How much do you need to retire?
South Jersey · Member since 2016 · 78 posts · 35 votes
How much do you need to retire?
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Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
8yOriginally posted by @Thomas S.:
To retire at a normal retirement age you need a income of around 70% of your gross employment income.
To retire younger your passive income will need to equal your working income and you will need to continue saving for retirement.
You would need 10X your working income invested to generate sufficient income for retirement.
"I also buy all of my homes with cash so they cash flow even more."
Buying cash flow is not the same thing as investing to generate income. To efficiently use your money to generate income for retirement you must invest it. This will actually reduce the amount of money needed to retire. Buying retirement income is not a efficient use of money, it will effectively double the amount of cash required to retire.
I've tried ignoring you but you just keep at it. I don't give a crap what YOU THINK about my investment style. Goodness gracious you have to be one of the most pompous and self loathing people I have come across on this website.
If you want to leverage all your properties then go right ahead. Stop trying to tell me how wrong you think I am for buying properties with cash.
I buy cheap homes and cash flow extremely well. I don't care what you think about how I invest. Every situation is different. Most people can see/understand that. You live in some fantasy world where everyone else is wrong unless they are doing things the way Thomas does them.
149 Replies
- 8yIan WalshBusiness MemberLender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
If you are asking about leaving your full time job and joining the real estate investment world, I would suggest focusing on making a certain amount of money consistently over X amount of months before you make the leap. If you move too soon, you will burn through your saving and end up back at a job with no savings. If you burn the candle at both ends for as long as you can and establish to yourself that you can bring in as much if not more money in investing over a consistent long period of time, you won't even have to debate the move .
- 8yMichael ZuberPro MemberMember since 2018 · 111 posts · 121 votes
Such a short question but wow, some of the answers and comments.
Never one to shy away from conflict I thought I would jump in. But before I do I thought I would share my definition behind some of the words in the question as I believe they mean different things to different people and thus some fuss and stress in the responses I have read.
Retire: No longer have to show up to 9-5 job or sell my time to someone else. I can however still invest, manage and do what I want in my business (Note this is still work)
Need: When I see Need I think Minimum and when I see "want" I think true goal. For me the minimum was always 10K passive income off my rentals but my true goal was 15K.
The unasked question in all of this is how much time are you willing to invest to get there? Some people say 3 years, some 5 , some 10 but for me it was 15 Years of hard work and I had to survive the craziest real estate cycle on record.
Good Investing
- Beaverton, OR · Member since 2014 · 118 posts · 119 votes8y
I find it very interesting that people's monthly retirement income number seems to be solidly split between those 10k/MO and above, and very low numbers of less than 4k/mo.
My goal is $15k/mo, but by the time I reach it, my number will have gone higher due to inflation. Not only that, but I'd most certainly want 3 yrs of living expenses in cash and/or CDs.
One thought that comes to mind that I haven't seen brought up is that if one "retires" early off rental income that's just barely hitting your expenses, you'll likely get squeezed over time as interest and depreciation deductions go away and more of your income is taxed.
Also as someone mentioned earlier, when long term care and/or other health events happen in older age, you'll be forced to sell property, pay huge depreciation recapture taxes, and cut off your income streams.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes8y
Originally posted by @Jason Powell:
I find it very interesting that people's monthly retirement income number seems to be solidly split between those 10k/MO and above, and very low numbers of less than 4k/mo.
My goal is $15k/mo, but by the time I reach it, my number will have gone higher due to inflation. Not only that, but I'd most certainly want 3 yrs of living expenses in cash and/or CDs.
One thought that comes to mind that I haven't seen brought up is that if one "retires" early off rental income that's just barely hitting your expenses, you'll likely get squeezed over time as interest and depreciation deductions go away and more of your income is taxed.
Also as someone mentioned earlier, when long term care and/or other health events happen in older age, you'll be forced to sell property, pay huge depreciation recapture taxes, and cut off your income streams.
One part of the difference is probably cost of living. In some more rural areas not on the coast one can live really cheap, compared to high cost of living areas on the coasts.
If I recall correctly, some of the people who posted low numbers are single with no children as well (which may not be the case in the future).
Of course, lifestyle is another part of it.
A big part of a 'freedom number' or early retirement would be cost of health insurance. That can be really expensive, and I doubt is being included in any $4K/month numbers that have been posted.
- Accountant · La Mesa, CA · Member since 2017 · 477 posts · 476 votes8y
I don't want to leave my job, but my goal is to have enough passive income so that if I am forced to leave my full-time job for whatever reason my lifestyle would not change. So basically my goal is to double my income by having my passive income be close to the same as my "active" income.
