What’s Your Number?

And no, I don’t mean your phone number so I can turn you into my BFF and text you cat videos at 3am. I mean…what’s your retirement number? The one number representing the amount of money that, if you knew you had in the bank, would:

  1. give you the feeling of control over your financial life
  2. be enough for you to comfortably retire on
  3. free you from the shackles of corporate slavery, or otherwise allow you the freedom to quit your day job

Mine varies (depending on how inspired or pessimistic I am feeling on any given day), but I believe that my number would be between $1.5 and $3 Million in liquid savings. At a nominal 3% interest rate, $1.5 Million would earn $45K in passive income per year, which is enough for me to live on without having to tap into my liquid savings. If I were to get married and have kids, that number would likely go up to $90K, given that I live in San Francisco. In that event, my financial nut would need to be $3 Million to sustain my lifestyle.

To calculate your retirement number (the amount in liquid savings you need to live a life supported by passive income), figure out:

  1. How much your minimum annual passive income (corresponding to your maximum annual expenses) would be for you and your family to live comfortably on
  2. The lowest return rate (or Yield) you can expect if you invested all the money in your liquid savings. These investments could take one of many forms, from investing in stock, equities, mutual funds, bonds and/or ETFs, to Real Estate, to safer avenues like CD’s and Savings Accounts).

Your Retirement Number = Annual Expenses / Expected Return Rate (or Yield)

I believe 3% is a very realistic (and achievable) number , given that over the long term, the stock market returns end up being somewhere close to 7% (depending on your investment horizon, of course).

What about you? What’s your Retirement Number?

 

What’s Your Number?

One thought on “What’s Your Number?

  • February 7, 2017 at 12:04 pm
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    I focus on the income stream that my portfolio generates, rather than its value. Historically, dividend income has been more stable than capital gains, which explains why dividends have been an ideal source of retirement income for generations.

    Using an average dividend yield of 3% that my portfolio generates, I need to accumulate roughly 33 years worth of savings. So if my expenses are $30,000/year, I need a portfolio worth $1 million. Of course, the earlier you start saving and investing, and the higher proportion of income you save, the faster you will get there.

    Dividend Growth Investor

    Reply

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