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How Much Money Do You Need To Never Work Again?

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As more and more doctors and other high-stressed professionals are experiencing burn out these days, the notion of reaching FIRE (Financial Independence Retire Early) has increased tremendously.

It seems that the age-old question new, burned out Passive Investor Circle members are trying to answer is:

  • How much money do I need to never have to work again

It depends on who you ask.

For whatever reason, the majority of the financial bloggers are still dead set thinking the amount of money (magic number) to never have to work again is $1 million.

If you use the 4% withdrawal rule using their $1 million benchmark, then you’ll quickly realize you’ll be living off of only $40k each year. And with the amount of inflation we’re having to deal with, $40k each year won’t get you too far. 

I don’t know about you, but I never had any type of financial education even though I spent some 25+ years in school.

But when you think about it, what are we taught?

  • Go to school
  • Study hard
  • Make good grades
  • Get a good full-time job
  • Invest with a financial planner in a 401k for 40 years

Along the way, what does society teach us about financial success? You have to “look” rich if you want to be rich, right?

The model of financial success that is instilled in us is completely WRONG.

Let’s find out what we can do about it….


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Our Consumer-Centric World

Some of the financial advice I’ve been given has been “fake it until you make it.” The person that instructed me to do this has been “faking it” for some twenty years.

Be careful who you take advice from!

In today’s world, unless you look like you’re rich, you’re probably not. At least that’s what we’ve been led to believe. That is until you read The Millionaire Next Door.

Yes, it was written some 25+ years ago, but the authors found a trend that went against what our consumer-centric world teaches in order to be wealthy – frugality.

Here’s a quote from the book to explain further what they found:

 “Twenty years ago we began studying how people become wealthy. Initially, we did it just as you imagine, by surveying people in so-called upscale neighborhoods across the country. In time, we discovered something odd. Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.”

When I attended dental school at LSU, I’d bought into what society teaches:  Rich people must drive expensive cars and live in upscale homes.

After practicing for almost 20 years, I know now that this is FAR from the truth.

The majority of people have it all wrong about wealth.

Wealth does NOT equal income.

Reread that sentence as many times as it takes to sink in. 

I talk to doctors each week that make $500K or more a year and barely have any money saved or put away for retirement. 

They’re still living by what we’re taught after completing training….Becoming a doctor automatically equaled becoming wealthy.

I can’t tell you how many of my doctor colleagues earn (actively) MUCH more a year than I do… yet spend it all.

It’s hard to become wealthy spending $700k/year and only making $600k.

Wealth is what you accumulate, NOT what you spend.

Unfortunately, this is why so many high income professionals have little to show for it.

No Financial Education

What did you learn about money in high school? What about college? Probably nothing, right?

It still amazes me as much time and effort you put into educating yourself to work for the rest of your life (for some), that we’re never taught what to do with money.

How much of a problem would it be to offer students a class or two about:

  • creating financial goals
  • income taxes
  • setting up a monthly budget
  • the stock market
  • real estate investment
  • mutual funds
  • credit card debt
  • money market account 
  • savings account

Not only are we never taught how to properly save money, we don’t learn about:

  • creating healthy relationships with money
  •  the value of investing
  • compounding interest

Many times people believe the only way to wealth is through an unlikely windfalls such as hitting the power ball.

Never Taught About Savings

Have you ever been taught how to properly save money?  I understand that we’re instructed that we NEED to save (i.e. emergency fund) but it’s never how much from each check, what to do with it or even why we’re saving in the first place.

Many of us are following grandma’s advice to save “for a rainy day“. But here’s the deal, if you’re struggling with trying to figure out the reason behind saving in the first place, it’s this:

Financial Independence

I decided to do something about this to help you and put together my personal wealth building strategy I use to tell every dollar what to do in this video:

If you never create some type of savings plan in order to retire when you’re young, then the likelihood of retiring early will be next to impossible.

We Don’t Learn How To Build Healthy Relationships With Our Money

Marketers these days understand that if they can get to us when we’re young, we’re hooked.

Take credit card companies for example. They understand that if they can get you to sign up for their card first, then the likelihood of you ever “cutting it up” is small.

For them, it’s a race to being first by using catching slogans such as:

  • What’s in your wallet?
  • There are some things money can’t buy…
  • Never leave home without it…

Even from childhood age, these slick marketing campaigns are designed to contort our perception of reality and encourage us to spend money.

They make you feel as though you’ve already obtained success regardless of your income level. In essence what they’re saying is, “It doesn’t matter what you make, you now have a way to get what you want and get it now.

The other message given is that buying things and experiences and putting them on display should allow even more wealth and prosperity to fall into your lap as though you don’t have enough already.

Again, the notion of utilizing the “fake it until you make it” concept and careless spending what we make (and then some) is the secret to happiness.

The bottom line is that spending all of your money each month will never get you to the point where you don’t have to work again.

