The rhetoric around the notion of FIRE (financial independence, retire early) has definitely increased as of the last few years. As more and more people are looking for financial independence and retirement at an early age, this has become a hot topic among this generation. 

The question is: How much money do you need to never have to work again?  And at the later part of this blog, I also cover how to never work again? I cover this from an income perspective where I list several ideas.

I’ve read a number of blog posts within the financial blogging circles, and the thinking is that the magic number to never have to work again is the seemingly elusive goal of $1 million.

The reality is, once you do the math on the level of income that $1 million can provide, you realize that you might need more than $1 million to live somewhat comfortably.

Since each person’s lifestyle varies so significantly, the amount of money is also going to vary, but I’ve put together a formula to help you determine your “sleep well at night,” or what I will refer to throughout this blog post as your SWAN number. It’s a super simple formula, and I’ve created three SWAN categories of comfort, so read on.

The 4% Rule Is Not a SWAN Number. So What’s a Good SWAN Number?

Many financial planners will use the 4% withdrawal number as the amount you can comfortably withdraw from your overall portfolio, assuming an average 8% return on your investments.

Unfortunately, 8% requires some level of risk, with at least 40% of the portfolio invested in the stock market. Even then, 4% of $1 million is only $40,000 a year, which is barely enough to live in most of the larger cities. What you’ll find as we move along in this post is that $1 million isn’t even close to enough to not have to worry about money.

We have two problems, though, which we need to tackle:

1. $40,000 isn’t enough to live on
2. 8% return is too risky

Let’s address both of the above problems:

How Much Is Enough to Live on Per Year?

You likely already have the answer to the above question.

While it’s true that once you retire you spend less on work lunches and gas to drive to and from work, it’s also the case that most people spend more on vacations and other leisure activities when they’re not working. So unless you cut back significantly, the amount of money that you need is likely equivalent to what you’re currently spending today. It’s quite possible that you can live off $40,000 a year, but given the cost of living in most cities, it likely isn’t enough. You can also increase those chances by lowering any pending debts you have. See how much money you could get from a title loan by contacting 800LoanMart.

Either way, I’ve built my formula so that you can decide how much you need.

Keep in mind, that it’s also possible that you can supplement your income either through a work or government pension or by earning a side income.

For the sake of this blog post, I’m going to use $100,000 a year as the live-comfortably number.

The next problem is the 4% rule doesn’t work that well if you don’t want to worry about money, or to ever have to work again.

If you have 40% of your portfolio in the stock market, and there’s a 40% drawdown in the stock market, which happens at least once every decade, you’re not sleeping very well at night during those turbulent times. If you have $400,000 in the markets, and your current portfolio has to last you for the rest of your life, watching 20% (in this case $200,000) of your wealth disappear overnight is not very SWAN-like, knowing that if the markets don’t recover, you’re likely going to have to go back to work.

For real SWAN-like “never have to work again” thinking, you need to have a portfolio large enough to kick off a stream of dividend income so that you don’t have to touch the capital. And then, considering inflation, your portfolio needs to grow by at least the nominal level of inflation per year, because $100,000 in today’s income isn’t the same as $100,000 in tomorrow’s income.

Here’s your 10-year income requirement, considering a $100,000 income requirement with a 1.5% inflation rate:

It is possible to supplement your income by doing some casual work and earning a yearly income. That’s completely fine, and many people still do earn something even when they retire. But knowing that you MUST earn some dollars, isn’t a real SWAN-like number, because the question now is what happens if you don’t earn that level of income. You’re still worrying about money. That’s not exactly a never have to work again scenario.

The SWAN number I’m speaking about assumes you have enough wealth that you don’t ever have to work again, that your assumed rate of return is low enough that you don’t have to worry about the markets, and that your income keeps up with inflation. So, in year 10, looking at the above chart, your portfolio needs to produce $114,339 in after-tax yearly income.

In order to not really worry about the markets, and to never have to work again, you shouldn’t have more than 20% of your wealth invested in the stock market, with the 80% balance in safe fixed-income bonds, T-bills, and other guaranteed income certificates earning a somewhat nominal amount. You also should have enough so that you don’t have to spend the capital.

There isn’t anything wrong with spending a portion of your capital, especially in the later retirement years. But for the purposes of my formula, I’m going to assume that the SWAN number doesn’t require a spend of the initial capital. Watching your level of wealth slowly decline can be somewhat unsettling. And again, my initial question for this post is: How much wealth do you need to not worry about money?

There are many variables here that need to be considered:

• Number of years the capital needs to last
• Amount of other non-investment income that is supplemented every year from side work and pensions
• The inflation rate
• The yearly rate of return on your portfolio that you’re comfortable taking, with the less stock market risk the better
• The amount of original capital you’re fine to dip into every year
• Your current tax rate

What’s the Magic SWAN “Never Have to Work Again” Wealth Number?

Of course, there are several assumptions. My estimate is only an approximation, which will vary from person to person. But the SWAN never-have-to-worry-about-money-again formulas are as follows:

• SWAN Wealth Number Level 1 = Current Yearly Spend × 28 (quite comfortable)
• SWAN Wealth Number Level 2 = Current Yearly Spend × 32 (very comfortable)
• SWAN Wealth Number Level 3 = Current Yearly Spend × 36 (completely comfortable)

You will notice that with SWAN wealth number level 1 and 2, you’re going to eat into the initial capital. It’s only with SWAN level 3 that you’re not eating into the capital until year 6, or likely much later than year 6 because you’re compounding the difference between your income and spend for a number of years.

