When most people think of retirement, they think in terms of age. The default retirement age for most people is 65. That’s because 65 is the age people qualify for full Social Security benefits. But the truth is, retirement is more about a mathematical formula and sound retirement planning than it is about how old you are.
That’s where your financial independence number (FIN) comes into play. Your FIN is the amount of money you would need to have in retirement savings to be able to live the lifestyle you desire on the passive income that’s generated by those savings. In other words, living comfortably off the interest and leaving the principal intact.
Here’s an example of how you can calculate your FIN. Let’s say you would need an annual income of $50,000 to support the lifestyle you desire. Taking into account the rule of thumb that you should not take more than a five percent distribution from your retirement assets, you would need to have $1,000,000 in savings ($50,000 divided by .05 = $1,000,000). If you could live comfortably on $25,000, then you would only need $500,000 in savings ($25,000 divided by .05 = $500,000).
When most people look at those amounts of money, their knee-jerk reaction is to think they’ll never be able to retire with the lifestyle they would really like. But the truth is, accumulating your FIN is easier than you might think. And the sooner you get to work on it, the easier it will be.
But you shouldn’t try to do it on your own. You’ll need the help of knowledgeable, experienced financial services professional. By working with a trustworthy financial services professional, you’ll be able to develop a comprehensive strategy that is specifically designed to get you to your financial independence number by the time you want to retire. So, rather than allowing the government to make the determination of when you retire, you’re in control – a much more desirable position to be in.