by others?
Retirement is like a leading cause of death or something. It's actually quite scary how retirement seems to make people quickly degrade.
I quite like being around people every day - students - even as the complete anti-social as I am. Keeps me alive in some way.
But, I long gave up on the idea that I would retire. No pension coming my way, and things are too expensive. It seems my way of thinking has become mainstream as Gen-Z are starting to learn they will probably never get a pension nor retire at this rate. 20 years, a lot can happen. A million bucks count amount to a burger and fries. Retirement going up to 68, 70 years, a lot of people barely even live that long even in good health (average only 73 in some parts of the UK)
Enjoy your 3 years of retirement!
Plenty of old ladies here in Adelaide. Her husband built a house with his own hands 50 years ago, on the outer edge of the city.
Now it's in the inner suburbs and the local council values the property at several million dollars, and charges rates accordingly.
They're essentially destroyed financially. They're too wealthy to draw a pension, and have no income to pay the rates. Their husband died 20 years ago, and their only real option is to sell up and move into a nursing home.
It's disgusting how we treat the widows of the men who built this place.