Most people ask, “How much money do I need for retirement?” They usually dream of some arbitrary amount of money, like $1 million. However, it is better to set more concrete goals focused on income rather than a lump sum.
Net worth vs. passive income. I always talk about net worth versus passive income. Net worth is a static number that is pretty much a way to show off to others.
Passive income is an expression of functional wealth that allows you actually to live your life. For example, I can brag about releasing 100 books. However, I would rather understand that my books bring in $100/month of passive income.
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Passive income for retirement. As we look towards retirement, we must focus all of our energy on passive income that can sustain us to the end. In fact, I focus my entire channel on building passive income for retirement.
Standard guidance focuses on social security, 401K or TSP, and Roth IRA, which present us forms of passive income. However, they won’t be enough to carry us comfortably. We would have to sacrifice our lifestyle to live under these vehicles.
Even if we had $2 million in our 401K upon retirement, that would be roughly $80,000/year in income before taxes. To build that much money in our 401K, we probably made $150,000/year in revenue.
So we have to reduce our lifestyle by 50% to live under our 401K withdrawal, plus the stock market will determine our prosperity. It won’t be as comfortable as we dream.
My retirement requirements. I have 23 years in the Marine Corps and can retire tomorrow if I want. However, I am determining how much longer I want to stick around. I want to ensure I never have to work again if I choose.
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Therefore, I have come up with my retirement requirements. I set these things in stone, and I won’t consider myself fully retired until I achieve these milestones. Here are my two basic requirements.
- Reach $1 million in my dividend portfolio, producing at least $50,000/year in income.
- Pay off our second house, currently with a remaining mortgage of $160,000. This would give us roughly $2,000/month ($24,000) in cash flow.
My goal is to accomplish both of these goals before I retire from the Marine Corps—meaning I have seven years to make it happen. I will work towards the $1 million first, then aim to pay off the home.
Why these requirements? I want to ensure our life flows as smoothly as possible. Having a paid-off house is one way always to have downside protection. This is what we call a hedge. If all things go to crap, we can move into our home and be free.
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Of course, we have much more income from various sources in addition to these two requirements.
- Social Security, if it is around.
- TSP
- Royalties from books.
- Income from a website.
- Rental income from other houses.
- Interest from Cryptocurrencies.
- Military Pension.
- VA disability.
I can even create more income streams because I study money every day. I wrote “21 Passive Income Ideas” to document some ways to increase cash flow.
In the article “10 Creative Ways to Beat Inflation,” I review even more ways to make money, including starting a garden and selling surplus fruits and vegetables.
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The idea of formulating your retirement requirements is to give yourself the bare minimum for a comfortable life. We don’t want to retire expecting to live on a fixed income. We want our wealth to determine our lifestyle, not a government paycheck or 401k.
What are your retirement requirements? Do you want to pay off your home, start a business, have a certain amount of rental homes, or reach a lump sum in the stock market?
Honestly, you need to sit down and think of your rich life. My rich life is to be on the beach with my kids and grandkids with no worry in the world. I know that we will always be good by having dividend income and a paid-off home.
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The book “I Will Teach You to be Rich” discusses how to dream of your future. Don’t limit yourself. Then, once you have the biggest dream, you can work towards it. Why limit yourself to living on $4,000/month?
How to achieve your retirement requirements? Now, how do you fulfill your retirement requirements when starting from scratch? First, you need to read books that build your base of knowledge.
Let’s say you want to own five rental properties that total $6,000 in monthly rental income. Great, now you need to decide what vehicles to use to achieve this particular goal.
Read “Build a Rental Property Empire” if you want to focus on single-family homes. If you’re going to house-hack your way to $6,000, read “House-Hacking.”
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You can do the same research with dividends (index, growth, income) or cryptocurrencies (interest, DeFi). There are many ways to achieve your goals, but you’ll have to learn to make great decisions along the way.
The value of your retirement requirements. The importance stems from having a specific goal or purpose that will give you a certain level of freedom. It’s like driving on the highway and looking for your exit.
Most people are driving on the highway with no end in sight. By setting a specific goal, chances are you will reach it much faster than expected. Then, you can add more goals if you’d like. I thought it would take us ten years to reach $100,000 in the bank; however, it only took us two.
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Conclusion. Be as specific as possible. Know what goal you are setting and what result you seek. By paying off our home, we can become much more comfortable without worrying about tenant issues.
I know I have a set amount of time to reach our goals. If we miss the mark, that’s okay. Maybe I will get a job once I retire from the military to finish paying off the house. At least we made a valiant effort.
Or I can create another business to accelerate our house pay down. Once we finish the payments, I can unwind the company. Life is full of options if you know where to look. What are your retirement requirements?
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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