A colleague asked me how much I would need to retire, and if I had that much, would I quit my job. This is a hard question to answer of course, because it has to factor in a lot of unknown variables, as well as predicting what kind of lifestyle will be wanted in the future.
For instance, while it would be easy to say "cover my salary passively", I still have about twenty three years to go in my career before technical retirement, and a lot can change in that time with cost of living. So at the very least, I would want to start off completely debt-free, with nothing owing on anything at all. With the mortgage, that is about 350,000 all up to be on the safe side.
Then I would be starting from scratch.
However, at this point, if I was debt-free, the monthly overheads would be quite a lot lower, which means my current salary would go much further. With this in mind, if I could cover my current salary from a debt-free position, it would be quite comfortable - but for how long?
The current inflation rate is around 3.5 percent, which means that the purchasing power of money will half in around twenty years. That rate can go up or down of course, so that is another unknown variable to consider. However, this has to be factored into the calculations for the investment return needed. So for instance, if a million dollars earns 10% a year, it is actually earning 6.5% a year after allowing for the inflation rate. This is before tax, so after tax, there will likely be around 40-50K left.
Is that enough?
Probably not. And that is on a 10% average return, which is also going to fluctuate year to year, meaning that there has to be some padding in there to cover the leaner periods, that might last for several years. The padding is both in the principle and the return, so that the principal on average will return more than needed, and that extra would be rolled in to increase the principle. If the stars align, the floor return in the lean times, will amount to the same or more than is required, so that ground isn't lost and preferably, more investments can be made in the dips.
Damn it. That means more is needed!
And then, what about the changes in salary? If I am basing it on what I currently get, what I get should change upwardly in the future. And, even if lifestyle remains relatively unchanged, the same isn't going to be enough. Of course, not carrying debt would mean that extra could be put into investments also. But, there will likely need to be a ramping growth in the return, to both cover inflation, and cover any progression in life we might want to make beyond that. And then of course, if I were to retire, that would heavily affect my pension, as I wouldn't be contributing into that for the next nearly thirty years.
Then there is my wife.
What the hell would I do with myself for the next three decades if I were to retire, but my wife had to keep on working for a slave wage? It would be amusing for a while, but not for long. So, essentially I would want to have her wage covered also with all the precautions, so that we could retire together.
We would need between two and three million, I suspect.
Without lottery, that seems unrealistic. But, the other part of the question was, "would I quit my job?", and this is the most important thing to consider in my opinion, and it is an easy answer.
There are several reasons for this:
But as I was saying to my colleague today, work is pretty much only bad when it has to be done. Work isn't nearly as bad when a person knows they can walk away at any time without it affecting their financial position. When we have to work in order to make ends meet, there is stress in the job, because there is stress in having to keep it, and stress in the thought of losing or leaving it. From my experience, often the people who earn the most in a company, are also amongst the hardest working, because they both get more out of it, and they don't have the stress of having to do it. They end up working longer hours, but they also tend to get into the weeds more. They don't have to keep their heads down to protect their position, they can be bold, they can try things, they can take risks.
That is a great position to be in.
So no, I wouldn't quit my job, I would likely work harder at it in order to make more impact. Not out of greed for more money, but for a personal sense of relevancy from outside of my family. It is part of being in a community and adding value to others.
But, if we were able to cover one of our wages with passive income through our investments, that would give us both 50% (or thereabouts) of freedom in the workplace to take risks. It isn't everything and work would still be needed, but the type of work required would change, meaning that we could cover our costs even if we both took jobs that paid half as much. This gives us some freedom to take risks in the positions we have now.
So for me, 2,000,000 UD in a lumpsum would cover debts and with an average investment return of 10%, after costs, it would be enough to buy our freedom from compulsory work, but still mean we would need to work into the future. However, rather than for another twenty five plus years, we might be able to cut it short to fifteen years and then travel the rest, slowly bleeding value back into the economy, and into the opportunity pocket of our daughter.
So, how much for you?
Taraz
[ Gen1: Hive ]
