Articles Comments

My FI Journey » Reflections, Retirement » What’s your financial independence (retirement) number?

What’s your financial independence (retirement) number?

282926_the_stackDid you ever see those commercials where people walk around carrying a giant number under their arm?  This is supposed to represent their magic retirement number, or how much money they need to have saved up in order to retire comfortably.  Apparently, “comfortable” is a very relative term because the numbers these people were toting around seemed to vary by a couple of log orders.

I’m a fan of focusing on producing enough investment income to replace all of my expenses.  So in effect, my magic financial independence number is however much money can reliably produce enough income to cover all of my expenses.  I’m not particularly concerned if I have only $1 to my name, but it produces a 40,000% yield, or if I have $1 million dollars producing a 4% yield.  The result is the same, I get $40,000 per year in income.

As a bit of a fun flight of fantasy, I thought I’d imagine what my magic financial independence number might look like and what I would do.  Let’s assume that all the money is invested in companies with a consistent history of growing their dividends.  Let’s further assume that these dividend increases match or exceed inflation.  And to make the math easy, we’ll assume that I get a 4% per year dividend yield.

And since this is a thought experiment, let’s assume that the money drops out of the sky today, and not that I have to earn it over decades of saving and investing.

 

What I wouldn’t do

  • Spend it.  If it was a particularly large sum of money, I might be tempted to spend a bit on a few things that I really need, such as a new laptop computer.  But there really isn’t a need to run out and buy a luxury car or a giant house.
  • Tell people.  Other than my awesome blog readers (yes, you guys and gals are all awesome) and maybe some close family and friends I wouldn’t tell anyone about the fact that I just came into a big chunk of money.  Advertising just attracts vultures.

 

What I would do

$1 Million - This yields about $40,000 per year, which is enough money to finance a modest but unencumbered life.  Declare financial independence achieved.  Break out the champagne.  But otherwise keep on living life as is.  While this does make me financially independent, almost all of it will go to covering my expenses, so I’d still need a job to pay for the fun stuff.  I’d probably try to grow this up to $2 million as quickly as possible.

$2 Million -This yields about $80,000 per year, which is a very nice middle class income.  I’d only keep working if I liked my job, as I would no longer have any reason to work for any reason other than pure intellectual, psychological, and emotional satisfaction.  If I didn’t like the job, I would give my employer the finger and walk off.  But I’m a nice guy, so I’d still give a two or three week notice.  I would probably save less money than I do currently and start spending more, particularly on travel.  I would also get a maid.  I really want a maid.  I love living in a clean apartment but hate having to clean up.

$3 Million - This yields about $120,000 per year, which is almost the entirety of my current base salary and bonus.  At this point the only reason to keep working is if I loved my job.  This is a line of money where I could easily buy tons more than I buy now and still save 20% per year.  I think I would hire a personal trainer.  I’ve always wanted to have one, but they’re really expensive.  I think I would also take a sabbatical and go to cooking school.

$4 Million (plus) -This yields about $160,000 per year.  Now we have reached the point where working doesn’t even make sense any more.  We’ve also reached the point where my imagination starts to run out.  I realize that this is probably not that much for people living in the middle of New York City or San Francisco, but for someone who likes to stick to mid-sized towns and suburbs, this magnitude of income is something akin to royalty.  I think I would quit my job and take very prolonged vacations, moving around the country and maybe the world to a new place every season or so.  Don’t worry Southern Hemisphere, I’d be down there too.  Basically this is just an excuse to dodge Winter.  I hate Winter.

 

Readers:  What is your magic financial independence number?  What would you do when you hit it?  What would you do if you exceeded it?

Written by

Filed under: Reflections, Retirement · Tags: , ,

11 Responses to "What’s your financial independence (retirement) number?"

  1. This is fun to think about! I think my numbers would be very similar to yours. I’d like about $2.5M (in today’s terms) that makes about $100k a year to feel completely comfortable with never making another dime. Hopefully I get there sooner rather than later!

  2. Retire By 40 says:

    My goal is $2 million. Mrs. RB40 can quit her job if she’d like then. Well, I’m sure she would keep working though. For me? Probably no change since I already quit my job. :)

  3. This is a tricky topic. I was planning on writing a post at some point describing why I don’t want to set a magic number, but for fun I’ll play along. Our current expenses run us about $4k every month right now. To maintain our lifestyle in retirement it would only cost about $3k every month, because we wouldn’t have to worry about child care (probably less because we wouldn’t have to drive to work everyday as well so we would save on gas and wear/tear). If we’re working with a 4% yield then it’s probably going to have to be around $1 million. I’m hoping that through P2P lending and becoming a rental property owner we’re going to be able to rake in money from other directions than just the markets though.

  4. Dan Mac says:

    I think to keep our current lifestyle I’d have to build a portfolio that could give me roughly $60k to $70k in todays dollars a year in income. So I think in todays dollars I’d like to have around $1.5 to 2 million invested. This should yeild me the income I would like.

    Unfortunately I’m quite a ways off from that number. So that number will go up each year with inflation. Hopefully some day financial independence is reached though.

    On a side note. I really enjoy my career so I’m not necessarily looking for early retirement. My plan therefore is just to keep accumulating as much in passive assets that pay income. Hopefully by the time I am ready to retire I will have more than enough!

  5. My wife and I have been talking about this a lot lately. We stick to a limited budget now but when we retire we’d like to return to the way things were before we had kids. That means eating out a little more frequently and traveling. Nothing crazy, just a small step up from what we do today. We really enjoy both and agree that we’d work an extra 5 years each if it meant we could enjoy those things in retirement. Our number is around $3M depending on where we choose to live. Fortunately we have time to get there well before 65.

  6. Sam says:

    I don’t think I’m going to be able to get 4% as I’m so risk adverse on my main nut, hence probably 5 million at least on a 2% assumption!

    Must be nice to be retired :)

  7. greg says:

    “What is your magic financial independence number” – 500k

    “What would you do when you hit it” – build a 20% buffer zone, and then explore other careers to keep challenging myself

    “What would you do if you exceeded it” – I almost certainly will exceed it, but not much will change aside from being more secure in scenarios which exclude approximations of The Apocalypse. Probably earmark money for a few other people in case they really need it and help out with education expenses for younger members of the extended family

  8. Great topic!

    My number looks to be about $500,000. At a 3.5% yield (approximately my current portfolio yield) that produces $17,500 per year. That’s comfortably over my annual expenses, which currently factor in about $2,400 in annual student loan payments. Those payments will be gone when I’m financially independent. This is using today’s money value and doesn’t factor in my ability to raise my overall portfolio yield. I thin I could probably do it on less, but we’ll see how it goes!

    Best wishes!

    1. MFIJ says:

      After reading all the comments on this section, what I liked the most was that there’s about an order of magnitude difference between the low end (500K) and the high end (5 million).

      I could probably do a bare-bones retirement where I move to a low cost of living area at around 750-800K. More expenses than you since I don’t get the benefit of sharing rent. I think I’d need about $2 million to be truly comfortable and really able to do whatever I wanted, whenever I wanted.

  9. Liquid says:

    Yay, you think I’m awesome lol. My magic number is $750K currently because at 4% yield that would give me $30K a year which is what my current expenses are. Of course by the time I reach financial independence I’ll probably need $1 million by then lol. Wow I had no idea your income was so high. You probably work really hard at your job.

  10. Pauline says:

    My current expenses are about $15K per year, so under $400K would do it with your calculations, although I generate more than $15K and wouldn’t be comfortable getting just enough to live on. At least $60K of income per year makes me feel safe.

Leave a Reply

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>