How do you save money for retirement

How much money you should save at what age to live on interest

There is currently a lot of hype about early retirement. Regardless of whether you are 25 or 55 - the idea of ​​having more time and leaving the world of work behind you forever is attractive.

In reality, of course, it is not that easy to travel the world, never have to work again and enjoy life.

How much money do you really need to quit your 9-to-5 job and never come back? It depends on a number of factors: for example, your lifestyle or how you invest your money. But you will definitely need several million.

Business Insider asked Brian Fry, a financial advisor, how much money you should have invested to retire and live on capital income by the age of 90. Fry is the founder of the consulting firm Safe Landing Financial.

You should definitely note that many voluntary early retirees continue to have an income, for example through real estate, a blog or another hobby that can be turned into money. There are also pension and life insurance policies. This early retirement is often less about not having to work anymore and more about breaking the hamster wheel, dividing your time freely and pursuing the projects that mean something to you. In short: not being dependent on someone who transfers your monthly salary to you.

How much do you have to invest to live on 60,000 or 90,000 euros a year?

Fry used the Monte Carlo simulation to estimate how much money someone should have in taxable investments on the day he or she quits, by around 90,000 euros a year (if one wants to live very well) or from 60,000 euros (if you are more economical) to live in dividends (fixed income from pension investments) and capital gains (income from investments), after tax. You should definitely note that the US tax system was based on where profits on the stock market are taxed differently than in Germany. The list should still give you an orientation.

In order to run the simulation for a hypothetical retiree, Fry assumed certain investments and a certain tax treatment. You can read about that at the end of this article, but in a nutshell, he used JPMorgan's long-term return estimate, a conservative 3 percent inflation estimate, did not assume state or city taxes, and did not include social security. Theoretically, the investments of the simulation lie in taxable securities investments and not in bond investments such as IRA or 401 (k), which are common in the USA because you cannot draw money from these before 59 without having to lose money.

Fry pointed out that the Monte Carlo simulation reaches its limits in two cases: What you get out is only as good as what you put into it. Individual behavior when investing is therefore not taken into account. In addition, the simulation cannot predict how investors will react to fluctuations in the market.

"Investors are often their own greatest enemy when they suffer investment losses," Fry said. "If you don't have the time, the interest, the discipline and the knowledge, then you shouldn't put together an investment plan yourself, but get help from professionals such as financial advisors."

You should also revise your budget annually, or at least whenever you expect a big change in your life, Fry said. If returns are worse than expected in a year, early retirees should also spend less.

How much money you must have saved and at what age to go into early retirement and live on interest

How much money you must have saved and at what age to go into early retirement and live on interest

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  • 25 years: You need 5.3 million euros to live on 90,000 euros a year.

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  • 25 years: You need 3.4 million if you want to live on 60,000 euros a year.

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  • 35 years: You have to invest 4.7 million euros to live on 90,000 euros a year.

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  • 35 years: You should invest around three million euros in order to live on 60,000 euros a year

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  • 45 years: you would have to start with a little less than four million euros to be able to live on 90,000 a year.

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  • 45 years: you need 2.5 million euros to live on 60,000 euros.

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  • 55 years: You need around three million euros to be able to live on 90,000 euros.

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  • 55 years: You need two million euros if you want to live on 60,000 a year.

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  • 65 years: You need 2.25 million euros to live on 90,000 euros a year.

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  • 65 years: You need 1.48 million euros to live on 60,000 euros a year.

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This article was published by Business Insider in November 2019. It has now been reviewed and updated.