Throughout this blog, I will talk and focus on retirement and financial independence (FI).  I will use these terms interchangeably, so I must define them. Retirement and FI are reached when a salary, wage, or work becomes optional to live the rest of your life.  I fully intend to continue making money and working as much as I want after reaching FI. However, it will be out of choice and not necessity.

As I mentioned in my first post, we’ve always been savers.  If you were to ask me a year ago how much we were saving, I probably would’ve said “as much as we can.”  And that’s not me wanting to avoid sharing numbers, that was really as clear as it was defined.  If you were to ask what my financial goals were, I probably would’ve said “save a lot and retire young.”

As you can probably predict, there are a few flaws I discovered with my plans. To name a few:

1. I didn’t really know how much I was saving per month or year.
2. I hadn’t really defined how much I needed to “retire.”
3. I hadn’t budgeted what my spending would look like, so I had no idea how to calculate how much I needed.
4. This is a big one… I was a SAVER and not an INVESTOR.
5. I had no clue as to how/when I would go about withdrawing my money.  Obviously I couldn’t withdraw IRA money, but what about the rest of it?
6. How long will it take me to reach my numbers?

The above list could go on, but those are some obvious gaps that I suspect/know many others have experienced.

So let’s first answer the million dollar question… How much do I need to retire? Well here’s your answer: define how much you’ll spend every year and multiply it by 25.  So if you are going to spend $40k/year… $40,000 x 25 = $1,000,000. This $1 mil is defined as your net worth (All assets – all debts). I choose to not include primary residence in this calculation, since I don’t expect people to sell their home during retirement. Do the math for yourself. If you think you need $70k/year, you’ll need a $1,750,000 nest egg. Using a tool like Mint can help you analyze what your spending is now. It will likely differ in retirement, so you’ll need to adjust accordingly.

In future posts, we’ll get dig deeper into the principles and guidelines surrounding the 25x budget rule. We’ll also need to understand more about how taxes affect things, how to balance retirement vs non-retirement savings, where to invest/keep your money, etc.

Find your number, and we’ll work through how to get to it later.