We Don’t Learn How To Invest For Financial Freedom

For those that do manage to save and live on less than they make, the options to investing that are given are limited. We’re told by financial advisers to invest in this stock, bond or mutual fund. 

Yes, investing in this manner is better than nothing, but what about those of us that’d like more options such as:

  • early retirement in our 40’s
  • a career change due to a toxic work situation
  • spending extended periods of quality time with our family

Spending your entire career using this “accumulation” method (i.e. 401k) will allow you to retire. But it’ll be much later in life when our health typically starts to decline.

Related article: Die With Zero – 9 Minute Book Summary

Other questions we must answer:

  • How much should we invest?
  • How often?
  • What to invest in?

Unfortunately most investment advice is better for the financial adviser or stock broker rather than you, the investor.

The more trades made, the more management needed, the more fees can be charged.

Think about it. It doesn’t matter if the stock markets goes down 30% in a year…your advisor will still get paid.

Not a bad gig!

Windfall Porn

What do retail companies encourage you to do with extra money from your tax refund? Spend it with them, right?

They want you to spend the interest-free loans you gave the government last year instead of investing it. 

Other windfall porn includes:

  • public lotteries that state governments hold
  • shows highlighting people encountering sudden influxes of cash (My Lottery Dream House)

We’re bombarded about how people became “bitcoin”  millionaires overnight and that we should jump into “crypto” before we miss out (FOMO).

Don’t forget about the dot-com boom in 1999 and 2000.

Even though we’ve not been taught about money and for those of us that have, we should save in a 401k, the question we must now ask is:

How much money do you need to never work again?

The good thing is that it’s probably less than you think. 

The Trinity Study

The general consensus is that for the average U.S. household, $1,475,000 should do it.

That’s MUCH less than what an advisor told me when I started practicing ($7-9 million).

Financial experts have come up with this $1,475,000 figure based on using the median US household income: $59,000 along with the 4% rule (“safe withdrawal rate”).

This means that withdrawing 4% each year on a $1,475,000 diversified investment (such as an index fund) should provide $59,000 of income.

This 4% rule was developed from a paper (“Retirement Spending: Choosing a Sustainable Withdrawal Rate”) published in 1998 by three finance professors from Trinity University.

This paper eventually became known as “The Trinity Study.”

It looked at the portfolio success rate (the percentage of times a given portfolio would have survived in various historical conditions) for various withdrawal rates.

The withdrawal rate was the percentage of a portfolio withdrawn in the first year of retirement.

Here’s some of the different scenarios they analyzed:

  • Retirement length ( 15 years vs. 30 years)
  • Constant withdrawal rates vs. adjusting for inflation
  • Different mixes of stocks and bonds
  • Withdrawal rate

The 4% Rule

One of the results from the study that had to do with a 4% withdrawal rate became famous.

It was shown that a 4% withdrawal rate adjusted yearly for inflation via a portfolio of stocks and bonds only failed to last 30 years in two of the starting years analyzed (1965 and 1966).

Thus, this withdrawal rate worked out 95% of the time.

Calculating the 4% Rule

Using the 4% rule to estimate how much money you need to never work again involves knowing how much you plan on spending that first year or retirement.

For example, if you want to spend $200,000, the math is $200,000/.04 = $5,000,000.

Another way to calculate this is that you would need 25x your annual spending rate.

In this example 25 x $200,000 = $5M.

Cash Flow Example

As you can imagine, there’s much uncertainty in both the Trinity Study and the traditional financial planning model.

It’s for this reason that most doctors (high income professionals) work MUCH longer than necessary.

I know countless dentists who have continued to work even while suffering due to back and neck pain. One that I trained with is in so much pain that he has to lay down after work for at least an hour. Yet, he continues to grind it out each day hunched over at “the chair.”

Why? Most don’t really know how much money is need to stop working. Sometimes people already have enough invested yet keep working because they thought it was the “thing to do.”

Now that you understand the work-until-you’re-70-and-accumulate-as-much-as-possible-to-draw-down-on method, let’s try a different approach.

Using the above example, let’s assume you want to live a nice retirement life and live on $200K a year. 

Instead of needing $5M, you could invest $3M in passive real estate syndication investments.

At a 7% cash flow rate, $3 million would produce $210,000 per year or $17,500/month virtually tax free.

The magic of real estate investing is by avoiding or lowering the tax burden. The benefits of depreciation  that you’d obtain in an apartment syndication could be used to help offset most of the passive income.

Could you live off of $17,500/month tax-free? I’m sure you could.

Something else to consider. If you had the same $3 million conservatively invested in index funds, you’d have to pay capital gain taxes with each distribution taken.

Also, depending on the stock market, you may start to eat away at the principal.

Not with a syndication.

Your original $3 million investment would continue to appreciate even while receiving the quarterly tax-free distributions.

At the end of a typical 5-6 year hold period, that $3 million would be worth closer to $6 million. 

And that’s when the fun gets started…

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