“You can only be financially free when your passive income exceeds your expenses.” – T. Harv Eker
I’ve had conversations with over 2,500 high net worth investors.
A question that often comes up is: “How much do I actually need to retire?”
If someone doesn’t ask, they’re probably thinking it!
There’s actually an easy way to calculate how much you need.
It might even be less than you think.
Let’s go over how exactly you can do that in three easy steps!
1. Defining Your Number
You can calculate your monthly amount for retirement by figuring out three numbers.
The first is how much you need to cover your living expenses.
This might include things like your mortgage, any insurance you have, and food.
For me, that amount started around $6,000 a month.
The next number you should know is what you need to replace your income.
Let’s say you were making $200,000 a year.
You should then aim to make about $17,000 a month to replace that income.
Finally, there’s the number you need to live the life of your dreams.
That could be $20,000 or $50,000.
The number could even be less depending on your goals.
When you figure out those numbers, you can plan for your financial future.
I know there are some people who don’t want to stop working.
They may love their job or the routine.
Why would people like that want to do this?
The goal isn’t to never work again.
The goal is to have enough passive income so that work is optional.
There may come a time when something bad happens to you or a family member.
Hopefully, that never happens!
But there’s always a possibility.
You can prepare for that moment by having flexibility.
If you ever need to quit your job, passive income gives you more choices when making that decision.
Never underestimate that kind of power!
2. Factoring in Inflation
When you calculate your monthly number, you also need to factor in inflation.
Inflation has reduced traditional pensions and lowered the value of lifetime benefits in the past.1
The economy of today is not going to be the same economy in 20 years.
Everything will cost substantially more.
We saw costs go up about 50% for groceries and gas in the 4 years after COVID.
Even after inflation settled, costs started going up again.
We know that they’re going to continue creating more currency.
It’s important to factor in that inflation when you’re calculating retirement costs.
3. Building Multiple Streams
It’s always important to build multiple income streams.
According to Benzinga, the average millionaire has seven different income streams.2
These streams can include real estate, oil and gas, or your own personal business.
The goal is to diversify.
You shouldn’t rely on one single income stream.
I know a couple of doctors who make over $1 million a year.
However, they also work 60 hours a week or more.
If they get injured or sick, they may not be able to make that kind of money again.
You can avoid that if you have different sources of income.
When you do that, you can then focus on growing that amount.
Eventually, you might even be able to reinvest and compound long-term.
How much passive income you need to retire is a very personal choice.
The biggest thing you can do right now is start writing down your expenses.
How do you want to live your life?
What things do you need?
Figure out that number.
After you do, I suggest you put it on a Post-it somewhere you see regularly.
This can help remind you what you’re working towards.
You’re working against that rat race number.
Once you’ve exceeded that number, work is optional.
If you want to keep working, you totally can!
But you’ll work because you want to, not because you have to.
That mindset alone will change how you work.
It’s very empowering.
When you know you don’t have to be there, you’ll be way less stressed about the small things.
If things get bad, you can always leave.
I knew a woman who hated her job, but only had two months’ worth of savings.
She couldn’t leave with that amount of money.
If she had enough passive cash flow, it wouldn’t have ever been an issue.
She wouldn’t have had to worry about retirement.
That’s the power of passive investing.
Now I want to hear from you!
How are you going to calculate your monthly number?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.
Works Cited
1. R. Clark and Ann A. McDermed. “Inflation, Pension Benefits, and Retirement.” Journal of Risk and Insurance, 49 (1982): 19. https://doi.org/10.2307/252574.
2. Vandenboss, Kevin. “The Average Millionaire Has 7 Sources of Income – Here Are 3 You Can Start Building Today – Schwab Us Dividend Equity ETF (Arca:SCHD).” Benzinga, July 18, 2024. https://www.benzinga.com/general/24/05/39091214/the-average-millionaire-has-7-sources-of-income-here-are-3-you-can-start-building-today.
