What is your Financial Independence number?
Rental Property Investor · Las Vegas, NV · Member since 2018 · 11 posts · 2 votes
What is your Financial Independence number?
Most Popular Reply
Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes
5yI am not crazy about the 4% rule myself. My preference is if I need 5k per month to live I would like to create a reoccurring revenue stream of 5k and then have $xx lump sum for flexibility. I think many people involved in real estate can relate to this more than 4% rule. With this approach u don’t need to ever worry about running out of money.
For me $5k per month and $500k seems like it would work.
19 Replies
- Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes5y
I am not crazy about the 4% rule myself. My preference is if I need 5k per month to live I would like to create a reoccurring revenue stream of 5k and then have $xx lump sum for flexibility. I think many people involved in real estate can relate to this more than 4% rule. With this approach u don’t need to ever worry about running out of money.
For me $5k per month and $500k seems like it would work.
- Rental Property Investor · Las Vegas, NV · Member since 2018 · 11 posts · 2 votes5y
Hi Randy, I agree with your comment. Having a reoccurring revenue stream to reach your financial goal is obviously important. Owning Real Estate and owning companies via stock will both get you there. My post is to really get people thinking about there end game and do they have a FI number in mind. If you like or dislike the 4% rule is fine as long as your thinking about your Financial goal. What is your end game and work backwards.
Thanks for the response!
Kyle Ashmore - Accountant · Channahon, IL · Member since 2020 · 11 posts · 5 votes5y
Hey Kyle,
My number is actually split between two accounts. I want around $300,000 in my Individual Brokerage and around $400,000 in my Roth IRA. So $700,000 is my number. I plan on withdrawing around $35,000 a year starting with the Individual account and once I run that account down to zero, I plan to start taking contributions from the Roth IRA. Goal is to get to this point in 10-15 years. I am currently 21.
- Rental Property Investor · Las Vegas, NV · Member since 2018 · 11 posts · 2 votes5y
Hey Thomas, great goal! Very impressive you already have an FI number and timeframe at such a young age. Compounding is definitely on your side. The great Albert Einstein once said“Compound interest is the eighth wonder of the world. Just keep in mind yes you can withdraw from your Roth IRA before age 59.5 tax and penalty free but make sure you withdraw from your contributions you made to your Roth IRA not from your earrings.
Good luck on your Journey!
Kyle
- Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes5y
@Kyle Ashmore
I understand u can get reoccurring income from stocks...I don’t see it as the same though. I can get to 5k reoccurring rental income stream with less net worth than using the % 4 rule and sleep better at night because there is less risk.
I know I can, already done it with personal rentals and syndication deals.
Just my opinion
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Thomas Schieffer:
Hey Kyle,
My number is actually split between two accounts. I want around $300,000 in my Individual Brokerage and around $400,000 in my Roth IRA. So $700,000 is my number. I plan on withdrawing around $35,000 a year starting with the Individual account and once I run that account down to zero, I plan to start taking contributions from the Roth IRA. Goal is to get to this point in 10-15 years. I am currently 21.
Not sure but think your going to have double those numbers given how things cost more over time etc.. And if you get married have kids etc..
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes5y
Originally posted by @Kyle Ashmore:
What is your FI (Financial Independence) number?
How to find your FI number: Determine your annual spending in retirement, yes, you need to have a budget! Multiple the above number by 25. Example, if you require $60,000 a year in retirement, then your number is $60,000 x 25 = $1,500,000. $1.5 million is your FI NUMBER. The reason that this math works out is because there is a relationship to the “25 x rule,” which is called “The 4% Rule.” This rule is based on the Trinity Study, which showed that you can spend 4% of your nest egg and remain relatively reassured that your funds would last over 30 years (95-100% chance based on a 50% stock / 50% bond portfolio). What is your FI number?
That tired 4% rule is for paper equity investors. This is a real estate site where the chances of someone having a 50/50 stock bond portfolio are hopefully zero. RE people can do 6% comfortably with a 7.2% ROE.
To me FI has 3 levels; skinny, medium and phat. For avg COL, skinny might be $5k/mo, medium $10k, phat $20k/mo. Adjust for COL in your area.
