What is “Your Number”? #illumedati

Hey everyone, it’s Finance Fridays again… and this post is so late, it’s almost Saturday, or it’s already Saturday for your East Coasters. Nonetheless, I wanted to talk a little about What is “Your Number”?

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What is “Your Number”?

Today I had lunch with a couple of my friends. For those interested, we went to an All-You-Can-Eat Korean BBQ place. Also, just so we’re clear — I ate more than them.  😛

We discussed the normal stuff like work, kids, vacation, retirement, etc. However, I asked them a question.

“How much money would you need to have to retire today?”

That’s basically what I mean by “Your Number”.

Well, in the context of Finance Fridays, it’s the number you’re hoping to reach in terms of being able to retire right now. Anything after this number is considered “extra”. Of course, there is a few caveats to this number, such as does this number include any debt or other liabilities and is it post-tax, etc.

However, because I’m a simple man, I consider it as two separate numbers.

  1. Pre-tax with all my current and future liabilities
  2. Post-tax with no current or future liabilities

What were their answers?

Interestingly one of my friends immediately said $4 million. He had obviously thought about this before. It was an interesting number, but let’s dissect how he came to that number.

From “back of the napkin math”, he was estimating for a 3% return a year (on average) on that $4 million with a withdrawal rate of 4%. This was an interesting set of numbers that he had decided on. The assumed 3% return was pretty conservative, and the 4% withdrawal is pretty reasonable. Of course, your returns on a stock/bond portfolio could vary pretty significantly. However, I would imagine a portfolio being utilized for retirement would be pretty conservative, maybe 50/50 or 40/60 or even 30/70 or something (stocks/bonds) or something like that.

4% withdrawal on $4 million is ~$160,000 a year.

Also, you would probably get a little bit of money from Social Security once you made it to 65. However, after taxes, you would probably net about $120,000/year or about $10,000/month. This is definitely doable if you have no other liabilities. However, if you have a mortgage and/or student loans and/or retire to a high cost of living area, then it may be a little more difficult. Additionally, one expense I think people tend to forget about it is that if you’re not working anymore, you no longer have health care through your employer. The cost of health care isn’t cheap, and it will increase significantly as you get older.

Retiring at 40 and living to 98 has a different timeline than retiring at 40 and living till 80.

You must also remember that this number should increase the longer you expect to live. Also, just remember that as a doctor you shouldn’t take early retirement lightly — just a few years out of practice and your CME will have lapsed, your certifications are out of date, there will be a gap in your experience, and your skills may be rusty. It’s hard to go back.

For me, $4 million pre-tax with all my current and future liabilities would not be enough. However, his (and your) situation may be different. If your house and student loans are both paid off, and the 529s are where you want them, then $4 million may be enough for you — especially if you retire to a low cost living area.

Wait, so what would you need then?

I have a significant amount of liabilities, the largest of which are my home and my student loans. If you add that I live in a high cost of living area, then $4 million pre-tax with all my current and future liabilities isn’t enough to retire on today. Of course, like I said before, this is vastly different if I was 65 years old — but we’re talking about right now.

I haven’t really done that calculations, but I’d probably need a windfall in the realm of $10 million pretax, which would become $6 million post-tax. Then I would use that to pay off my student loans and my house and stash away enough money in the 529s for the kids. The rest of the money would go into a conservative mix of index funds, like 40/60 or 30/70 or something. Then, I’d let my wife retire early. However, I’d probably still work another a year just to make sure we were ok tax-wise, health insurance, other expenses, before I retired.

Who knows, maybe I’d keep working anyways for a few more years. Like I’ve said, I like my job.

So basically, my two numbers to retire right now would be:

  1. $10 million – Pre-tax with all my current and future liabilities
  2. $6 million – Post-tax with no current or future liabilities

These numbers seem kind of high….

Well, like I said, this is for me. Everyone’s situation is a little different.

If I wasn’t married, and didn’t plan to get married or have children, then $4 million is probably more than enough for me to retire on, especially if it was to a low cost of living area.

This also depends on what kind of lifestyle you want:

You can make $120,000/year disappear pretty quickly if you plan to take a lot of vacations flying first class, staying in posh hotels, eating expensive food, and partying hard.

On the flip side, other people may consider $120,000/year almost too much for what they require. If you are perfectly happy hiking trails, eating frugally, and taking road trips, then $120,000/year is most likely more than enough for you.

What about your other friend?

His answer was very interesting.

He said that no matter what amount of money was to fall into his lap, he would still work. It might not be in the same capacity as what he does now, but he would still want to get up and go to a job everyday.

I guess, like usual, I’m kind of in the middle of these two extremes.


“Your Number” is how much money you would need to retire right now.

I actually use two numbers, pre/post-tax and with/without liabilities.

Don’t forget about health insurance.

What about you? What’s your number? (and age)?

Finance Fridays Sensei


Agree? Disagree? Questions, Comments and Suggestions are welcome.

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