How Does a Couple Reach Financial Independence?

Hello, I’m Kevin - a financial planner who helps tech professionals and their families live great lives.

Make yourself at home - we’ll get to how a couple becomes work optional in a moment.

But first - here are some links you may want to save for later.

My Goal? Help People Reach Financial Independence!

What Is Financial Independence?

Are You Less Behind Thank You Think?

Now, let's get on to the vlog! 😀

The math is relatively straightforward:

1. Estimate annual expenses

2. Subtract expected income

3. Multiply shortfall by 25

Step 1: Estimate Annual Expenses

The first step is to estimate annual expenses.

Expenses often fall after leaving full-time employment:

• Taxes - including Social Security - drop significantly

• Transportation costs also tend to fall

• Housing costs my trend down as interest costs decrease with mortgage balances

Healthcare costs might rise, though it’s worth exploring costs on the state-based exchanges.

A good starting point is HealthCare.gov.

Step 2: Subtract Expected Income

Next, subtract any expected after-tax income: pensions, Social Security, part-time work, royalties, or other non-portfolio earnings.

Let’s say a couple:

• expects to spend $100,000 a year once reaching financial independence

• anticipates $50,000 a year in Social Security benefits after tax, and

• has a $50,000 shortfall

Step 3: Multiply Shortfall by 25

How much would the couple need to fund that $50,000 a year?

Some diligent people studied past investment returns and inflation carefully. They concluded that a well diversified portfolio could fund withdrawals of about 4% a year, adjusted for inflation, for up to 30 years.

Take how much spending is needed every year - here it’s $50,000 a year - and divide by 4%. That’s the same as multiplying by 25.

$50,000 times 25 is equal to $1.25 million.

A couple who expects to spend $100,000 a year and anticipates Social Security of $50,000 a year after tax would theoretically need $1.25 million in a balanced portfolio.

Hey, thanks for learning more about how a couple reaches financial independence.

Just a reminder, I share a lot of resources that can help you.

Disclaimer

Unfortunately, past performance does not guarantee future results. Also, everyone’s situation is different. Personal finance is personal. I strongly suggest you work with a financial professional before making any major lifestyle changes.

In addition to the usual disclaimers, neither this post nor this image includes any financial, tax, or legal advice.