Retirement Calculator

 
What is happiness?

The best description I’ve heard is the ability to do what you want when you want. And for many people this happens when you have passive income that pays the bills.

You know when you can lie in a hammock with your laptop and a coffee and peek at how much money you made doing nothing. You have enough to pay the bills, go out to eat, buy stuff, travel the world, you want for nothing.

Have you ever stopped to figure out how much money that would take to quit your job and live like that?

I did. And I put together a simple spreadsheet to help you do the same. And I do mean simple.

For me, I could live quite nicely on $80,000 per year.

 
 

So the two questions that come up are:

1. How did I come up with $80,000 per year?

2. Where could that $80,000 come from?

Let’s answer both questions.
 
 
 

If you would like the companion spreadsheet to help you calculate your freedom fund, click the link at the end of this post.

 
 

How to Determine How Much Income You Need?

First, you need to do some soul-searching.

This is actually quite fun to do.

Find some quiet time and grab a laptop or pad of paper.
 
 

Now, start visualizing your ideal life. Here’s some questions to ask yourself:

1. Where do you want to live?

2. What’s your house/apartment like?

3. What kind of car do you have? Do you need one?

4. What’s your day like? Do you walk downtown and grab a coffee? Does your maid wake you and place a tray with coffee, eggs and the morning newspaper on your night stand?

5. What do you do all day? Golf? Hang with friends at the beach? Freelance for fun?

6. What do you spend money on? Eating out every single meal? Travel the world? First class? Season tickets for the local teams? Servants? Car collection? Education? Personal trainer? Private chef?

 

OK, that should give you a good start.

When you’re done come back here. I’ll wait for you.

Oh, you’re back.
 

Now, you get to do some math. Easy math.

You have your ideal life right in front of you and you need to figure out how much that life will cost you annually.

Let’s start with question one. Where do you want to live? Say you want to live in a condo on the ocean in Florida. Bring up Google maps on the computer, type in Florida and start looking for towns on the ocean. Or do a search for topics like best cities to live in Florida if you’re a sports nut.

Then bring up Zillow , type in your city, what kind of condo you want, and see what the prices are to buy or rent it. Jot it down.

Do this same kind of thing for everything on your list.

You may be surprised when you’re all done what the grand total is.

We are all different. So one person may want a castle in the south of France with 300 servants and the next person could be quite content living above a garage in Kansas.

The exercise is great cause you get to think about you “think” you want and what you “really” want.
 

I read recently that all people want three things in life:

1. Freedom

2. Mastery

3. Purpose
 
 

How much happier would you be living in the castle than a condo in Florida? You might feel a lot worse if that castle took away your freedom.

But don’t let me tell you how to live your dreams. You write it down and figure out how much it will cost per year. I’m just reminding you that you’re probably searching for contentment and that it probably isn’t going to be very extravagant and cost a lot. You can always splurge for one night in a castle for $1000 and you may find out it’s dark, damp, cold and the mold causes havoc on your allergies. There goes the castle dream.

When you’re done, you will have a document that describes your ideal life and how much it will cost you per year.

Now, let’s move on to question number two. Where is this money going to come from?
 
 
 

Where Will Your Income Come From?

Let’s assume that you need $80,000 per year to live your ideal life. You’ve cut out the luxuries that don’t really bring you pleasure and boiled it all down to the activities that make you feel content.

Now, where can that money come from?

For some lucky people, they are approaching retirement and their pension may pay for the $80K. Nice. Others may reach their total through a combination of social security, pension and drawing minimal amounts out of their retirement account (leaving 96% – 97% alone to continue to appreciate).

But what about the rest of us.

That leaves three possible sources (I’m leaving out things like miracles, winning the lottery, inheriting $2 million from Uncle Joe).

1. Income from your assets

2. Selling your assets

3. Income from active or passive work

I don’t know about you, but I’d prefer not to sell off my assets for living expenses, so I’m going to look at options one and three.

Let’s run through a few examples of how we could make this work.
 
 

1. Dividend stocks

There are many companies out there that pay their stockholders a dividend. Some companies like Coca Cola have a long history of not only paying a dividend but of increasing the dividend payment. For our example, let’s assume a dividend payment of 4%. This could be from one company, but even better from a diversified portfolio of companies.

If we had a portfolio totaling $2,000,000 this would pay us dividends of $80,000 per year ($2,000,000 x .04). If your retirement savings are small and you want to retire next year then this is not a good option. But if you are young and aggressive with your savings, or if you already on track to accumulate an account of this size then this is a very doable option.
 
 

2. Rental Properties

Let’s assume instead you decide to buy single family homes and rent them out and that each property brings in a positive cash flow of $500 per month. You would need 14 rental properties (14 x $500 = $7K per month x 12 months = $84K).

If you needed a down payment of $10K per house, you would only need to come up with $140,000 to buy your 14 rental properties.

This is a lot less money then our dividend example, but it may need more work, time to acquire the properties and learn how to manage your investments properly.

You probably would need extra money for repairs and allow for periods of vacancies, but you get the idea.
 
 

3. Side Incomes

At first glance, this option seems horrible. Isn’t the idea of retirement to no longer work?

What if you were doing something you enjoy?

I read this past year that most millionaires have income that comes from at least five different sources.

So instead of having income from one side job, let’s assume we have five part-time jobs bringing in cash, all from things we love doing. Let’s see how that plays out.

We need about $6,700 per month for our $80,000 per year. Here’s some examples.

a. Write a book about the best fishing spots in Canada. You sell it on your website with an average of 100 copies per month and a $10 profit or $1,000 per month.

b. Start a business making custom silver belt buckles. Your profit is $150 each and you sell twenty per month or $3,000.

c. Start a blog, sell ads, and create affiliate links for a net an average of $1,500 per month.

d. Play bass in a band at the local restaurant each week for $100 per night and average $750 per month.

e. Grow beautiful begonias and sell them at the local farmer’s market for an average profit of $450 per month.
 

Now, you have income coming from five different sources; three are from doing things you love like music, gardening and metal working and the other two are almost passive .

Yes, you are still working, but you are no longer working for the man. You’re on your own, doing what you love. Nice.

Many people who retire do nothing but relax and love it for a month or two, but quickly become bored. Instead, why not do things you love doing and make a little money at the same time?
 
 

The last alternative is to do a combination of all three. Let’s say you decide you’re working too hard with your side jobs and you’d like more free time. By also having money coming in from rental properties and dividends you can decrease the need for side income and therefore decrease the amount of work you are doing.

For example:
1. Make $3,700 per month doing things you love.

2. Buy five rental properties and make $2,500 per month.

3. Purchase $150,000 of dividend stock and make $500 per month

Now, you’re only making one belt per week, spending a half day at the farmer’s market, writing one blog post per week and playing a couple of gigs per month and having a lot more free time.

The above combination would need you to save about $200,000 to buy the properties and dividend stock. This is lower than the first scenario where you needed to save $2,000,000 to buy your stock. How long would it take you to save $200,000? A lot less than it would to save $2,000,000.

Hmm…maybe you don’t have to wait until you’re 65 to quit that job!
 
 

What stands between you and freedom?
 
Well, what is your definition of freedom? And how will you get there?

This post gives you a several tools to do just that.

So get serious. It’s the cure for finding your freedom.
 
 

Thank you for reading this post. I really do appreciate it. If you’ve made it this far, I have a free gift for you. Click this LINK to download a spreadsheet to figure out what your freedom will cost annually, and some ways to help fund it.

How long will it take to quit your job? Find out today with this FREE calculator.

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