How much money do you need to retire? I don’t know… you tell me. That’s not a flippant answer, by the way. No one knows your situation better than you do, and only you can really answer that question. But wait! I’m not going to just leave it at that without helping you out
There are two ways to answer “How much money do you need to retire?” The first way is slow, and how most people do it. The second way is fast, yet very few people know how.
So, the first way is that you can add up how much of an annual income you want to live on in your retirement years and then multiply it by the difference between the age you expect to retire and your life expectancy age. For example, if you wanted to retire at age 60 on $100,000 per year, and you expect to live until 85 you would take the difference between 85 and 60 of which is 25. Then, multiply 25 by $100,000. So, how much do you need to retire? $2,500,000! Wow, sounds difficult and time consuming, doesn’t it?
But hold up! Wait a minute. What if you’re wrong and you live until you’re 86. What are you going to live on that last year? Or God help you if you live until you’re 95! Are you going to go back to work the last 10 years of your life? You see, that’s the problem with this “accumulation” mindset to planning for retirement. There’s so much uncertainty and hope involved. I mean if you get it wrong, it’s not like you can go back and try again. By the way, hope is not an investment strategy. There’s a better way.
The second way to figure “How much money do you need to retire?” is to add up your anticipated monthly expenses in retirement and then create a monthly residual income that covers those expenses. For example, if your monthly expenses in retirement were $5,000 per month, you could purchase in today’s real estate market 10 rental properties at approximately $100K each that paid you $500 each in cashflow every month to cover your monthly expenses. This is a very different way of thinking. In this manner, it wouldn’t matter how long you lived, you would have enough.
Do the math. Work, work, work and save, save, save $2,500,000 and be left with a bunch of uncertainty and worry: Or properly invest $100K into one rental property and allow that one property to buy the other nine properties for you over a 10 year period and virtually eliminate the uncertainty and worry from your retirement. So, now how much money do you need to retire? $100K? Is it that easy? Yes.