For the sake of round numbers, say my assets are 1,000,000: current 401k + cash + non 401k investments (I own no property). How do I translate that to – what would my yearly “income” be if I retired today. Is that what people use the 4% rule/25x expense rule for? If that’s right, then 4% would give me 40,000/yr on which to live. However for the sake of round numbers and assuming no lifestyle changes, my current expenses are 50,000/yr (adding in 1k/month to carry my own health insurance just as a rough # bc who knows how much higher those costs will go) – meaning I’d need to aim for assets of at least 1.25 million.
Is this how the 4% rule and 25x expense rules are applied? Thing is I’m 38 – do these rules still apply? Or do these rules only apply for people retiring at 65 and if you retire much younger, you need to have like 50x expenses or something?
And most importantly, how do people do this mechanically? Do they start selling assets/stock and taking out 4% each year – under the premise that the remaining 96% will grow more than 4% and make up for the 4% that you took out? Or do you have to take your portfolio that may be all S&P and put it into dividend stocks or something so that it throws off the 50k/yr that you need?
I’ve been a live below your means + put the full 18.5k into 401k type of person since I graduated law school 13 years ago. But I guess I never thought about how the assets you’re gathering actually translate into use for early retirement. While I want to be done way earlier than normal, I never set a goal of retirement by 35 or 45. And now I think it would be for my own small business or something (so I’d have to use some of my assets to buy said business but then it would generate an income stream of some kind, even if less than my lawyer salary). But as I got past the 1mil mark and realized that I’m getting closer to 25x my yearly expenses, I guess it occurred to me that this is doable. I mean right now, 4% would throw off something like 40k. Living in NYC and DC, I know 40k wouldn’t be particularly comfortable, but reality is there ARE families in NYC and DC living on 40k or less (whereas I'm single). And if I were to take that 40k and move to say Richmond (where I lived for a few yrs) or a small town in Florida or whatever, that becomes much more comfortable. So I guess as the numbers are becoming more “real,” I wanted a reality check on whether I’m thinking of it the right way.