: Formula to determine readiness to retire based on age, networth and annual expense The formula should be conservative since it is hard to determine with precision. Better be on the safe side. Suppose person XXX has liquid

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The standard interpretation of "can I afford to retire" is "can I live on just the income from my savings, never touching the principal."

To estimate that, you need to make reasonable guesses about the return you expect, the rate of inflation, your real costs -- remember to allow for medical emergencies, major house repairs, and the like when determining you average needs, not to mention taxes if this isn't all tax-sheltered! -- and then build in a safety factor. You said liquid assets, and that's correct; you don't want to be forced into a reverse mortgage by anything short of a disaster.

An old rule of thumb was that -- properly invested -- you could expect about 4% real return after subtracting inflation. That may or may not still be correct, but it makes an easy starting point. If we take your number of k/year (today's dollars) and assume you've included all the tax and contingency amounts, that means your nest egg needs to be 50k/.04, or ,250,000. (I'm figuring I need at least .8M liquid assets to retire.) The .5M you gave would, under this set of assumptions, allow drawing up to k/year, which gives you some hope that your holdings would mot just maintain themselves but grow, giving you additional buffer against emergencies later.

Having said that: some folks have suggested that, given what the market is currently doing, it might be wiser to assume smaller average returns. Or you may make different assumptions about inflation, or want a larger emergency buffer. That's all judgement calls, based on your best guesses about the economy in general and your investments in particular.

A good financial advisor (not a broker) will have access to better tools for exploring this, using techniques like monte-carlo simulation to try to estimate both best and worst cases, and can thus give you a somewhat more reliable answer than this rule-of-thumb approach. But that's still probabilities, not promises.

Another way to test it: Find out how much an insurance company would want as the price of an open-ended inflation-adjusted k-a-year annuity. Making these estimates is their business; if they can't make a good guess, nobody can. Admittedly they're also factoring the odds of your dying early into the mix, but on the other hand they're also planning on making a profit from the deal, so their number might be a reasonable one for "self-insuring" too. Or might not. Or you might decide that it's worth buying an annuity for part or all of this, paying them to absorb the risk.

In the end, "ya pays yer money and takes yer cherce."