The early retirement /financial independence lifestyle is great. You like your new life, new hobbies, ways to stay engaged – everything you want in your lifestyle. Too bad that none of your hobbies pay you anything. In fact, they cost you a bit more money when you anticipated. Which is a problem if you did not have a margin of safety built-in after leaving work. But even with a margin of safety, you have been used to growing your money for so long and now you have this disconcerting feeling creep up on you: what if I want to grow my money but I don’t want to go back to work. Is that even possible? Let’s look a theoretical scenario for an early retiree with the following account balances and the wish to get to 5 million net worth
Below are 2 basic simulations that show the time it takes to reach 5 million net worth. The first scenario assumes the good life with absolutely zero work income and the second scenario assumes a 100 k income of which 30% go towards increasing the investment balance every year.
The calculations assume an 8% average growth rate and 3% inflation for a nominal rate of return of 5%. I know you would rather have a Monte Carlo simulation, etc… but I like simplicity and nobody knows the future anyway.
It takes 16 years to get to 5 million without any work and 11 years with a 100k annual salary. Wow!! What a nice surprise. Obviously it could take a lot longer depending on how the sequence of return risk plays out. The real point here is that once you reach a certain level of networth, your fate is tied to investment returns far more than to the job market.
Feel free to drop me a note if you would like the spreadsheet that I used for the calculation.