Retirement Intelligence 101 Part 2 What you need to Retire

In Part 1 we said we need $64,000 per year to retire. In Part 2 I’ll discuss some options for how to get this without working.

To my knowledge in 2018, these are ways you can make money without working:

  • Licensing deal: you help someone else’s business and in return they pay you for that help for the rest of the life of that business. An example might be you create a new toothbrush holder. Someone with a business like Walmart will buy your creation from you, then manufacture and sell the toothbrush holder you designed and for every one they sell, they give you some of the money they get. Another example is you work in a movie as a lead actor. Then every time someone buys the movie, you get some of that money.
  • Investing: just by having money, you can make money. This is a big topic so I’ll just stop at the main point.
  • Business Ownership: Similar to investing, you buy or create a business that hires employees to work for you so that you don’t have to work yourself in order to make money.

Each of these options has a varying range of success.  A key point is that Licensing and Business gives you money because of work you did in the past, and your future earnings is dependent on the success of the work you do.  Investing is much safer, because it’s dependent on the success of the world. Eventually, you want your core income to come from a reliable source, and investing is that reliable source.

The current term for this idea of being financially independent and retired early is called FIRE and there are multiple resources on this that go into more detail so I’ll leave a few links for you to read if you want more detail, and just cover the basics here. <- $4 per $100

What is investing? It’s making money out of money. It’s magic. It’s breaking the laws of what you think is allowed.  But capitalism strongly supports this: if you have money, the system is designed so you can get more of it by investing.  If you live in capitalism, investing is its core.

How much money can you get from investing? The real answer ranges from 0 to infinity, but there are specific strategies geared for retirement that you can hire someone else to do for you.  So given that you hire someone else to do it for you, how much can you get from investing? Well, roughly for every $100 you invest, you can get $4 per year to spend. (For the purpose of simplifying investing, we will go with that. The second article above can go into more detail as it is a complicated subject.)

Doing some math

x * ($4 / $100) = $64,000
x = $1,600,000

we find that for the Average American to retire in 2018, they would need to have $1,600,000 cash.

Some of you may look at this and go: that’s never gonna happen. $1.6 Million?? How can I ever get that much money when I barely make a fraction of that?  The answer is financial discipline, tax saving, and leverage. And we will get into those topics in part 3: how to achieve financial independence and retire early.

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