Hi Everyone!
Personally, I have come across many investors/bloggers and people around me saying that they aim go get at enough passive income (more than their expenses), they will quit their job and enjoy life. In my opinion, this is an awesome choice, only when you are above 40s to 50s and your passive income is at least 2.5 times more than your expenses.
So how did I come out with such requirement?
This requirement is based on my observation and my conservative nature which enables me to draw to this requirement.
Why only when you reach 40s to 50s before deciding whether or not to retire, can’t we retire earlier?
Certainly you can however, if you retire too early, you will missed out lots of experience in life for example, working together as a team, have gathering with colleagues, grumble about stuff, waking up early and making your life full of nonsense. Wait wait wait… Well, not all the things that I mention are great, and seems like most of them are crappy things to go through with. Yes, it is crappy but all these experience makes you grow and able to socially integrate with the people around you.
Maybe you still do not get what I mean, let me say this in other perspective, lets say you retire at around 30 years old, you will most likely be at home or do those stuff that interest you. But this really cannot last long because you will feel bored and you can’t really travel around especially if your passive income just barely cover your expenses. So what you can only do it stay at home and enjoy the minimal lifestyle and sooner or later, you will get bored.
Also, what happens to the knowledge you learn from you 18 to 20 years of education? All kept inside your own memory storage and archive it in somewhere where they will be hidden forever. So why not use your youth to work for another 10 to 15 years before you decide whether or not to retire. Probably, by that time, you are able to retire comfortably at the age of 40s to 50s.
Why Passive Income Should be 2.5 Times More?
Why 2.5 is the magic number for me? There are a few reason for it.
Firstly, most people tend to calculate the bare minimum for their expenses so that they can quickly hit their target of the passive income and throw their resignation letter to their boss and off they go! Bare minimum is NOT enough! Because you won’t know when you will need to activate your emergency funds like hospital fees and etc. So if people don’t plan properly, they will ended up using their investment to cover the cost, which will lead to lesser passive income, and unable to survive without a job.
Secondly, inflation rate, need to take into consideration of inflation rate and also taxes. these factors will increase over time, and most people that I know of, don’t take these into consideration.
Thirdly, your insurance premium will increase over the years, can your passive income cover the increment of the insurance premium?
The reason why 2.5 times you expenses is the target for me is because firstly, you can save those extra income for emergency usage or re-invest them for more income. This will ensure that you will have sufficient income in any case where there is a need to spend much more than you expected.
Also, if there is a time where you get married (before that you are single), you will need to take into consideration of the expenses of your spouse, which gives you a safe calculation of 1.8 times* of your expenses. Then you still have 0.7 times of your expenses left to save for emergency or re-invest for more passive income.
Always bear in mind that there is a need to take into consideration of emergency funds and the unexpected situation to occur which will burn your pocket. Each people have different ways to calculate the amount of passive income that they need to retire. For me the magic number 2.5 times the expenses is the comfortable figure for me.
Conclusion
Don’t rush to get yourself retire, although working world is tough but you can still get to experience lot’s of things and accomplishment in your career as well. Also, working is the best place to share your knowledge and if you have a plan to retire early, you can take your job easy and can stay out of politics where you can just collect your salary at the end of every month by completing on the task that you are given (which is the minimal).
Of course, this is just my opinion, so share with me your thoughts bout retiring early, for me, is a no no for retiring before 40 years old.(Even if I have enough passive income to survive)
*1.8 times expenses explanation: Because some of the expenses overlaps (like electrical bills, phone bill, internet bills) which is why I did not multiply by two but just 1.8 times more.
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