- Member since 2016 · 13k+ posts · 12k+ votes8y
My employment income before I retired was about 70K per year. Now retired some 10 years we get by very comfortably on 50K per year. My income now, before tax, is 3X that amount however we do not need that much and simply roll it and any portion of the unused income it generates back into our income funds. We also loan it to out children for their real estate investments. We make more money every year and seem to need less every year. Once we liquidate all our real estate in the next five years we will move to a rental and our expenses will reduce again. Once in a seniors home, if we live that long, our expenses will be fixed and we will transfer the majority of our savings to our children. They will not need it but may use it to assist their childrens endevors. That will be their decision.
- Investor · Lafayette, IN · Member since 2016 · 50 posts · 6 votes8y
I personally think once you surpass your monthly bills with the rental income you could "retire". However you are not really retiring if you do all you own maintenance and managing. Plus I personally need reinvesting money to buy more properties. My monthly bills are roughly 3k so I'll call them 4k. I think once I hit double that I could comfortably transition. You will always need extra for maintence issues and other unforseen problems. I understand the dead equity viewpoint ppl have when owning free and clear, however I am not an investment bank so I don't totally buy the outlook. I dont mind some leverage but am personally not comfortable being 75% leveraged in a good economy. I think 30% is a comfortable position. I think cash flow is cash flow regardless if your mortgaged or free and clear.
- 8yRoshan K.Pro MemberOklahoma City, OK · Member since 2017 · 258 posts · 215 votes
Originally posted by @Jason Powell:
I find it very interesting that people's monthly retirement income number seems to be solidly split between those 10k/MO and above, and very low numbers of less than 4k/mo.
My goal is $15k/mo, but by the time I reach it, my number will have gone higher due to inflation. Not only that, but I'd most certainly want 3 yrs of living expenses in cash and/or CDs.
One thought that comes to mind that I haven't seen brought up is that if one "retires" early off rental income that's just barely hitting your expenses, you'll likely get squeezed over time as interest and depreciation deductions go away and more of your income is taxed.
Also as someone mentioned earlier, when long term care and/or other health events happen in older age, you'll be forced to sell property, pay huge depreciation recapture taxes, and cut off your income streams.
3 years of living expenses?!
That seems like a waste of money just sitting around. I aim for 3 months, and I even understand 6 months. But 3 years seems excessive
Regarding an unknown health expense, that's exactly what a heloc or line of credit would be great for if it was above a 6 month living expenses amount
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes8y
Originally posted by @Clint Moore:
My monthly bills are roughly 3k so I'll call them 4k.
Just curious, would health insurance be in addition to that if you no longer have your W2 job?
- Investor · Washington, DC · Member since 2017 · 198 posts · 323 votes8y
I've factored in $500 a month for health care premiums in case Obamacare actually gets repealed, which probably won't happen since a republican congress and a republican president couldn't get it done. If my income is near poverty level (which it will be when I quit my W-2 job)... my ACA health care plan will be subsidized by the government and my premiums will be quite low. But again, I am single with no kids.
- Investor · Washington, DC · Member since 2017 · 198 posts · 323 votes8y
Originally posted by @Eric James:
Originally posted by @Ron Gallagher:
I want to cash flow $5000 a month (after capex, repairs, vacancies) which is double my current monthly spend of around $2500 per month. I am single and I can easily live off $60k a year and when I reach my goal (I cash flow about $3100 a month after capex and repairs taken out currently) I will split my time between the US and South America. I used to live in Buenos Aires and I could easily airbnb an apartment in the nicest part of the city and order take out food every other night, take taxis everywhere and still live for under $2000 a month. I would spend the North American summer in the US and then after spending Christmas in the US with my family I would head to South America and spend the winter (South American summer) there. It was a good life and one that I hope to return to as soon as I reach my real estate investment goals.
I lived in Montevideo 15-20 years ago and visited BA a number of times. I'd think $2000/mo would be a little light there, though I haven't been there in a long time.
Argentina was super cheap after the government fell apart and the peso was devalued in 2001. Almost two decades later the economy still hasn't fully recovered thanks to Kirchner banning the buying and selling of the US dollar. Keep in mind all real estate in Argentina is bought and sold in US dollars since they don't trust their own currency, so imagine what that did to the real estate market.
