How many dollars does one require to build a financial security or more specifically, what amount would meet the financial needs of a person where he or she won’t have to bother about any money matters in life?
So, it is a common wish for a person to work and save enough money so they never have to struggle financially again. He then explores the question of how much is required to attain financial freedom. Some of the studies conducted recently suggest that the magic number is right around $ 4.5 million. Below, you will find a breakdown of how that amount lets you live with no worries in life.
The Four Percent Rule of Safe Withdrawal Rate
This means that it is advised that owners should not take more than 4-5% of their retirement savings yearly if they want them to sustain three decades or longer. This rule of thumb therefore sets a guideline for spending money for investments and avoiding spending too much so as not to deplete all the excess money.
According to the 4%, you will require $4.5 million of investible assets to generate $180,000 of living expenses every year without any chance of depleting it. Of course, if one is planning to spend more than $180,000 in retirement, which would be a lower form of living as compared to the current financial status, then he or she would require a more substantial amount to begin with.
Cost of Living Considerations
Depending on where you live, a nest egg of $4.5 million may go as far as you think or even less. For instance, dollars will go much further in rural America than it will in an exotic city in a coastal region.
The online calculators on the cost of living show that such an income provides a very comfortable living standard across the majority of states in the United States, although if one is living in San Francisco or New York, one will have to spend significantly more on shelter, food and other necessities. It is important to include your living location if you plan to be a locations where you plan to domicile yourself when deciding on the specific number for total financial freedom.
Health Care Costs
One of the biggest contenders that may seriously affect retirement savings is healthcare expenses. You then enter what is often a long and unproductive period for many people, during which you must rely on your job-based health care plan until the blessed age of 65 when you qualify for Medicare. Premiums, co-payments, and uncovered personal expenses can be pricey, especially for health insurance, medicines, and procedures.
Having $4.5 million saved up should enable you to get premium health insurance and have enough funds available for any extra medical costs before Medicare without worrying about money. And when on Medicare, you may need some more additional coverage as well.
The Bottom Line
It may sound quite unrealistic when people are encouraged to save $4.5 million which is far from the reach of the average earners. However, the amount required for ‘liberty’ which means never again having to think about money depends on the total expenditure one expects to incur or the kind of lifestyle one intends to lead. If you plan to be content with the basics, do not require much to get by, or are willing to seriously scale down the size of your house and/or your expenditures in retirement, then you might be just fine with less. Similarly, if one would like to live like a king or queen in the sunset years, then many times more than the $4.5 million needs to be saved and invested away.
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