How Much Money Do I Need to Retire? - Why this Question is Disaster Waiting to Happen
If you are thinking about "How much money do I need to retire?" you are setting yourself up for the biggest catastrophe in your life!
There is a popular misunderstanding when saving for retirement. People frequently ask "When can I retire?" or "How much do I need to retire?" These kinds of questions really demonstrate the problem.
It seems most people will think about their retirement funds just like a bucket of water. These people devote their career filling up the bucket and they spend their retirement emptying the bucket. This is incorrect thinking.
To answer the question of "How much do I need to retire?" you would have to know some unknowable things.
• How long will I survive?
• Exactly how much will my medical care expenses be in my elderly years?
• What exactly will happen to the cost of living and the Dollar?
• Will Social Security and Medicaid continue to exist when I retire?
• If I'm drawing from my traditional IRA, what will my tax rate be?
It is just plain impossible to fnd out the answers to those questions. So, what do you do? Change your thinking!
The right question is, "How much income do I need to retire?"
For most of us, you are going to require just as much income in retirement as you do now, if not more. Maybe you'll pay off your home and also get rid of a handful of miscellaneous expenses, but for the most part you are going to have the same costs you do now. You will still need to pay your telephone bill, your cable tv bill, your utility bill, your health care costs, your gasoline; the list goes on and on.
By asking "How much income do I need to retire?" rather than "How much money do I need to retire?" you set yourself up for the right solution. And answer is, you have to replace your active income with a passive income. That is right, your retirement goal should be to develop a passive residual cash flow that is the same or greater than your active income (your job).
This is obtained by obtaining adequate assets to generate a substantial passive income. So we will take a look at a couple of techniques of doing that. (do not get too depressed, there is good news by the end)
1. Interest on savings.
If, for instance, you would like $4000 income monthly, and you are able to collect 4.8% interest on your savings, you should only have to save up one million dollars to retire. So if you're 20 years from retirement, you'll have to put away $40,000 a year. Not a problem, right?
2. Acquire rental property.
If, for example, it is possible to make $150 each month on every rental home, and you require $4000 monthly income, you only need to buy 27 rental properties. Maybe that's 1 each year until retirement. But, for many people, after property taxes, insurance coverage, property management, maintenance, and all the other fees that find their way into the formula, you might just as easily lose $150 each month on each and every property.
3. Start a home based business.
Many people who open a small business just struggle to get by. When you trade employment for self-employment, you continue to have a job. The difference is, your new boss can be a tyrant.
When can I retire? How much money do I need to retire?
The answer is really very straightforward (notice I didn't say easy).
To have a happy and early retirement, you will need to create assets which produce income using leverage and residual income. Build a business or even a system that will thrive in your absence.
Does Microsoft lose money whenever Bill Gates has a vacation? Does Ben and Jerry's shut down every time Ben and Jerry want a day off? Does Disney World go out of business when Walt is not around to run it? No.
Of course these are just examples; you don't need anything on that scale. You should just create a little company that operates with or without you going to work every day.
Don't forget: Leverage and Residual Income.
Look for some of my other articles or go to my web site on the subject.
There is a popular misunderstanding when saving for retirement. People frequently ask "When can I retire?" or "How much do I need to retire?" These kinds of questions really demonstrate the problem.
It seems most people will think about their retirement funds just like a bucket of water. These people devote their career filling up the bucket and they spend their retirement emptying the bucket. This is incorrect thinking.
To answer the question of "How much do I need to retire?" you would have to know some unknowable things.
• How long will I survive?
• Exactly how much will my medical care expenses be in my elderly years?
• What exactly will happen to the cost of living and the Dollar?
• Will Social Security and Medicaid continue to exist when I retire?
• If I'm drawing from my traditional IRA, what will my tax rate be?
It is just plain impossible to fnd out the answers to those questions. So, what do you do? Change your thinking!
The right question is, "How much income do I need to retire?"
For most of us, you are going to require just as much income in retirement as you do now, if not more. Maybe you'll pay off your home and also get rid of a handful of miscellaneous expenses, but for the most part you are going to have the same costs you do now. You will still need to pay your telephone bill, your cable tv bill, your utility bill, your health care costs, your gasoline; the list goes on and on.
By asking "How much income do I need to retire?" rather than "How much money do I need to retire?" you set yourself up for the right solution. And answer is, you have to replace your active income with a passive income. That is right, your retirement goal should be to develop a passive residual cash flow that is the same or greater than your active income (your job).
This is obtained by obtaining adequate assets to generate a substantial passive income. So we will take a look at a couple of techniques of doing that. (do not get too depressed, there is good news by the end)
1. Interest on savings.
If, for instance, you would like $4000 income monthly, and you are able to collect 4.8% interest on your savings, you should only have to save up one million dollars to retire. So if you're 20 years from retirement, you'll have to put away $40,000 a year. Not a problem, right?
2. Acquire rental property.
If, for example, it is possible to make $150 each month on every rental home, and you require $4000 monthly income, you only need to buy 27 rental properties. Maybe that's 1 each year until retirement. But, for many people, after property taxes, insurance coverage, property management, maintenance, and all the other fees that find their way into the formula, you might just as easily lose $150 each month on each and every property.
3. Start a home based business.
Many people who open a small business just struggle to get by. When you trade employment for self-employment, you continue to have a job. The difference is, your new boss can be a tyrant.
When can I retire? How much money do I need to retire?
The answer is really very straightforward (notice I didn't say easy).
To have a happy and early retirement, you will need to create assets which produce income using leverage and residual income. Build a business or even a system that will thrive in your absence.
Does Microsoft lose money whenever Bill Gates has a vacation? Does Ben and Jerry's shut down every time Ben and Jerry want a day off? Does Disney World go out of business when Walt is not around to run it? No.
Of course these are just examples; you don't need anything on that scale. You should just create a little company that operates with or without you going to work every day.
Don't forget: Leverage and Residual Income.
Look for some of my other articles or go to my web site on the subject.
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