So there you go. Your number to sleep well at night, never have to worry about money, is somewhere in the range of 28 to 36 times your yearly spend, and of course, the higher the multiple, the more secure you’ll feel, and the less stock market risk you’ll have to take. Anything above 40 and you’re feeling very comfortable.

And the question of whether $1 million is enough to retire on? If your yearly spend is $30,000, then, yes, $1 million is probably fine. If your yearly spend is more than $30,000, then you’re probably going to be tight, you might have to take more stock market risk, and in turn, not sleep quite as well at night!

If we come back to the initial 4% rule, I’m suggesting that if you want a real SWAN number, you should be fine to spend somewhere between 2.5% to 3% of your capital on a yearly basis and still sleep well at night.

As an aside, do you ever wonder how your net worth compares to others in your country? You can calculate your net worth percentile by entering your net worth in our online wealth calculator.  You can choose either the American Wealth Calculator, or the Canadian Wealth Calculator.

Now, the next question is:

How to Never Work Again?

The key to never working again is to build a stream of passive income that will provide residual income on a continuous basis that is higher than your monthly expenses. Some of the ways to never work again income include:

1. Passive real estate investing

It is one of the most well-established ways of generating a passive income. If you invest in real estate, you can earn a steady passive income through rent for as long as you want. Otherwise, you can always upsell your property whenever needed. 

If buying a property seems quite tricky and expensive, then also try Real Estate Investment. 

Trust to get a good amount of profit according to the stock market value. The best part about REIT is that it is way easier and hassle-free than buying an actual property. 

2. Open a high-interest savings account

For people who have a large amount of cash that they want to multiply, opening a high-interest savings account is the best option. However, to keep getting the profit, you will have to keep your amount in the bank for a long time. 

This is not the most exciting way to earn passive income, but it surely is a safe one. You can withdraw your deposited money from your savings account as well, but it will affect the amount of profit you are receiving.

3. Invest in dividend stocks

Investment in dividend stocks is a high-risk source of passive income. If you buy shares, you should be ready for both profit and loss. However, it is definitely a way to earn some impressive cash if the stock market upscales. 

Other than that, if the value of your shares increases, you can easily sell them at a much higher price than you initially paid. So, make sure to consult an advisor if you want to invest your money in stocks.

4. Earn through Lending Club

Lending Club provides loans to people who are not traditionally qualified for taking bank loans. By becoming an investor in a Lending Club, you can earn a specific amount of interest in your borrowed money. 

It is a great way for people who do not have a huge amount of money to start with. You keep getting an amount of profit till you get your borrowed cashback. However, make sure to only borrow through a trusted peer-to-peer lending company to minimize the chance of risks.

5. Real Estate: You can rent out an extra bedroom

If you don’t use your car on a daily basis, then you can rent it to earn some extra cash. Depending on the model of your car, you can earn sufficient cash to call it a proper passive income. 

There are several car rental apps that you can use to make the renting process easier. Also, if you have a bigger garage, you can charge people to park their cars safely.

6. Rent your car

Affiliate marketing is one of the most popular ways to generate a passive income these days. It includes promoting someone else’s brand on your platform through a specific link. 

All the purchases made through your link will help you earn a percentage of the amount. If you have a blog, public social media accounts, or groups with several members, you can utilize them to have maximum sales through your link.

7. Participate in affiliate marketing

If you have a skill or love to write, then starting a specific niche blog is an easy way to earn passive income. Owning a blog allows you to opt for affiliate marketing and display ads through which you can earn a steady income. 

Even your older blog posts will keep earning you bucks till the ads are displayed on the page. The same goes with having a YouTube channel. Once your channel gets monetized, you can keep earning through it for a long time.

8. Start a blog and run display ads

Flipping products mean redesigning or refurbishing products that look unappealing or have a few flaws. If you flip furniture, decor items, clothes, or even jewelry, you can turn this skill into a source of passive income. 

Even though it’s not completely a passive income option as it will require you to actively flip products to sell online, it is still something that you can do from home in your free time.

And if you’re going and interested to hire freelancers or remote employees for starting a blog, get Traqq time tracking app to track your team’s work hours.

9. Learn to flip products on eBay

If you have a specific skill that has a high demand in the market, then you can create a short course for teaching that skill to the masses. Creating a short course online requires very little money but can turn over a good amount of cash. 

Especially if your course gets viral, then it can be a huge source of passive income. All you have to do is upgrade the course every few years, and it can help you earn money for ages.

Happy dreaming, good luck saving, and reaching your never have to work again financial number.
And by the way, here’s an excellent video I found on 7 Secrets All Self-Made Millionaires Use

If you liked this post, you might also like:  What Net Worth Makes You Rich? The Average Net Worth to Make it Into the Top 1% and How to Get There

And this one:  11 Wealth Building Secrets You Need To Know

You should consider subscribing to my blog. I publish one article a week on small business and wealth creation.  You can subscribe here.

Also, I published a book during the summer of 2018, “The Kickass Entrepreneur’s Guide to Investing, Three Simple Steps to Create Massive Wealth with Your Business’s Profits.” It was number 1 on Amazon in both the business and non-fiction sections. You can get a free copy here.