You'll need no more than 92.35% of your income when you are financially free

Well sort of. I am talking about the Social Security and Medicare taxes on your paycheck. If you can live off the same income (passive income) after quitting your job that you do before (as wages), you'll only need 92.35% of the income since you get to avoid the FICA and Medicare tax.

Really that is just the tip of the iceberg since often capital gains and dividends (common types of passive income) will have smaller tax rates as ordinary income. If you assume a 10% tax savings (15% instead of 25% tax rates) your ahead another 10% - therefore you might only need to replace 82.35% of your income.

Ok so I'll need no more than 82.35% of my income in today's dollars. Thats < $75,000 in today's dollars. If we can find a way to knock off another $50,000 I'll be retiring in no time.

Although theres the problem of living off the same amount of money - I'm still single and someday I hope to have a family - I suspect that may knock my cost of living up ;-(

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Comments (1)

DATE: 5:10 PM
I have a question about the $2Million goal overall. Given the income level you need to maintain, you would need around $2 Million today. That would mean that you would need something like $3.5 Million to be financially free in 20 years (assuming 3% inflation). I just ask because I'm only a little older than you (32) and have a long term goal that is around $4-$5 million by the time I'm 60, just to be safe.

Posted by Anonymous | September 10, 2006 3:03 PM