your retirement number is a value, not an age

Nothing is more inspiring than having a target for when you gain complete control of your time.  In other words, you’re financially free and able to do exactly what you want to do. 

When you get to this moment, you can retire, you can keep working, you can take time off, you can find a part-time job, and you can volunteer. It doesn’t matter what you do, but at this point you’ve accumulated assets which create enough passive income for you to have all these options.

A few years ago, when I started getting more serious about retiring early, I put together a spreadsheet. This gave me the target of retiring in 2025. 

This isn’t a hard line for you to stick to, but it gives you some guidance as you make future decisions. We never know when we might lose our job or something traumatic might happen to us. 

These numbers are definitely not set in stone. This is just a scenario that gives you an idea of how long it will take you to get to your retirement target value. 

Recall, the retirement value is the point where your investments generate enough passive income for you to live off of them. 

For simplicity in the spreadsheet, I used $40K. I could live off of $40K a year if I never moved.

I live in a low-cost area and have no debt. 

The caveat is that I can’t touch my retirement until age 59 and a half, therefore the balance in the 401k section below isn’t accessible to me until 2039. 

After 2025 I won’t have to contribute another penny into my 401k. It will naturally continue to compound, and if it grows at 5% (which is very conservative), I’ll have over $1.6m when I am able to withdraw from this account. 

The right side above shows my non-retirement balance. 

This is the scarier piece. Again, I was conservative and only assumed a 5% return. If I stop contributing to this account in 2025 with almost $400K in this account and then withdraw $40K each year, I will have enough to cover all of the years until I turn 59 and a half. 

This is cutting it too close though, even for me. I can’t retire knowing that at age 59 I might only have $4K in this account. I do plan to retire from my corporate job at some point, but I don’t plan to stop earning income. I have enough side-hustles to keep earning money each year. I didn’t include any of that income here.

The first action I took after seeing these numbers was figuring out more ways to make passive income. It’s like a puzzle. I know I need to earn $3.5K per month in order to live comfortably. How do I create that income? 

When you start creating puzzles like this for yourself, you’ll end up with many ideas on how to tackle your dilemma. I’m still in the process of figuring this out, but the foundation is there. I know how much I need to earn. I’ve already solved part of the puzzle.

Create this for yourself.  How much do you want to be able to spend annually each year? This is based on your projected expenses. Whatever this number is, you can work backwards to figure out how much you need to have invested. 

Let’s say your number is $40K as well. 

And let’s assume you’re going to use the 4% withdraw rule. 

Here you are refining the calculation of knowing how much you'll need to retire. 

You're separating your retirement balances from your non-retirement balances. 

If your target annual income was $40K, then you would need $1M in investments in order to create that passive income. 

But, what if all of your $1M was in retirement accounts and you wanted to retire at age 55? 

You wouldn’t have access to the retirement accounts until age 59 and a half. 

In this calculation you have the ability to differentiate between retirement investments and non-retirement investments. You can run different scenarios to see how much you would need in non-retirement accounts in order to retire early.

Your vision of financial freedom is progressively getting more refined. 

When you create specific goals, you’re able to break down your grand vision into these details, knowing how much you’ll need in each of the different types of investments. 

The more transparency you have on your money, the more refined your plan can be.