Have you ever wondered what a comfortable living looks like? I’m sure everybody has thought about it at one point or another. It is an interesting question that leads to a lot of other questions.
Financial independence comes after you’ve saved enough money and assets that can help cover expected living expenditures for the rest of your life.
It’s easy to volunteer, work, pursue personal hobbies or passions since your goal is not to meet your day-to-day expenses or save for retirement, having all these set-aside.
How Much Money is Enough for Lifetime
Imagine what you will do with the extra time if you won’t need to work for money. This is the goal for most people who are seeking such financial independence.
This mission can only be accomplished with a savings goal in mind to have enough money to be set for life. Many people recommend making this figure at least 25 times a family’s annual expenditure at low-cost passive stock funds.
You’ll find most people gravitating between the $1 million and $2million mark for them to be set for life.
Develop a Plan to Generate the Income You Can Live Off Of
Most people believe that it is safe to withdraw 4% of your annual savings. Moreover, you can always increase it by the inflation percentage each year.
For instance, if you have $2million in savings, it’s safe to withdraw $80,00 in the first year. And then, depending on the inflation rate, you can withdraw a higher percentage inclusive of the inflation.
Numerous factors determine how much money you need for life. These factors include; your savings rate, market performance, present salary, withdrawal rate, employer’s contribution, ambitions. Some other contributing factors are how much you need to live on each year, healthcare, family size, various income streams, unforeseen bills, and many others.
Plan Above the 25 Times Rule of Thumb
The 25 times rule of thumbs is ideal. However, it is unsafe to develop your strategy relying on those numbers. Various factors can invalidate the number, such as the possibility of financially insecure parents or having another kid.
You need to ensure you have various plans, such as savings options and other investing objectives. And also emphasize the importance of retirement savings and having passive sources of income. This will allow you to select out-of-work traditional sense and focus on other fun hobbies and activities.
To be safe, it will be prudent for you to save above the “25 times” threshold. Besides, the possibility of your expenses increasing is high now that you have extra time filled with travel and other activities.
If you’re taking early retirement and need to be set for life, ensure that you save at least 30 times your expected annual expenses.
Moreover, ensure you have at least one or two contingency plans before retiring. For instance, having a home you own outright, and the expenses might downsize.
No specific figure can determine the amount of money you will need to be set for life but a range of what could work.
Therefore, ensure you find an actual number that can make you happy and start saving towards it right away. To be safe, ensure your savings cover the minor tweaks that can occur over time.