Last week I wrote about my initial foray into investing and how I arrived at my current early retirement plan about 5 years ago. Sometime in the next few months, I will change over my financial goal from aggressively paying down my mortgage to investing as much money as possible. My intention is to amass enough money to be financially independent from my job employment by the time I’m 45.
Based on my household’s current spending levels, and today’s dollars, I will need somewhere between $20,000 and $30,000 in investment income. I would prefer to go to the lower end, but this is a negotiable number that my wife and I will have to decide on over the next decade, as we continue to work. At some point, we might decide we would rather spend 25% less and exit the workforce early, or that we require more money because we pick up an expensive travelling habit and the budget just isn’t set up to handle that.
I hope to invest my money into cash-producing assets, either stocks or bonds that appear fairly solid (based on the research I carry out) and offer the rate of return that I am looking for. I am assuming I will have to invest approximately $500,000 to achieve the cashflow I need to leave the workforce, which will require as much dedication to that financial objective as I have had in paying off my house.
I look at my current financial objectives as the best return I can get on the time I am spending working. I could choose to not invest the money, and instead spend the money on other things, which may make my life more fun in the short-term. I am looking more at the long-term though – what will make me happier overall in my life? Will a newer, fancier car that will rapidly lose its novelty for me be enjoyable when I’m 70 (which I am hoping to make it to)? Will a larger house bring more enjoyment to my wife and I on a daily basis?
My retirement goal arises because I have the money to do it, and because to me, increased leisure time that I have control of will bring me much more enjoyment than anything else I could spend my money on right now. If I decide I would like to change careers (or am told by my place of work that I should change careers) or work less to enjoy life more now, then my future plans of Early Retirement will have to change as well.
My financial freedom countdown clock will start as soon as my last mortgage payment is done, but until I start seeing investment losses or returns coming in, I will have no idea how close or far away my “exit date” is.
How have you decided how much money you require to retire?