So FI level needs to be asked specifically. What is your skinny FI # to quit? What is your medium FI number to stop clipping coupons, cattle hacking and sitting in the nosebleed seats, etc. .
- 5yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
10 mil would work for me. But I could probably survive off 5 mil if things didn’t go as projected.
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Steve Vaughan:
Originally posted by @Kyle Ashmore:
What is your FI (Financial Independence) number?
How to find your FI number: Determine your annual spending in retirement, yes, you need to have a budget! Multiple the above number by 25. Example, if you require $60,000 a year in retirement, then your number is $60,000 x 25 = $1,500,000. $1.5 million is your FI NUMBER. The reason that this math works out is because there is a relationship to the “25 x rule,” which is called “The 4% Rule.” This rule is based on the Trinity Study, which showed that you can spend 4% of your nest egg and remain relatively reassured that your funds would last over 30 years (95-100% chance based on a 50% stock / 50% bond portfolio). What is your FI number?
That tired 4% rule is for paper equity investors. This is a real estate site where the chances of someone having a 50/50 stock bond portfolio are hopefully zero. RE people can do 6% comfortably with a 7.2% ROE.
To me FI has 3 levels; skinny, medium and phat. For avg COL, skinny might be $5k/mo, medium $10k, phat $20k/mo. Adjust for COL in your area.
So FI level needs to be asked specifically. What is your skinny FI # to quit? What is your medium FI number to stop clipping coupons, cattle hacking and sitting in the nosebleed seats, etc. .
bottom line what you need today is not what your going to need in 30 years or more.. If you dont have a retirement from a big company that pays for medical and other things that us self employed have to pay for.. Health care alone for a married couple even on Medicare is going to eat up probably close to 1k. at todays numbers.. remember Medicare prices for how much you earn and if we are high earners it cost more.
And if we are high earners SSI if its still there can bring in a fairly decent portion if you live in a state that does not tax it. Wife Kids Collage etc etc.. .. Now if you plan on being single all your life then I can see where these modest numbers could work.
- Accountant · Channahon, IL · Member since 2020 · 11 posts · 5 votes5y
@Jay Hinrichs
I understand where you are coming from but my goal isn’t to retire and sit back. I still plan on having a part time job to keep me busy. That’s why the amount being taken out would be $35,000
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes5y
Originally posted by @Jay Hinrichs:
Originally posted by @Steve Vaughan:
Originally posted by @Kyle Ashmore:
What is your FI (Financial Independence) number?
How to find your FI number: Determine your annual spending in retirement, yes, you need to have a budget! Multiple the above number by 25. Example, if you require $60,000 a year in retirement, then your number is $60,000 x 25 = $1,500,000. $1.5 million is your FI NUMBER. The reason that this math works out is because there is a relationship to the “25 x rule,” which is called “The 4% Rule.” This rule is based on the Trinity Study, which showed that you can spend 4% of your nest egg and remain relatively reassured that your funds would last over 30 years (95-100% chance based on a 50% stock / 50% bond portfolio). What is your FI number?
That tired 4% rule is for paper equity investors. This is a real estate site where the chances of someone having a 50/50 stock bond portfolio are hopefully zero. RE people can do 6% comfortably with a 7.2% ROE.
To me FI has 3 levels; skinny, medium and phat. For avg COL, skinny might be $5k/mo, medium $10k, phat $20k/mo. Adjust for COL in your area.
So FI level needs to be asked specifically. What is your skinny FI # to quit? What is your medium FI number to stop clipping coupons, cattle hacking and sitting in the nosebleed seats, etc. .
bottom line what you need today is not what your going to need in 30 years or more.. If you dont have a retirement from a big company that pays for medical and other things that us self employed have to pay for.. Health care alone for a married couple even on Medicare is going to eat up probably close to 1k. at todays numbers.. remember Medicare prices for how much you earn and if we are high earners it cost more.
And if we are high earners SSI if its still there can bring in a fairly decent portion if you live in a state that does not tax it. Wife Kids Collage etc etc.. .. Now if you plan on being single all your life then I can see where these modest numbers could work.
