How much $ is needed to never have to work again?

[Ludanto]

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I had a friend a few years back whose company stock options ballooned to the point that he asked his father (a VP of finance at a major company) how much he would need to retire at 25 and live the same lifestyle his parents did. I'd describe the lifestyle as the upper end of middle class. Nice 4 BR house in the 'burbs (no McMansion), new Lexus every 4-5 years, travel and dining out at a reasonable rate. Assume married and children at some point. His father's answer was "5 million".

[/ QUOTE ]
This is very interesting. I wonder what HE meant when he said he wants to retire. I would be very interested in what his assumptions where that need to be fullfilled before he can say he 'is retired'.

[Ludanto]

[ QUOTE ]
inflation

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Of course the money accumulation rate would need to be higher than the inflation rate. If this is the case than age plays no role here. ...am I wrong here? This is contained in my 3rd assumption. That's why I wasn't sure what mattnxtc meant.

[Evan]

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huge difference between being 40 and being 60 and not working again...if you cant figure out the differences then you need to think about it some more

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To be fair, if you make it a prerequisite that the invested portion of your money increases every month, it actually doesn't matter how old you are. This assumes that already factored into that is your monthly withdrawal growing with inflation. Now, it is stupid, from a "how much money do you need" perspective, to have your invested capital grow perpetually. There's no need to end up with 60 million in the bank when you die. That was his question though, so it actually won't really matter how old you are since other provisions more than account for that.

[Ludanto]

The increasing money makes things easier for the reason Evan pointed out. Also think of it as a wish to give money to your family (or whoever) when you die. The more the better.

[scott1]

I wonder what HE meant when he said he wants to retire.

I'm pretty sure he meant nothing that resembles work. No managing real estate, no sales calls or whatever. Let someone else manage your money, live to a ripe old age and not worry about financing the lifestyle of you or your wife. Money does not necessarily increase every year, like your assumption, but stays at such a rate that you won't run out before you die.

[Ludanto]

He still would probably need 3x more than what I used in my example. So I would be fine (according to his dad) with about 1.5M - 2M. That's sounds like Perplexity's guess. [img]/images/graemlins/smile.gif[/img]

[majesty2009]

Your number will always go up if you ever actualy hit it.

$2000X12
----------
.08X.05

You will need $6,000,000 if you want to start drawing out immediatly.

[AWoodside]

[ QUOTE ]
huge difference between being 40 and being 60 and not working again...if you cant figure out the differences then you need to think about it some more

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Ummm... I don't get it. (40 / infinity) = 0 and (60 / infinity) = 0. Or do you mean to tell me you've never heard of The Singularity?!?!

[squiffy]

As a first order approximation, start with your current salary. I make about 82K. But I also get medical benefits, retirement, etc. So my actual salary is say closer to 100K.

Esavings accounts are paying about 5% to 6% now. So let's use 5% as a conservative figure. Interest rates are not constant over time. They rise and fall and it's hard to predict what they will be. But we can adjust later.

So for me, living in Fresno that's 2 million.

That would assume no withdrawals and a constant interest rate of 5%.

If you move to a more expensive city, then 100K a year may not be enough to live on.

Inflation may cut into your cost of living. And withdrawals will obviously erode your return. So $2 million would be the bare minimum right now, using risk free investments.

If you are willing to risk some money on the stock market, or work a part time job, then you can reduce that figure.

If you are willing to work half time and can earn say 50K a year doing something more enjoyable. Then perhaps you only need 1 million in a risk-free account earning 5% interest.

So I like to start with that simple calculation, to get a rough approximation. Then adjust for other factors.

[TheMetetron]

Gah, you guys are all bad at this.

Assume the stock market makes 7% after adjusting for inflation per year in a well diversified portfolio. So assume you can only take 5% of that, since we want our money to grow and to account for the stock market not meeting historical averages.

So if 5% of your total is what you need per year, just figure out what the hell you need every year and multiply by 20. That would be a pretty good estimate, though more would obviously make you more comfortable.

Need $35,000 pre-tax per year? Find yourself $700,000 and retire.

This also doesn't take into account your gains getting taxed every year, but if you do a good job, that will only knock 1% or so off. So multiply by 25x and you should be set.

I'd feel > 95% confident in $875k being enough for you to retire on if you really only need $35k pretax.