I’ve been crunching some numbers and wanted to see if this makes sense to everyone else. Originally, I thought you’d need around $2.8 million to retire comfortably. But it seems like with $1.8 million invested in the S&P 500 and a 7% return rate (hypothetically), you could pull out $10k a month and sustain it.
I know the math here sounds a little weird, but I’m factoring in a 10% return and 3% inflation, meaning a 7% net return. So, you’d be taking out an inflation-adjusted $10k every month.
Living on $100k a year after taxes (about $80k after tax) seems doable if the house is paid off and you’re in a low-cost area like the Midwest. Plus, in your 40s, you could always pick up some consulting work here and there.
Anyone want to check my math or share their own retirement target? What’s your “magic number” to retire early?
7% withdrawal rate is pretty high. If you retire during a bull market, maybe it works out, but if you hit a bear market or a flat period right when you retire, it’s a different story. You might start cutting into your principal, and that’s tough to recover from.
The ‘safe withdrawal rate’ is about 4% in most situations, and if you’re retiring young, maybe closer to 3.5%. Your original $2.8 million target is more in line with that.
There are plenty of places in the U.S. where you could live on way less than $100k a year. If you’re not tied down by family, think about moving to a low-cost-of-living area in retirement.
Torrin said:
There are plenty of places in the U.S. where you could live on way less than $100k a year. If you’re not tied down by family, think about moving to a low-cost-of-living area in retirement.
Haha, good point! There are lots of cheaper areas, but moving isn’t in the cards for me right now.
@Zhen
Good idea! Though my goal isn’t to fully stop working—I just want to work on projects I like instead of needing a paycheck. So technically, I’ll have outside income, but I’m planning around not needing it, just to be safe.
@Wendell
Smart move. Some friends of mine ‘retired’ recently, but they define it as not needing to work for money. They still pick up work here and there.