How much money do you need to retire? This was the main question Jerry and I had to wrestle with several years ago when we decided we really wanted to get him out of his stressful job and move out of the city.
At the time, most of our retirement money was in mutual funds (I had a couple of annuities) and so we felt we had to plan around the volatility of the stock market – especially after the incredibly discouraging crash of 2008. We had planned on living on five percent of our investments, but after that decided we needed to be able to live on less before Jerry “retired” in case another such crash happened again.
Then Jack Spirko, bless his heart, had the author of The Permanent Portfolio, Craig Rowland, on his show. We bought and read the book, and began to transition Jerry’s retirement out of mutual funds and into that portfolio formula (why we didn’t move mine is a subject for another post).
Here is how you determine your number for retirement:
- Figure out your annual expenses. The higher they are, the more you will have to take out of your investments and so the more money you will need in the funds.
- If you are not yet doing so, invest using either The Permanent Portfolio strategy or the Ivy Portfolio strategy (you can find the books on Amazon.com).
- Commit to taking out no more than seven percent (maybe eight with the Ivy) from your investments every year. This is for two reasons: first, it allows your nest egg to continue to grow (it will grow more quickly if you take out a smaller percentage); second, it gives you a cushion in case there is a bad economic year either for the world at large or in your world (like you have an accident and incur a bunch of medical expenses).
- Finally, don’t worry about inflation. As long as you give your funds room to grow, you will have enough to continue living on a small percentage of them even when you have to increase the amount you are taking out.
What follows is my video that answers the question, “How much do I need for retirement?” One thing I failed to mention – ah-ha! another video idea – is that you are allowed to withdraw from 401k’s early as long as you are willing to pay the income tax on it and the 10% penalty. Of course, these numbers will have to be figured into your annual expense figure.
Enjoy the video!