How much money will it take to pretire?

Do I really need $1.3 million?

I started this draft quite awhile ago now and since that time I tripped across this piece on early retirement math from Mr. Money Mustache (may his whiskers forever remain crumbless). MMM explains the concept better than I ever could, so please go read the whole thing.

My own story begins in my early thirties when I was having a conversation with a financial adviser. My simple question was “What do I need to do to retire by 40?” The concept that is now “pretirement” hadn’t occurred to me yet. At least not as clearly. I just knew I didn’t want to HAVE to work after that point. That was the goal I’d set and I was going to figure out a way to get there.

So I sat looking at this adviser, pen poised above my notepad, awaiting the wisdom about to come forth. The answer came back in the form of a question: “Do you have $1.3 million saved up?” This adviser spends every day dealing with folks investing hundreds of thousands of dollars, even millions. The fact I could even get a meeting was amazing. So it was pretty understandable that she looked at me with an expression that said “Why am I wasting my time on this lazy loser?” (Little did she know I was working 16-hour days at the time.)

She saw my look of dismay and hopelessness and immediately softened her response. “It really depends on how much you need to live on,” she said. “And you need to think about inflation. And health care costs. Do you think you could live on less money?”

Her math was unassailable. To have a passive income approximating a reasonable salary, say $4,000 or so, and a safe yield in the 4% range, that’s about where you end up. But that conversation in a way is where my journey toward pretirement really began. Because I realized then that I COULD live on less.

First of all, I knew I’d be mortgage-free. I was living in a smaller house and was close to being able to pay it off even then. And certainly by 40 would be easy. Secondly, I was naturally frugal and was making good income. I just needed help figuring out the plan. Much of that changed as I grew older and became accustomed to life’s finer things. That doomed me to more years of working. Then the big economic collapse happened and much of my net worth evaporated.

Nevertheless the seed was planted. Complicated spreadsheets were created slicing and dicing income and expenses many different ways. All of them told the same story: The comfortable floor for my monthly costs was somewhere between $800-$1,500, mostly depending on how cushy I wanted my life to be. Inflation was definitely an important consideration, but did I really need $4,000/month? Something seemed amiss.

Now I’m not saying I would mind having $4,000 rolling in every month. Far from it! I’m just saying working for idiots for 30 more years wasn’t worth it.

So after much reevaluation, I decided the best path was a severe cost-cutting strategy, while adding on part-time work. So the goal now is $1,200/month, or $288,000 invested. (Worth noting that I already bring in more than that passively via a rental property on paper. Unfortunately unpredictable expenses and renters have made that too shaky to rely on for income. So I’m working on restructuring that now.)

I know I’m a broken record, but I have to repeat again, that for me $1,200 per month isn’t REtirement, it’s PREtirement. I won’t be dipping into my retirement funds and I still plan to work part-time while I stay home with my son. I may even end up going back to corporate America at some point just to speed things along or to keep myself entertained. The point is the freedom, not the goal itself. If I accidentally end up working for some lunatic like I did at my last job, I’ll be free to leave and never come back. That’s freedom. That’s wealth.

I’ll likely keep working at least part-time until I at least reach the $2,000 per month income level. That’s around half a million invested. Still a long way off for me but a far cry from the $1.3 million I was told I needed all those years ago.

What do you think the right number is to reach pretirement?

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14 Thoughts on “How much money will it take to pretire?

  1. Great message. I too am working with my wife to come up with the ‘magic number’ before we would feel comfortable in pretirment. I think, like you, getting our expenses down was a lot more achievable than working toward that 4% safe withdraw rate from $Millions. I think the idea for us would be have our basic expenses covered by simipassive investment like local paid for real estate. Once we cross that line I think the flexibility will give us that sense of ‘retirement’ freedom.

    • Pretired Nick on March 27, 2013 at 12:49 pm said:

      Thanks, it takes awhile to really dial in the right number, but it’s so worth it to figure it out. Even despite the collapse my real estate has done pretty well for me. However, the maintenance costs are running much, much higher than planned. Keep that in mind!

  2. I think a million will do for us. :)
    A lot of our investments are in tax preferred accounts and that’s one reason why I still need to work a little to bring in some income. That’s ok with me though. It’s not a big problem to work part time doing something I like.

