I have been wondering, how much money it would take to actually retire. I have heard many different theories on lifestyle, income, etc...etc, but am wondering what number people here think needs to be attained to fully retire at the age of 40. I want people to really think about what they would need to retire at 40 years of age, not what we want...because we would all pick the highest number. Personally, I think you need $2 million, but would retire comfortably at $5 million Just a fruitless excercise, but fun nonetheless. DD
Well considering at age 40, you may live for another 40-45 years, multiply your yearly expenses which may decrease or increase upon retirement by the number of years. If you think you can get by on $25,000 a year (not taking into account, part time jobs, any investments or inflation), go for it. Most people also don't take into account medical expenses and whatnot. Personally, if I'm retiring in my 40's, I'll need at least $2 million. You don't want to get to 60 and say "wups, I miscalculated". I'm trying to retire in my 40's but knowing me, I'll be too scared to.
Most financial analyst say 2 million. Since you don't know how long you will live, you need to be able to live off your interest and capital gains.
Depends on the type of lifestyle you want to live. If you want to settle in to a middle-class lifestyle, you could easily do that with $2mm. Heck, you could do it with $1mm if you supplemented it with a job. Teaching wouldn't be bad since you have 4 months off a year. I've met people who have done this semi-retirement before. They lived near a lake, and both husband and wife taught high school. During the summer, they were on their boat everyday. That would be a pretty nice lifestyle. If you want to live like a king and not work at all, I think you'd need more like $10mm or so. Or at least that'd be my number.
If you average 8% on your investments and you start with $2 million, that is 160,000 per year, and you should be able to live on that quite well, I would imagine. DD
The biggest variables include Expected Life Span Annual Expenses Rate of Return on Portfolio Taxes Annual expense factors include: Medical and other potentially unforseen expenses Inflation You should consider doing a Monte Carlo retirement simulation
I've only known 3 people who retired around the age of 40, one of them at 35. They all had in excess of 5 million. However, after being retired for a year, they went back into the working world. It's not something I can comprehend, but they are all about 55 now, and have been working ever since. Oh, and I'm not one of the three.
Depends on whether you want to leave an inheritance. A life-only annuity will pay you quite nicely on $2M.
8% is not sustainable for the long term. An inflation adjusted 3 or 4 % is more realistic. http://www.streettalklive.com/members1/Myths_of_the_Market/Part_II_Lump Sum Returns.pdf Registration is free.
The problem with just saying "if you average 8%" is that most people don't consider things like rate of inflation. So your 8% comes down to about 4%-6% which is still quite a bit of money, but not quite as much as you may have thought. Unexpected medical expenses is what could obliterate even multi-million dollar savings.
I used to teach classes at work on Monte Carlo simulation. It's a very powerful tool and agree that it would be a big benefit to DaDakota. It would allow him to input ranges around his most sensitive variables in his decision making process and the output would give him an idea of the probability of achieving his goal.
The problem is that you may need it to last 50 years since people are lasting longer. Also when you are old, you have for expensive medical care since you can't expect medicare to be around with the way things are going.
The numbers: assuming inflation 4% and rate of return is 7% => real rate of return is 2.8846% retiring at 40 and assuming that you live to 95 => need money for 55 years assuming at the beginning of each year you get a lump sum payment of $100,000 in today's dollar (ie inflation adjusted) PMT = $100,000 N = 55 yrs i = 2.8846 PV? = $2,820,246 => $3 million living large like TJ PMT = $250,000 N = 55 yrs i = 2.8846 PV? = $7,050,615 => $7 million If you want to leave $1 million (in today's dollars) to your heirs (versus spending your last penny seconds before you die) ... PV = $1,000,000 N = 55 yrs i = 4 FV? = $8,646,366 => $9 million (future value of $1 miilion) N = 55 yrs i = 7 FV = $9,000,000 PV? = $217,838 => need ~$250,000 on top of the $3/$7 million These calculations assume that no taxes are taken of your investments as they grow for 55 yrs. Add in taxes and the numbers have to go up (unless we elect GWB king and capital gains are no longer taxed) Guessing what taxes will be like over a 55 yr period is anybody's guess.
DD - The bigger question may be what you want to do once you retire. If you think it would be cool to just "not work" and lounge around and play golf once in a while, I think you're in for a disappointment. If, on the other hand, you want to pursue some of your other life goals (and they're substantial and will require time and effort), then perhaps it would be great. My dad retired a few years ago at age 50, and he got boooooored. And depressed. He found some stuff to help him get out of it that was tangentially related to his field of work... but then got bored and depressed again. When he finally started doing something that he had talked about for a while, he got the drive and happiness that was missing once he stopped working. I guess I'm saying that the money will probably work out if you have a couple of million in the bank and invest wisely (and don't take on debt to live a lavish retirement), but determining what you'll do in retirement is essential.
Retiring early would be boring, but I just wonder what everyone thinks they need to retire. I have a goal of $5,000,000 and if acheived I plan to take a long hard look at what I am doing, and whom I am doing it with... I consider that to be the magic number....at that point you have "Screw you" money, where if someone asks you do do something you don't want to do, you can say "screw you" and not worry about getting fired. DD
Fantastic post, guess it is as important to have a plan of what to do WHEN retired as it is to plan to get there. DD
