Why $10!?

$10! as a target net worth

You may know $10! is the same as $3.6 million.  If not, this will explain. Before arriving at this rather odd target, I started backwards… from income.  As a family, we want $100,000 in annual inflation-adjusted passive income to pursue the 10 factors Note I said we want, not what we need.   We can easily live on half that figure ($50K/year) but when you tie your financial future to the capital markets, we need cushion, lots of it.  It’s not just for the market volatility that we have to endure for decades, but also for the risks in the income strategy I am pursuing, considering likely errors in judgement I will make along the way, chasing fantasy growth or dreamy dividend yields that tempt me periodically.  The cushion is also needed for any stealth inflation in our spending beyond budget (lifestyle creep, as some call it).    

To generate this income from financial assets, we need to rely on the concept of safe withdrawal rate (SWR).   SWR has been a long-debated subject in many blogs and early retirement message boards, not to mention the magic wand of the financial advisory community.   The SWR ranges from a low of 2% to a high of 6%, depending on age, number of years to fund retirement, risk tolerance and other factors.  By a commonly used definition of financial independence as retirement assets being 25 times annual expenses, we are already there.   But this is not the sole criterion for leaving your job.  Someday, I will write about my views on SWR, but for now, there’s plenty of research data and opinions to chew on.   Based on a number of studies and my own comfort factor, I chose 3.5% to be conservative.      

Using a 3.5% SWR, the retirement asset base required to support the above income is $2.85 million ($100,000/0.035).  Are you wondering why another $750K is still needed to get to the target of $3.6 Million?   A family man with obligations and penchant for retaining some social life (not to mention, stay married) needs many other things to be covered.   We are watchful of our spending, but don’t want to be too frugal just to show that we can be.   These additional funds are for TFR Jr.’s college ($200K budget for a private 4-year college), decent house to live after entering retirement ($350K) and finally, $200K reserve fund for other expenses (major medical out-of-pocket, leaky roof, new appliance etc.).  There is no separate emergency fund, it is part of reserve.   I believe budgeting for your children’s college is better than paying for it – this topic deserves a post in itself, watch for it!  Also, I will cover in a future post on why we rent and plan to do so till retirement (added later: that post is here).

Some of you may feel this target is too high, and some might even say, too little.  At least one blogger feels $3 million isn’t much, it’s the new $1 million.  But a budget is personal (some think even sexy), and must be tailored to you.  Importantly, it must be sustainable for your family.   I realize that this kind of net worth would put a household in the top 5% of U.S. but hey, unless you aim high, the journey is not challenging enough!  There are some who would say that retiring on $50K income (instead of $100K) would drastically reduce our retirement fund size, by half, that is, $1.4 million (and thus, bring the net worth target to $2.2 million).   This is correct but retiring sooner should be weighed against retiring well and especially, if your objective is to have a financial stress-free retirement.  The very idea of having to go back to work after leaving a hard-fought corporate career, just because you have a financial need, is scary to me.   After all, you put in all the efforts in preparing for and getting to your cherished retirement.  

If we feel there will be lots of money left over in our 60’s and 70’s, we will create a charitable endowment (must be cool to look down from the beyond and see…is that really a TFR Zero Fee College in Nepal? or a TFR Hospital in Burundi?).   With the 3.5% SWR and the cushion we have in expenses, I think we are covered for a 40+ year-retirement, even if capital market returns fare in the ‘bottom 10%’ of historical ranges.  Considering the worst retirement ever, I am not so worried. 

I share my wisdom thoughts on all the relevant topics in this topic – check out the Archives.   And subscribe to get updated whenever I post a new article.   Now, I need to get back to work!

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11 comments on “Why $10!?”

  1. By theFIREstarter

    Loving the name for the blog and why you picked it, being a fellow maths geek (well, somewhat lapsed but I was back at school… haha)

    Your target is admirable and it is extremely a personal number, however I have to tell you mine is an order or magnitude lower (but in £ sterling). However my plan is to keep working some part time/fun work to keep the coffers from drying up. Way more risky than your plan but should allow me to semi-FIRE a lot quicker and on far lower wages than (I assume) you are earning 🙂

    Good luck!

    • By TFRadmin

      Thanks for stopping by! I appreciate your kind words. Your plan sounds solid. FIRE is highly individual, it’s the mindset that matters.

      Btw, UK is a fascinating country – considering how small you are in size and yet, the former empire ruled practically most of the world. Do you think UK’s colonial history is still weighing on UK’s national sentiment and perhaps even a hindrance?

  2. By Mr/Mrs H &3

    “Retiring sooner should be weighed against retiring well”
    –this resonates with me. I wanted to walk away from my job when I hit FI in about 7 years, but a wise FI mentor informed me that my Pension is a gold mine and should not be left behind. My pension is for life and equivalent to 1.25+ mil portfolio. I will be able to withdraw from that pension about 5 years after being FI. 12 years doesn’t seem too far away now. My young triplets will only be 14 by then. It’s easy to get caught up in meeting FI goals as the end of a long road that I completely forgot the road is meant to be endless and traveled well.

    • By TFR

      Absolutely! Pensions are very rare in today’s world, and if you are vested in a good one, that alone can make a great retirement. Glad my post resonates with you.

    • By Kathy Abell

      Glad you realized the future value of your pension before it was too late. When the question of “When will I be eligible for retirement?” first crossed my mind (way before I had ever heard of such a thing as “financially independent / retire early”), I still had a dozen years left down on the cube farm. “How am I going to survive working here for 12 more years???” was my very next discouraging thought (at this point in time here in 2017, I can’t remember what was going on with my job back in ~2001, but it must have been something fairly (first world, upper middle class) miserable to make me consider leaving. My “golden handcuffs” pension was one of five reasons why I decided to stay (the other four reasons were a short commute; somewhat flexible hours (with lots of vacation time accrual); a very good software engineering paycheck; and working with a diverse set of very intelligent people from whom I learned something new every day). Figuring out and prioritizing what I really liked about my job made those 12 years fly by much faster than I ever dreamed possible, and I have been enjoying my hard earned pension payments since my (early at 55, late for Mr. MM) retirement.

  3. By Axecleaver

    You may find your target changing as you get older. Using sub-4% SWR, you’re trading time for that extra safety factor. You’ve also forgotten to account for taxes – at $100k per year target, they will be a big factor in your planning.

    • By TFR

      I have considered that and that’s why this target was chosen so I don’t fall into ‘one more year’ trap. I have included taxes as well. All my income targets are pre tax figures. Note that if you get most of your income from qualified dividends and if you and spouse file MFJ, it’s possible to shield ~$90k income from federal taxes considering Std deduction and exemptions. If you also live in a state that doesn’t tax passive income, this level of income becomes state tax free as well. As a general rule, taxes must be considered in estimating income needs for living, they are ultimately an expense like any other. Thanks for commenting.

  4. By Physician on FIRE

    Our target is similar, buried deep somewhere in Pascal’s triangle. We have surpassed our FI target based on the 4% SWR, but I’m holding out a few more years, making hay while the sun still shines.

    I look forward to hearing more from your factorial factory!

    Best wishes,
    -Physician on FIRE

    • By TFR

      Thank you POF! Welcome to TFR! It’s wonderful to have a great doctor in the house, especially one who understands what the FI search is all about. Keep building up that safety margin and your nice blog! I will also continue my corporate slavery to reach my 10! Goal.

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