What’s Your Retirement Number?

Retirement NumberIs there a dollar amount in your bank account that would make you get up and leave your job right now?  I’m talking about the type of money that you would cause you to quit the daily grind of commuting and dealing with unreasonable expectations from your boss and crazy co-workers?  In this article, we’ll explore this retirement number and different ways to attain it.

 

At some point, most of us desire to leave the pressure of the office even if we love the job that we have.  You think to yourself, I’d rather be doing anything other than working for a paycheck.  

 

Honestly, there are many days where I find myself sitting in a meeting thinking that there has to be more to life than this.  Arguing about the font color on a presentation or other minutia details unfortunately does not feel like the best use of my time.  Those are the days that I daydream and think about all the other things I could be doing with my time.  But I digress, as I have not reached my retirement number in order to leave the corporate workforce.

 

Looking at my expenses and the things I would like to do in life, I believe that I could easily live with an annual net income of $50,000 for the rest of my life without a decline in lifestyle.  Ideally though, I’d like to create a bigger buffer to feel more comfortable with income closer to $100,000.  There are a couple of ways to reach my ideal retirement number, so let’s start out with the fun way first.  

 

Winning the Lottery

Who doesn’t fantasize about winning the lottery and buying everything they ever wanted?  Let’s be honest though, the chances of winning the lottery are 1 in 100 million.  These are the things that are more likely to happen than winning the lottery:

 

retirement number

  • Getting struck by lightning 1 in 12,000
  • Becoming a movie star 1 in 1.5 million
  • Dying in a plane crash 1 in 11 million
  • Getting audited by the IRS 1 in 175

 

But let’s say you defy the odds, and win the lottery.  First off, congratulations, and do you want to hang out some time?  Next, here comes the scary part– 44% of lottery winners that have won the largest lottery prizes are broke within five years, according to a 2015 Camelot Group study.  Let me repeat that, in case you glazed over.  Four out of ten lotteries winners lost it all.  This sudden wealth curse is not beholden to only lottery winners though.  In 2008, the NBA players association reported that 60% of former basketball players are broke within five years of leaving basketball.

 

Investing in the Stock Market

Another probably more realistic way would be to have $5,000,000 in the stock market.  I say realistic, but I’m nowhere close to having that much money saved up and available to put into the market.  But, the odds are much better that I can do this than winning the lottery.  I know this number seems high, but if I was able to invest the whole amount into the S&P 500, the current dividend yield is 2%, which would equate to $100,000 of income.  Here is a little history on the S&P 500 to offer some context if this is actually realistic.  

 

  • The lowest dividend yield that the S&P 500 has ever yielded was 1.11% in August of 2001.
  • The highest yield was 13.84% in June of 1932.  
  • The average yield over the years has been 4.39%.

 

So, I feel comfortable thinking that a $5,000,000 initial portfolio in the S&P 500 would continue to meet my needs of $100,000, even if the portfolio dropped.  In addition, if the S&P 500 followed its current trajectory of 8%, within nine years the portfolio, would double in size, easily meeting my needs, since it appears on average that the yield on dividend growth is 5.87%.

 

Real Estate

retirement numberA potentially less capital-intensive way to yield $100,000 is through real estate using the 1% rule, which states that as a real estate investor you should be able to receive monthly rent that is 1% of the total purchase price of the home you bought.  Based on this rule, you would need buy a property in cash for $833,000 in order to yield $100,000 in income, or you could buy less expensive properties where the 1% rule is applied that generates the $100,000 that you desire.

 

Based on where I live in the DC area, there are not very many opportunities to scoop up homes that fall within the 1% rule.  I actually looked for a whole year using Redfin with specific criteria and never once got a hit.  Now that’s not to say there aren’t amazing deals through foreclosures, but I was unable to find one for myself.  The more I looked into real estate investing, the more it seemed to show that in the DC area that 0.5% was closer to what monthly rent was of the purchase price.  Based on this figure, I would need closer to $1.7 million invested in real estate before I could yield the $100,000 that I desire.  

 

One thing I haven’t even mentioned is all the taxes, property maintenance and any other fees that your HOA or county/city charge, which would further reduce your net income.  So when trying to figure out your number using real estate investing keep these items in mind.

 

Find Your Passion

The final method is probably the best way to reach your desired number.  Find a career that you love and work diligently to become the best.  Think about all the great entrepreneurs of our time: Mark Zuckerberg, Steve Jobs, Jeff Bezos and Elon Musk.  Do you think they look at their bank account waiting to retire, or do you think they have found a higher purpose to make an impact on society?  While having a retirement number is a great goal, shouldn’t the bigger goal be finding your purpose?

Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.

2 Comments

  1. For me a retirement # isn’t really that applicable I’d call it more a follow your passion # even though that may not sound as sexy or maybe it’s sexier!

    I’d say once I’ve got a lump of cash, which is more than likely going to come through being a bit creative with property, this will lead to then going part-time and gradually building up a business or more investments that way..

    I’m not sure I’ll ever retire though! I do like your article though MSM, keen on reading through more of your posts

    • Thanks Jef for your thoughts. It’s definitely something that I have struggled with but good/bad news is I have a couple of years before I have to make the decision so hopefully it becomes more clear by then.

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