Definitely need to account for healthcare costs and inflation. Also the early retirement folks that need to survive sans retirement acct access pre-59.5
Not sure if this is a soft sell for crummy yawner financial advisor advice from Kyle or not, but RE thankfully has inflation and cost buffers built in if done right.
I base mine on monthly net cashflow, free of all short term or callable debt on legacy property. All the $5M or $10M nest egg people better make sure they don't have callable commercial, hard, private, sf or portfolio loan or line obligations.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes5y
Originally posted by @Thomas Schieffer:
@Jay Hinrichs
I understand where you are coming from but my goal isn’t to retire and sit back. I still plan on having a part time job to keep me busy. That’s why the amount being taken out would be $35,000
Interesting, Thomas.
So you will essentially subsidize your part time employment by withdrawing basically $3,000 per month? Or in an annual lump sum?
Mostly RE or stocks / mutual funds? Pre-59.5? Just curious. I like the idea and you're an accountant. Thanks!
- Accountant · Channahon, IL · Member since 2020 · 11 posts · 5 votes5y
@Steve Vaughan
Hi Steve
Plan would be to withdraw per month that way if I only need $1500 one month well then the rest can stay in the account and keep creating a return. It would be based on part time income less expenses. The difference would then be taken out monthly
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Steve Vaughan:
Originally posted by @Jay Hinrichs:
Originally posted by @Steve Vaughan:
Originally posted by @Kyle Ashmore:
What is your FI (Financial Independence) number?
How to find your FI number: Determine your annual spending in retirement, yes, you need to have a budget! Multiple the above number by 25. Example, if you require $60,000 a year in retirement, then your number is $60,000 x 25 = $1,500,000. $1.5 million is your FI NUMBER. The reason that this math works out is because there is a relationship to the “25 x rule,” which is called “The 4% Rule.” This rule is based on the Trinity Study, which showed that you can spend 4% of your nest egg and remain relatively reassured that your funds would last over 30 years (95-100% chance based on a 50% stock / 50% bond portfolio). What is your FI number?
That tired 4% rule is for paper equity investors. This is a real estate site where the chances of someone having a 50/50 stock bond portfolio are hopefully zero. RE people can do 6% comfortably with a 7.2% ROE.
To me FI has 3 levels; skinny, medium and phat. For avg COL, skinny might be $5k/mo, medium $10k, phat $20k/mo. Adjust for COL in your area.
So FI level needs to be asked specifically. What is your skinny FI # to quit? What is your medium FI number to stop clipping coupons, cattle hacking and sitting in the nosebleed seats, etc. .
bottom line what you need today is not what your going to need in 30 years or more.. If you dont have a retirement from a big company that pays for medical and other things that us self employed have to pay for.. Health care alone for a married couple even on Medicare is going to eat up probably close to 1k. at todays numbers.. remember Medicare prices for how much you earn and if we are high earners it cost more.
And if we are high earners SSI if its still there can bring in a fairly decent portion if you live in a state that does not tax it. Wife Kids Collage etc etc.. .. Now if you plan on being single all your life then I can see where these modest numbers could work.
Definitely need to account for healthcare costs and inflation. Also the early retirement folks that need to survive sans retirement acct access pre-59.5
Not sure if this is a soft sell for crummy yawner financial advisor advice from Kyle or not, but RE thankfully has inflation and cost buffers built in if done right.
I base mine on monthly net cashflow, free of all short term or callable debt on legacy property. All the $5M or $10M nest egg people better make sure they don't have callable commercial, hard, private, sf or portfolio loan or line obligations.
Steve the other one that causes me pause.. is those investors who total sum of their net worth or pert near all of it is there equity in the personal residence then they leverage that up with a heloc to put as a down payment on a rental with max leverage.. And dont understand that rentals price for risk.. Its one thing to buy a nice 300k rental in Wenatchee or Vegas its another to try to buy 75k rentals in C markets I dont think the investor understands the risk and now they are risking their personal residence. Not to mention I suspect many of these Heloc investors have never read the fine print. And then investors who get portfolio loans on SFR's and really dont understand how tough those are to manage with reporting and covenants in the loan that have to be met on an annual basis they just sucked in on the low interest rate.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes5y
Originally posted by @Jay Hinrichs:
Originally posted by @Steve Vaughan:
Originally posted by @Jay Hinrichs:
Originally posted by @Steve Vaughan:
Originally posted by @Kyle Ashmore:
What is your FI (Financial Independence) number?
