How Much Money Is Enough for Financial Dependence?

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The notion of financial independence sounds appealing, doesn’t it? It’s no secret that the idea of FIRE (Financial Independence, Retire Early) has become quite popular in the USA as of the past few years. It has inspired the youth, and all they want is to retire young with their pockets deep enough to spend the rest of their lives without worrying about money.

But how much money do you need to never work again? What figure do you have to achieve to live your life comfortably? Today, that will be the premise of this discussion.

What Is Financial Independence?

In simple terms, financial independence refers to the status of owning sufficient money to live one’s life without needing to work. To live a life of comfort without being employed, one has to earn enough money so that it’s no longer their primary concern.

Since the idea has secured massive popularity, there’s much debate on how much money is enough for financial independence. People often try to figure it out, but it’s not as simple as it may seem.

Enough Money for Retirement

Despite the ever-increasing popularity of the FIRE movement, it turns out that most Americans aren’t prepared for their retirement life. Whether you want to retire early or not, one must plan for it. Of course, after being committed to your job for decades, you deserve to live your dream retirement life.

A survey shows that more than 60% of Americans fear having no money in their retirement life even more than they fear death. Another survey suggests that 75% of Americans aren’t saving enough for retirement, and 21% aren’t saving money at all.

If you know the exact figure to live comfortably, you can better plan your retirement life. You’d know how much you need to save every month and whether your current job will help the cause or not.

The 4% Rule

The 4% rule is a retirement income strategy to know how much money one should withdraw from their retirement account annually. In other words, if you spend only 4% of your total assets invested, you can live off that money all through your retirement life. It gives retirees a consistent income to live on with peace of mind.

For instance, if your annual expenses are $40,000, you can retire with one million dollars of your total assets invested. This rule originated from a study designed to find a realistic and safe withdrawal rate for retirees in 1994. It was proposed to give people a withdrawal rate to let people live off their investments in their retirement lives.

Limitations of the 4% Rule

However, one key glaring issue with the 4% rule is its 30-year retirement window used in this model. Imagine you are 25 years old and want to retire young at age 30. According to the 4% rule, you’d get consistent income until you are 60 years old, and then you’d probably run out of money. Stock market research further intensifies that the 4% rule cannot be treated as a safe withdrawal rate.

The ever-changing market trends are also a problem with the 4% rule. For example, if the global currency shifts to bitcoin, the 4% rule will no longer be relevant.

Considering the current scenario, it would be safe to say that things might be changed by the time you retire. It’s not very likely to happen any sooner, though, but it’s still an elephant in the room.

In addition, even the father of the 4% rule, William Bengen, didn’t claim that it was perfect. He admitted that this rule would get less effective with increasing inflation over time. With every dollar getting weaker and weaker, the money in your portfolio will become less valuable. These are the reasons why the 4% rule may give you headaches.

Emergency Funds

Remember, life happens! You never know what will happen the next day, and chances are that you may find yourself in an emergency. You may fall ill, and some expenses will show up out of nowhere.

So, it’s a good idea to save some money for emergency funds, so you have something to fall back on in emergencies.

How Much Is Enough to Live on Per Year?

After retirement, you are likely to have fewer expenses than your pre-retirement life. However, all of that comes down to your standard of life. Some people don’t imagine themselves shelling out money after retirement, while others see it as a long-awaited milestone and want to live it to the fullest.

While you won’t be spending on your office lunches and fuel to drive to and from your office like before, you may want to go on vacation and spend some days in nature. So, it all depends on your plans, and as your plans vary, these numbers also vary.

To determine how much is enough for you to spend in one year, first find out your monthly expenses. Most of us already know it, so simply multiply it by 12 to figure it out. Don’t forget to save for emergencies when planning it.

How Much Money Do You Need to Never Work Again?

To have enough money to never work again, your goal should be to save somewhere between 28 to 31 times your annual expenses. This much savings will allow you a safe withdrawal rate of around 3.50%, which would be suitable for you even for 50 years.

For example, if your expected annual spending is $50,000 after retirement, you should try to save anywhere from $1,400,000 to $1,550,000 to live on comfortably. However, be mindful that it’s not the one-figure-for-all kind of amount, and $50,000 may not be enough for those living in big cities.

It’s a good rule of thumb to save more if you can afford it. You’d never work again and won’t want to worry about the market trends either, so you may need to save a bit more to live on comfortably.

How Much Is Enough for Two People?

Of course, the last thing you’d want in your retirement life is to argue with your partner over bills. So, it’s recommended to always plan for your partner as well.

Instead of going on a wild goose chase, apply the same rule as mentioned earlier and multiply your current annual spendings by 28 to 31 to determine how much is enough to keep you and your partner happy.

Final Thoughts

Everyone wonders at some point in their lives how much money they need to exchange for a lifetime of doing what makes them happy without worrying about money at all. Your enough money to never work again depends on how you want your retirement life to be.

The 4% rule can work sometimes, but it’s not reliable enough. However, you can try it and it might just work out for you and change your life for the better!


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