But when Kirchner banned the exchange of US dollars I was able to buy pesos on the black market with US dollars which became a rare and hot commodity as a hedge against inflation which was out of control and the entire country was on sale at about a 40% discount because of the premium you could get on your money when you sold US dollars. It was a fun (and cheap) time to be in Argentina if you had US dollars.
Also keep in mind I am a max saver and my monthly spend in an expensive market like Washington DC is still only $2k to $3k a month, since my housemates pay my mortgage (actually I cash flow $1600 a month on my primary residence) and I have no car payment and I clip coupons and I am extremely cheap. You can easily live in DC or Buenos Aires and have a nice life for $2000-3000 a month.
- Investor · Lake Mary, FL · Member since 2016 · 9 posts · 2 votes8y
Your True Cash Flow Income target to retire - will really depend on your lifestyle..there are people surviving with $2000 or less income per month and there are also people living with paycheck to paycheck with $5000 or less income per month -- question is what's your personal fixed expense and then minus income and than you will know your Net income . Based on that you can do your analysis to find your personal retirement cash flow goal.
- Investor · Lafayette, IN · Member since 2016 · 50 posts · 6 votes8y
Originally posted by @Eric James:
Originally posted by @Clint Moore:
My monthly bills are roughly 3k so I'll call them 4k.
Just curious, would health insurance be in addition to that if you no longer have your W2 job?
Eric that is a good point, yes I think I could do it including health care and even a 401k contribution @ $8k cash flow. If structured properly both could be business expenses. I am a reasonably modest person and by the time I am cash flowing $8k at my projected rate of growth I should have my primary residence paid off along with 2 newer autos paid off. That would take my monthly debt to about $1500 not including healthcare. I had kids young they are nearly adults now and even with college expenses they will be out of college by the time I'm where I want to be. I potentially could "retire" as this forum is calling it in my early 40s.
- Beaverton, OR · Member since 2014 · 118 posts · 119 votes8y
Of course it's not a great investment return, probably about 2% or so, but I view that as insurance. It's different for everyone's situation, how much real estate one has, leverage amount, income level, ability to scale back spending, etc. But if I were outside of my "prime hiring years" for whatever W2 job I was leaving, I would certainly not quit my job right when my rental income met my expenses when my liquid funds only added up to a couple month's worth of living expenses. 3 months worth seems like a VERY risky proposition to me, especially if one is highly leveraged as most BP folks seem to advocate for. Just a replacement of a flat roof on a 10 unit apartment building would run me about $50k, what a lot of people indicated in this thread is an entire year's worth of living expenses.
I would argue that most people who think my statement is absolutely nuts have never lived through a significant market correction while being a full time landlord. But, then again, sometimes I wonder if I'm too conservative and miss out. I probably place a big premium and being able to sleep well at night.
- Fort Worth, TX · Member since 2016 · 2 posts · 2 votes8y
@Dawn Curry I've been going through a period of self discovery on this topic lately.
I highly recommend picking up "The Millionaire Next Door" and reading through the starter articles at mrmoneymustache.com. Below is a link to one of my favorite articles by him. This article really made things start to click for me as I was trying to answer the question you are posing.
https://www.mrmoneymustache.com/2012/01/13/the-sho...
My goal thus far is to create enough passive income through real estate and after tax index fund investing to cover my monthly expenses so that I can "retire". When I say retire I really mean go and be productive outside the confines of a W2 job doing things I enjoy/am passionate about that also make money. That may mean more real estate investing, building stuff with my hands, creating a business or non profit, etc. I plan to continue to invest the money that I make post retirement and build more wealth.
My current expenses are about 30k a year. I'm using the rest of my W2 income to meet the goals above. Once I match my expenses with cash from my rentals and index funds I'll ax the W2 job.
Best of luck as you find your own personal answer to this question.
- Investor · TX · Member since 2015 · 393 posts · 290 votes8y
I've seen several people day it's not really retirement if you are going to manage and do the work on your rentals. I disagree. Many a month goes by when all I do is deposit rent and pay the mortgages. 30 minutes max. When we are placing a tenant, we may spend several hours doing that. And I don't mind the occasional repairs, it will give me something to do. I won't ever look at it as another job, even if and when I may spend weeks or months on a major remodel. Why would I? I'm working for myself, doing things for my immediate benefit. What's not to like?
- 8yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
I think $150-200k annually from rental income. I'll always keep practicing law, probably take fewer clients, but I enjoy the people and working the deals. Married with kids so definitely exposed to the expense creep.