How to find your FI number: Determine your annual spending in retirement, yes, you need to have a budget! Multiple the above number by 25. Example, if you require $60,000 a year in retirement, then your number is $60,000 x 25 = $1,500,000. $1.5 million is your FI NUMBER. The reason that this math works out is because there is a relationship to the “25 x rule,” which is called “The 4% Rule.” This rule is based on the Trinity Study, which showed that you can spend 4% of your nest egg and remain relatively reassured that your funds would last over 30 years (95-100% chance based on a 50% stock / 50% bond portfolio). What is your FI number?
That tired 4% rule is for paper equity investors. This is a real estate site where the chances of someone having a 50/50 stock bond portfolio are hopefully zero. RE people can do 6% comfortably with a 7.2% ROE.
To me FI has 3 levels; skinny, medium and phat. For avg COL, skinny might be $5k/mo, medium $10k, phat $20k/mo. Adjust for COL in your area.
So FI level needs to be asked specifically. What is your skinny FI # to quit? What is your medium FI number to stop clipping coupons, cattle hacking and sitting in the nosebleed seats, etc. .
bottom line what you need today is not what your going to need in 30 years or more.. If you dont have a retirement from a big company that pays for medical and other things that us self employed have to pay for.. Health care alone for a married couple even on Medicare is going to eat up probably close to 1k. at todays numbers.. remember Medicare prices for how much you earn and if we are high earners it cost more.
And if we are high earners SSI if its still there can bring in a fairly decent portion if you live in a state that does not tax it. Wife Kids Collage etc etc.. .. Now if you plan on being single all your life then I can see where these modest numbers could work.
Definitely need to account for healthcare costs and inflation. Also the early retirement folks that need to survive sans retirement acct access pre-59.5
Not sure if this is a soft sell for crummy yawner financial advisor advice from Kyle or not, but RE thankfully has inflation and cost buffers built in if done right.
I base mine on monthly net cashflow, free of all short term or callable debt on legacy property. All the $5M or $10M nest egg people better make sure they don't have callable commercial, hard, private, sf or portfolio loan or line obligations.
Steve the other one that causes me pause.. is those investors who total sum of their net worth or pert near all of it is there equity in the personal residence then they leverage that up with a heloc to put as a down payment on a rental with max leverage.. And dont understand that rentals price for risk.. Its one thing to buy a nice 300k rental in Wenatchee or Vegas its another to try to buy 75k rentals in C markets I dont think the investor understands the risk and now they are risking their personal residence. Not to mention I suspect many of these Heloc investors have never read the fine print. And then investors who get portfolio loans on SFR's and really dont understand how tough those are to manage with reporting and covenants in the loan that have to be met on an annual basis they just sucked in on the low interest rate.
Great point on the personal res and aggregate NW counting that. Mine is oh yeah, that and I only count truly free monthly cf, so of course I didn't think of that. "If your home is your largest asset, you're in trouble" as they say.
And yes, loan or line terms matter. We remember. Post GRC folks have only seen a rising tide. Wait till they try to sell one house from under the blanket or their lines freeze or LLC commercial loan is called when the tide goes out.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes5y
Originally posted by @Thomas Schieffer:
@Steve Vaughan
Plan would be to withdraw per month that way if I only need $1500 one month well then the rest can stay in the account and keep creating a return. It would be based on part time income less expenses. The difference would then be taken out monthlyThanks, Thomas. Makes sense.
Curious if mostly in traditional funds and stocks or RE? Outside of retirement accts? Thanks!
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes5y
@Kyle Ashmore most people grossly underestimate how much money they will need in retirement if they plan early retirement. Typically don't account for the following factors that older retirees don't have to worry about:
1. Cost of health care. With out Medicare you are left shopping. When people are in their 20's and 30's they are very healthy and don't give a second thought to this. In your 40's, 50's, 60's you can rack up major medical bills even with copays. On top of that vision, dental and hearing are usually not even covered by a health plan.
