How Much Money Do You Need to Quit and Sail Away? No, Seriously.
You wake up. Go to work. Get home. Repeat. For many, it feels like being stuck in a hamster wheel. What if you decided to call it quits and retire early? For those who have ever lay in bed wondering what it’d be like to walk away from the rat race... this article is for you.
Whether you want to retire and sail away, or just want to retire and pursue hobbies—that part is up to you. But let’s explore what it takes to make an early retirement a reality. And since the idea of sailing away has a certain ring to it, we’ll use that as our goal.
Will you work part-time?
The first big question is, will you earn an income in retirement? Some people continue to work in a limited capacity by freelance writing, doing graphic design, or consulting, etc. Others just live off their investments. Let’s assume you’re going to quit everything and just live off investments. It’s more fun to imagine that scenario anyway, right?
Save, save, save
Before you cut the cord, you’ll need to earn as much as possible for as long as possible. At the same time, you’ll need to cut your spending. Cutting expenses is a quick win. Earning more can be difficult and take longer to achieve. For example, a $1,000 cut in expenses is like a $1,330 raise assuming the 25% tax bracket. So, gym memberships, fancy cars, eating out, expensive phones, lawn service—goodbye.
The 4% rule
Saving enough money so you never have to work again is a tall order, especially if you’re in your 50s with a long life ahead of you. A common benchmark is the 4% rule. Though debatable (1), it’s a rule of thumb used to determine how much to withdraw from a retirement account each year. The 4% rate is considered a “safe” rate, with the withdrawals consisting primarily of interest and dividends.
What will you spend each month?
You’ll need to figure out your monthly living costs. The good news about a boat is, you have limited expenses. Sure, you’ll have to buy the boat. But you can get a used 40-foot sailboat for about $60K. Cheaper than a house.
Even though you’re living in 150 square feet, you’ll still have to pony up cash each month for marina fees/docking, boat insurance, food, health insurance, and more. Based on sailing blogs, the monthly cost for a couple living on their boat in the Caribbean is about $2000-$3500 (2) a month.
Ok, gimme a number
There are a lot of variables when it comes to determining how much cash you’ll need to save in order to retire. They include your age, health issues, Social Security savings, etc. It’s hard to provide an accurate number without knowing more details. But for simple math, a couple would need to sock away at least $800K (3) into investments in order to live off $3,000 a month. Again, this is very rough math, you’ll need to work these numbers out carefully on your own—or better yet, with a financial advisor.
Whether you dream of leaving it all behind and hitting the high seas, or making model train sets, you’ll want to go through a rigorous retirement-income planning process first. But it can happen. If you’re feeling like a hamster, there are ways of getting off of that wheel forever. It just requires crunching some numbers and dreaming big.
If you’d like an objective second opinion about your finances, reach out to Kevin A. Brown CLU®, ChFC. Kevin is an Investment Advisor Representative at Gateway Financial Advisors, Inc. and has over 30 years of experience in the financial services. He can be reached at firstname.lastname@example.org.
(3) This amount is for illustration purposes only, please consult with your financial specialist to help you understand the how much you would need to retire
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