Career and Money Advice At The Intersection Of Business And Technology

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How much money do you need to retire?

April 7th, 2011 · No Comments

I have heard from countless people that their dream is to retire early. Unfortunately I know very few people who are able to retire early and young.

I think one problem is that most people never set specific income goal for retiring early. When I ask them how much money they will need to retire, very few people have an answer.

It’s much harder to achieve a goal if you don’t have specific and measurable goal in place.

Let’s try to set the income goal for a typical reader of this blog.

A typical reader of this blog works in the high tech industry, makes 6-figure salary, well educated, single or have a young family, lives in middle class to upper class suburban neighborhoods in SF Bay Area, Seattle, Boston, NYC, Chicago or other major cities, carries a sizable mortgage (e.g. 400K – 800K)

To pay off his mortgage, he will need $400K to $800K.

To prepare the funds to pay for two kids’ private college education, let’s assume he needs to put aside $50K/year * 4 years * 2 kids = $400K.

Let’s assume that a monthly passive income of $10K will allow him to continue to live the life style he wanted, and he is very conservative in term of investing his money. He will get all of his passive income from bank interests. Given the interest is so low right now, let’s assume 2% bank interest rate. He will need $6 millions in the bank in order to get $120K a year (i.e $10K/month).

So, he will need $800K + $400K + $6 million = $7.2 million

Is $7.2 million the magic number for us to retire with enough of a financial cushion?

Do you want to retire early and young? How much money do you need to retire?

Tags: Personal Finance

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