2. Cost to get married and raise a family. Wedding, honeymoon, family vacations, food, clothing, sports, activities, braces, college, etc. Even automobile needs change. When you have a 1 year old in your car, you care far more about safety and reliability than when you are 21 years old. Newer, bigger and more reliable vehicles become a priority.
3. Lack of social security in older age. Normal retirees can depend on a social security check, but when you retire young you get far less based on less working years (less contribution). That means someone who retires at 65 needs less retirement than someone who retires at 30 when they reach the age of 65.
I always question when people are in such a rush to "retire" so they can do what they want. They need to ask themselves first what it is they want to do. There is an old saying, "if you love your job, you never work a day in your life." Maybe a better question is "what are you passionate about" and work backwards from there.
4. Potentially false assumptions about the future. "I can always get a job if I need one" or "4% safe withdrawal rate is guaranteed". There were times in history where both these realities were false.
My personal number is $10,000 passive income per month. That allows me to have top notch medical care, travel as I wish, cover my expenses without being frugal and never have to work again. This dollar figure allows me to hire a property manager and make my business as passive as I wish. This also gives me the opportunity to donate and give back. I can still give 20% tips when I go out to eat and I don't need to ask "how much is that".
Ultimately everyone's FI number is based on where income intersects life style. The homeless guy sleeping on a park bend is financially independent. Warren Buffet is financially independent, but he is still working at the age of 90.
- Accountant · Channahon, IL · Member since 2020 · 11 posts · 5 votes5y
@Steve Vaughan
The number I threw out would be all stocks. Also plan to have additional real estate income from approximately 10 units
- 5yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Joe Splitrock:
@Kyle Ashmore most people grossly underestimate how much money they will need in retirement if they plan early retirement. Typically don't account for the following factors that older retirees don't have to worry about:
1. Cost of health care. With out Medicare you are left shopping. When people are in their 20's and 30's they are very healthy and don't give a second thought to this. In your 40's, 50's, 60's you can rack up major medical bills even with copays. On top of that vision, dental and hearing are usually not even covered by a health plan.
2. Cost to get married and raise a family. Wedding, honeymoon, family vacations, food, clothing, sports, activities, braces, college, etc. Even automobile needs change. When you have a 1 year old in your car, you care far more about safety and reliability than when you are 21 years old. Newer, bigger and more reliable vehicles become a priority.
3. Lack of social security in older age. Normal retirees can depend on a social security check, but when you retire young you get far less based on less working years (less contribution). That means someone who retires at 65 needs less retirement than someone who retires at 30 when they reach the age of 65.
I always question when people are in such a rush to "retire" so they can do what they want. They need to ask themselves first what it is they want to do. There is an old saying, "if you love your job, you never work a day in your life." Maybe a better question is "what are you passionate about" and work backwards from there.
4. Potentially false assumptions about the future. "I can always get a job if I need one" or "4% safe withdrawal rate is guaranteed". There were times in history where both these realities were false.
My personal number is $10,000 passive income per month. That allows me to have top notch medical care, travel as I wish, cover my expenses without being frugal and never have to work again. This dollar figure allows me to hire a property manager and make my business as passive as I wish. This also gives me the opportunity to donate and give back. I can still give 20% tips when I go out to eat and I don't need to ask "how much is that".
Ultimately everyone's FI number is based on where income intersects life style. The homeless guy sleeping on a park bend is financially independent. Warren Buffet is financially independent, but he is still working at the age of 90.
Just a FYI my wife and I pay over 2500.00 a month just in medical insurance as we are self employeed.. I dont think our 20 and 30 something understand that .. now when we get on medicare this should come down to about 1200 or so.. but still if your magic number is 36k a year and your medical is 12k for just basic ? right.. I agree keep that job and keep those long term benefits.. real estate helps you live the good life on TOP of that.. at 66.5 Lori and I can take our SSI finally Because again prior to that we would not qualify as our income is over the threshold . Then the question is do you hold out to 70 to get the max or take at 66.5 for me bird in the hand once I can get that SSI with no income penalty and live in a state that does not tax SSI thats what we will do .. You make very good points.. as I said unless folks are going to be very frugal and single all their lives money needs at 25 or these very low amounts these folks are talking about are not going to cut if you want to be FI and Financially FREE
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