Anywhere from $2-6m outside primary residence seems like a good goal. I work at it everyday, but with a balanced approach since I'll hopefully be doing this for another 30 years!
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes8y
Originally posted by @Roger S.:
I've seen several people day it's not really retirement if you are going to manage and do the work on your rentals. I disagree. Many a month goes by when all I do is deposit rent and pay the mortgages. 30 minutes max. When we are placing a tenant, we may spend several hours doing that. And I don't mind the occasional repairs, it will give me something to do. I won't ever look at it as another job, even if and when I may spend weeks or months on a major remodel. Why would I? I'm working for myself, doing things for my immediate benefit. What's not to like?
How many units do you have? I'd think a low number to live off would be 40. More likely closer to 100 or even more. With that many units I'd expect one would be quite busy if self managing.
- boise, ID · Member since 2017 · 6 posts · 0 votes8y
I never calculated how much i need to retire- i just figure i'll keep working until my sons has a big enough nest egg since he wants to help the world and animals i'll never actually retire- plus with my goals i need like 5mm + in residual to be able to settle down on my work. but i guess even then i'll still push to see others keep to where i'm at. so i don't think i'll ever truelly retire-
- Wilmette, IL · Member since 2015 · 3 posts · 5 votes8y
Originally posted by @Eric James:
Originally posted by @Clint Moore:
My monthly bills are roughly 3k so I'll call them 4k.
Just curious, would health insurance be in addition to that if you no longer have your W2 job?
Yes! Assuming you are trying to retire early, I feel most people on this post haven't factored in the cost of health insurance. If you leave your W-2 job before Medicare kicks in, the premiums for basic insurance are not cheap. As a full time investor, I pay over $1,700/month (this is just the monthly premium for a family of 4 with BASIC coverage and no health issues in the family. On top of that, you have high deductibles if/when you actually need to see a doctor or have a procedure)....nothing like I had when I was in corporate America! Currently, I assume $30k of my gross salary going towards the total cost of health insurance each year for my family....and it will only get worse going forward. Gotta love 'affordable' care health insurance.
And if you have kids and want to pay their college tuition, you need to account for that as well. I have 2 children who are 4 and 6; by the time they will be going to college, it will likely cost me around $800k-$1m to send them both to a decent University.
Health care and college tuition have historically outpaced the growing cost of other goods by a longshot.....I assume this trend will likely continue. Below are a few expense categories showing the percent change in cost from 1990 -2016:
Apparel (1%)
New Car 16%
Gas 78%
Consumer Price Index 81%
Food & beverage 84%
Housing 89%
Medical Care 178%
Hospital Services 332%
College Tuition 348%
A few of you might want to rethink your numbers......
- South Jersey · Member since 2016 · 78 posts · 35 votes8y
@Syrus Hossain can you give an example?
- South Jersey · Member since 2016 · 78 posts · 35 votes8y
@Jacob Asay that book is on my list.. just haven’t gotten to it yet! I will definitely check out that article.... and much more! Thank you so much
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Derrick E.:
Originally posted by @Thomas S.:
To retire at a normal retirement age you need a income of around 70% of your gross employment income.
To retire younger your passive income will need to equal your working income and you will need to continue saving for retirement.
You would need 10X your working income invested to generate sufficient income for retirement.
"I also buy all of my homes with cash so they cash flow even more."
Buying cash flow is not the same thing as investing to generate income. To efficiently use your money to generate income for retirement you must invest it. This will actually reduce the amount of money needed to retire. Buying retirement income is not a efficient use of money, it will effectively double the amount of cash required to retire.
I've tried ignoring you but you just keep at it. I don't give a crap what YOU THINK about my investment style. Goodness gracious you have to be one of the most pompous and self loathing people I have come across on this website.
If you want to leverage all your properties then go right ahead. Stop trying to tell me how wrong you think I am for buying properties with cash.
I buy cheap homes and cash flow extremely well. I don't care what you think about how I invest. Every situation is different. Most people can see/understand that. You live in some fantasy world where everyone else is wrong unless they are doing things the way Thomas does them.
Derek I am on your team you keep at it... nothing wrong with paying cash.. most of the most successful and truly wealthy poeple investors i know have much of their real estate debt free and no other debt alltogether..
but do understand those that are starting with limited cash and not making stunning yearly income .. need leverage to scale.
if I live in a market or was buying when some folks i know were paying 7 to 15k cash for decent homes I would pay cash and set it and forget it..
your doing well keep at it and don't listen to the naysayers.. no debt is a great place to be..
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