Simplistically, having a $1M net worth makes you a millionaire. But while it seems like having $1M used to be the common goal when I was growing up, how likely is it that people can retire with $1M in assets, let alone retire early? Obviously, expenses in retirement will play a major role in how far your assets can go in retirement, so how does cutting expenses compare with saving more? And how do you account for things like pensions, Social Security benefits, and retiree health insurance in your net worth?
How likely is it that people can retire with $1M in assets, let alone retire early?
It's hard to put a percentage on the likeliness that people can retire on $1M in assets, let alone retire early as there is too many factors.
How does cutting expenses compare with saving more?
Given a consistent/controlled environment, saving more is far more effective than cutting expenses. With the caveat that what your savings are invested properly, it should compound and end up beating the linear benefit of cutting costs. However, it is likely that it is easier to cut costs and if this leads you to essentially take out less or save more money in your investments than you achieve the same outcome.
How do you account for things like pensions, social security benefits, and retiree health insurance in your net worth?
- I suppose for pensions you can reverse the 4% rule to get an estimated equivalent amount to a retirement account. Ex. $40,000/year pension is equivalent to $1M in a retirement fund.
- Social Security benefits you can do a a calculation and than reverse it with the 4% rule, but depending on your age it may not be around so I have skipped it in my calculations
- Retiree health insurance is a real hard one because there are a lot of plans and your status of heath will come to play so I can't really calculate that. If this is in terms of long term care insurance… I still don't trust it because actuarial tables are not accurate any many of them have just been closed because of costs. So I leave this last suggestion and it falls in a gray area. Unless you're significantly rich most of the time terrible health will eat up all your savings. Hence, it may be wise depending on the support you have to go onto Medicaid. A Elderly focused attorney will know what to do and I've had clients who owned 20 homes and still got onto Medicaid legally. It's a gray area but something to always keep in mind.
thank you for the clarity, $1M is still my goal.
I think that if you're going to FIRE with $1M you need to be like those bloggers who "retire" from their main job but still have a substantial income coming in from other endeavors. Or be retiring from a job that will provide you with a pension and health coverage. I don't think $1M would be enough on its own.
I think that if you're going to FIRE with $1M you need to be like those bloggers who "retire" from their main job but still have a substantial income coming in from other endeavors. Or be retiring from a job that will provide you with a pension and health coverage. I don't think $1M would be enough on its own.
I don't get the need for quotes around retire, @Melissa D. Would you not consider someone retired if she had generated passive income streams from owning rental properties? What about someone living off of her investment income? And why should retirement necessarily preclude any work? I think the key idea is gaining financial independence to do whatever it is you want to do, however it is you want to do it, even if that includes blogging about whatever interests you. Of course, there are many aspects that go into how much money is needed to retire, so while I may have posed the initial question as FIRE with $1M, everyone needs to determine her own number based on her situation. Some people will have higher numbers and some will have lower numbers, but given all the unknowns of retirement, doesn't it make sense to generate as many income streams as possible?
I think you have to consider your annual withdrawl rate in your total FIRE number.
@Aaron G. I think many people think of retirement in terms of "when I stop working." I think living off passive income streams, whether investments or real estate would fit that definition. If you actively manage rental properties with the headaches that entails, I wouldn't consider that retired but you do you.
My point is more that I've seen some people holding themselves up as examples of the FIRE lifestyle who say they retired with $X in the bank but are building new businesses and aggressively marketing new profit-seeking ventures. My caution is don't think you can get to $X in the bank like they did and retire in the sense of never work again. Even they aren't doing that. And I suspect, mostly based on numbers I've run for myself, that $1M would likely run short if one retired on it fairly young (30s-40s) and attempted to live a fully retired never work again lifestyle.
Depends on one's lifestyle I guess.
The rule of thumb I have heard (aka the FIRE number) is typically equal to 25 times a household's annual spending, invested in low-cost, passive stock funds. Below is an article that discusses further. The online calculator can give you a rough idea of how much you might need: https://www.google.com/amp/s/www.cnbc.com/amp/2019/06/27/how-to-figure-out-how-much-money-you-need-to-retire-early.html
I don't know of any true FIRE examples where the RE was complete in the sense that an individual never earned an income again (beyond passive income from investments). There are too many possibilities in the future to know if a certain amount will last any individual for the next 40 to 60 year. One thing that we can be sure of is there are many challenges coming our way this century and society / civilization may need to undergo radical changes.
It is more the FI part that everyone seems interested in. If I were FI and did not like my job I would feel like I would look for something else to do that may or may not involve generating income but was fulfilling, challenging and required some creativity. The odds are if you do something like this you will find income even if it is not a requirement.
How should we factor in inflation?
Retirement is the Greatest!
God is still in the Healing Business.
Does anyone love Mr. Money Mustache like I do?? =)
The amount of money you need for retirement depends on the lifestyle you want to live in retirement.
Can’t you also build on your retirement through life insurance?
@Stacy S. In a sense, yes. My mother had CHOSEN to pay extra into her WHOLE LIFE insurance when she was young, and she borrows from it to cover some expenses.
HOWEVER, these are still technically loans. What portion borrowed (plus interest not paid back) will be taken from the total distribution beneficiaries get from the insurance to cover final expenses and/or inheritance.
