Know Your Number
Know what you spend. Then work backward.
What This Means
How do you know how much money you need to stop working?
Start with how much you need to spend each month to live the life you want.
If you need $15,000 per month, that’s $180,000 per year. From there, work backward.
How much will come from Social Security?
How much from a pension, rental income, or other reliable income sources?
The difference is what your investment portfolio needs to provide.
That’s why I believe your monthly spending is one of the most important numbers in your financial plan. Once you know it, you can start determining how much you need invested, what withdrawal rate your portfolio would require, and whether you’re on track to make work optional.
Start with what you spend. Then work backward.
Common Questions
How do I calculate how much money I need to stop working?
Start with your annual spending, then subtract reliable income sources like Social Security, pensions, or rental income. The difference is what your investment portfolio needs to provide each year. From there, you can determine how large your portfolio may need to be based on a reasonable withdrawal rate, investment strategy, and how long the money needs to last.
What expenses should I include when figuring out my retirement spending?
Start with what it costs to live your life today. Include your mortgage or housing, utilities, food, insurance, healthcare, travel, entertainment, taxes, and any other regular spending. Then think about what may change when you stop working. The goal is to come up with a realistic monthly number that reflects how you actually want to live.
Does my spending usually go down when I retire?
Not necessarily. Some expenses may disappear. I recommend building a plan based on your current living expenses and adding a little cushion. The last thing you want is to stop working and have to cut back on your lifestyle.
Should I include taxes when calculating how much I need to spend?
No. Start by calculating how much you actually want to spend to maintain your lifestyle. Then layer taxes on top based on where the money will come from. Withdrawals from a Traditional IRA, Roth IRA, and taxable account can all have different tax consequences, so the amount you need to withdraw may be higher than the amount you actually need to spend.
Start Here:
Not sure what you spend each month? Use our Monthly Expense Worksheet to get your number. PureVest Monthly Expense Worksheet
Remember This:
Get crystal clear on “YOUR” number.
Keep Learning:
Work Optional Number: See how your spending, income sources, and investments come together to determine when work can become optional.
Could They Stop Working? See how we used real spending, Social Security, and investment numbers to determine whether a couple could stop working.
Retirement Income Strategy: Once you know what your portfolio needs to provide, determine whether that withdrawal can realistically support your lifestyle.