    • Pretired Nick on April 2, 2013 at 7:19 am said:

      Yeah, we’re the same. Once we’ve reached the $288,000 goal, we’re going to declare ourselves “pretired”. But we’ll probably either work a little longer to reach around $500,000 each before we fully “retire”.

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  4. I live on less than $1,000/month but also want to be able to afford travel and other luxuries (bought a motorcycle cash last year, a car and a boat this year, did ample reno on my house, etc) so I feel more comfortable generating 2-3K per month. Being young and able to go back to work if things go wrong, I try to look for high risk/return investments so my number is lower than most people. For the past 5 years I have generated at least 1% of my NW each month so $300,000 would be enough to get $3,000.
    Pauline recently posted…Friday recap, back “home” and ready to run!My Profile

    • Pretired Nick on May 11, 2013 at 6:14 am said:

      You nailed it, Pauline. The important point is that luxuries are luxuries. Once your bills are safely covered by your passive income, you can enjoy the freedom that goes along with that. And, if you’re young and don’t mind working, by all means build yourself up to great wealth. I advocate reaching the equilibrium of pretirement and then continue generating additional income for as long as you like. But do it on your own terms.

  5. Wow, never really thought about it that way. $.5 million seems manageable and doable. Especially if you can keep your expenses low, which I think we can if we try.
    Savvy Financial Latina recently posted…Carnival Cruise on the Western CaribbeanMy Profile

    • Pretired Nick on May 25, 2013 at 4:14 pm said:

      Yep, and once you get to that stage you can decide for yourself when to call it done. Most likely you’ll decide to go a little farther, but it’ll be on your terms. And that’s why they call it freedom!

  6. Renee s on June 17, 2013 at 10:51 am said:

    I have read many many PF blogs and I was wondering if you could break this down for me just a bit…

    The $500,000 (which I think is a great “magic number”) in investments…would I count the money in my Roth IRA and 403B? Or is the $500,000 only counting taxable accounts? How do you count yours? Any info would be helpful…

    Thanks for your help!

    • Pretired Nick on June 17, 2013 at 1:17 pm said:

      Hi Renee,
      Thanks for the good, thoughtful question. I can see I should have explained a few things a bit more in this piece. I should take another run at this soon.
      In my example, It’s a taxable account: $500,000 invested to give a yield of around $25,000. After taxes it would get me to around my $1,500 per month.
      Whether you’d count the retirement accounts in your own case actually depends more on your age and your goals than anything else. If you were close to retirement age, I’d count them for sure. If you’re still a ways off, I wouldn’t count those funds as part of your pretirement, but I would count them as your real retirement. You just might need to work right up until that point. Hope that helps!

      • Renee s on June 18, 2013 at 6:01 am said:

        That does help. I would love to be pretired sooner rather than later. I am 25 and have maxed out my roth IRA. My plan was to start contributing more ($400 a paycheck rather than $150 a pay) to my 403B (no company match)…but maybe I should forego that- stick with $150 a pay- and start to shovel money into a taxable account to get closer to the magic number? *hmn* do you have any thoughts about that?

        • Pretired Nick on June 18, 2013 at 6:17 am said:

          Glad that helps! I certainly am an advocate of building up your retirement accounts as well as your pretirement accounts. I think good levels to shoot for are $300,000 in both your pretirement and your retirement accounts. What I would do is build a quick little spreadsheet for yourself where the monthly contribution plus average growth (say 4-5%) builds up over the years. Then, take a look at how many years it’ll take you to get there. My guess is you’ll be inspired to cut your personal costs and invest even more!
          But all of that said, I do think it’s a little bit more important to build up your retirement funds than pretirement just because it’ll be painful to try to make up the difference when you’re old. But, with a little math, I think you can determine how much to put against each and roughly how long it’ll take you to get there. More often than not, I find people with massive retirement accounts they can’t or won’t touch and virtually nothing accessible during their working years.
          If you want to write up all your details and send it through the contact form, I’d be happy to write up my take on it for you. It might be helpful for others in your situation as well.

  7. Pingback: How many times have you blown $1,000? | Pretired.org

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