The classic “how much is enough” question. To be completely honest with you – I have no idea. Over the years I’ve thought about shooting for a few different numbers ranging from $5 million all the way down to a few hundred thousand dollars. Of course, how much you need to retire early is probably going to be completely different from how much I need.
- I believe in the 4% rule
- When I “retire” I will probably engage in activities that bring in income
- Once I retire I plan on living in lower cost of living countries and traveling relatively inexpensively – allowing my nest egg to grow
- My spending level can be adjusted based on the market – if things look bad, I can spend less
With those assumptions out of the way, we can get down to the real numbers. As a baseline I’d like to have $36,000 a year to spend in retirement. Calculating that based on the 4% rule, or by multiplying that amount by 25, I come up with $900,000 as my “retirement number”. As of the middle of 2016 I’m about $600k short – so I have a long way to go…or do I?
Bridging the Gap:
While I’d love to be able to save $600k in the next 8ish years, I’m not sure it’s feasible. What I do think could happen is that I start one or multiple side businesses – passive or active – that earn me some money and I can continue them into early retirement. For every $100/month a side business earns, that’s $30,000 less I need in my nest egg! For example, if I had a business earning a profit of $1,000 a month that would be the equivalent of saving $300,000 ($1,000/month x 12 months = $12,000/year x 25 = $300,000).
So once the combination of my savings plus the value of any income I’m generating equals $900,000 I will retire early and begin the next phase of my journey. Of course – this is all based on my mid-2016 thought process. I’m sure things will change over the coming months and years, but at least we have a place to start from!
Readers – what’s your “magic number” that would let you retire or retire early? If you don’t have one, I’d be happy to spend some time working with you one on one to come up with a number and a plan to achieve it!