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Thursday, September 18, 2014

Amassing a Fortune

Posted by Dave on January 21, 2014

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?

Comments

10 Responses to “Amassing a Fortune”
  1. Goldeneer says:

    I have been aggressively saving and investing in RE over the last 6 years.

    My initial retirement income goal was to have a little over my family’s needs which was around $3-4k/month. Now I realize that this number was too conservative and doesn’t account for unexpected life events. Travel, house maintenance and family events were not originally factored into my retirement calculations.

    Now my income goal is to have DOUBLE MY NEEDS which will be around $6k/mo once my mortgage is paid off.

  2. Edward says:

    I use the “early retirement calculator” at Networthify. It’s the simplest retirement calculator ever and keeps me on track. Only takes seconds to plug in your data. (But also doesn’t seem to work on some versions of IE.)

    http://networthify.com/calculator/earlyretirement

  3. Kevin says:

    I’m 46 and married and plan on ER next year. I figure I need 4 mil of net worth (house included) and 3 mil of investable money. With yearly targeted interest of 3% will be $90,000/yr. plus yearly inflation index. I feel safe that my money wont run out before I’m in my 90′s. If my wife and do pass before then the kids will have a good inheritance.

  4. Jon_snow says:

    Heh…. that calculator said I should have ER’d 3 years ago at 38. :)

  5. deegee says:

    The closest I came to having a magic number in order to ER was the amount ($300k) I wanted my company stock (ESOP) to be worth before I left the company and cashed it out. The company stock was part of my tax-deferred 401k/ESOP account but I could cash it out at low tax rates. I had other investments in taxable account but it would be the proceeds of the stock sale which would be invested into a special bond fund and provide monthly dividends to cover my expenses in ER.

    I have added more money to that bond fund over the years to boost my dividends to keep up with its declining yield but otherwise all has gone as planned including having a sufficient cushion or surplus which gets reinvested if not needed to help cover my expenses.

  6. I am planning on just over $20 000 per year in retirement. I just want to be done work and I am planning a very simple retirement.

    I am putting most of my investment money in to a Vanguard ETF (high dividend Canadian) this year.

  7. Joel says:

    Personally, I want to FI with about 2k/month after tax. But my wife would feel more comfortable with 5k/month. We have years to figure out a happy medium, but in the meantime, I try to keep us on the right path and saving/paying down mortgage as fast as possible.

  8. Tara says:

    I also am planning to FIRE with 2k per month. I should have enough to pull the plug in 2-3 years.

  9. jon_snow says:

    Our goal is to have about 3k in monthly dividends by the end of this year when I ER or become a “kept man” if you prefer. My wife will continue to work and we will still be able to save and invest at a good clip, though the days of saving 80% of our income will be gone.

    My wife loves her job and she can work as long as she wants – if she thinks that she can enjoy a lifestyle that 4k investment income can provide, she probably only has to work another 5 years. If she thinks 5k is better, she can work ten more years. She is in no hurry to quit, though I think when she sees how ER agrees with me, she might rethink things. ;)

  10. Jacq says:

    I spent last year trying to live off of taxable dividend income without restricting or even monitoring my spending (much) in any way as a test. It turned out ok, I spent less than 15% over divvy income so I knew I was close for my new m.o. of not counting RRSP’s and LIRA’s (although I don’t think that’s a good strategy for ER and will figure out the best way to draw down with the least tax impact). Cut a few things that we didn’t need (eg. cable we didn’t watch) too.
    Given that my youngest son isn’t out of school though for another 4.5 years and that restricts where I live and when I travel, I’m going to keep working here and there if I can continue to find gigs that are fairly flexible. It’s a nice change from hanging out, doing my own thing. Also because in an ideal world, I prefer not being fully invested all the time. I would also like to and have started to save explicitly for the kids and their future houses, investment accounts etc. while I’m making a golden handcuff type salary. Even more after I pay for a few house renovations… :-P
    I don’t like drawing lines in concrete on these things – more in sand where I reassess what I want to do on a regular basis based on circumstances that just happen (ie. the market, opportunities, setbacks…). The gods laugh when men (or women) make plans…

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