Finding True Wealth: What Is Your Magic Retirement Number?

On the plane flying from Paris to Panama earlier this month, I read an article about a librarian who made the decision to take all of her money out of the stock market.

It’s not that she’s worried about the stock market crashing. It’s that she’s reached her number.

As the woman explained, she’s accumulated the amount of money she feels she needs to live a comfortable life through her retirement.

And it’s not that she thinks she couldn’t make more money in the stock market. She recognizes that, probably, she could. But she doesn’t want to have to think about it anymore.

Now that she’s cashed out, the stock market can go up, down, or sideways, she figures, and she doesn’t have to care. She has her nut.

This woman has reached the stage few people ever will. She’s truly wealthy.

Most people think that acquiring and holding ever-bigger assets and building ever-greater amounts of net worth makes them wealthy.

Having riches does not equate to being wealthy.

Here’s the definition of wealth that makes sense to me…

Being wealthy means having enough passive income to cover your living expenses… whatever you want your living expenses to be.

That could mean you have US$100k in a REIT throwing off US$10,000 a year and you’re living off that US$10k…

Or it could mean you have a billion dollar net worth and you’re spending tens of millions of dollars a year maintaining your lifestyle.

Though even having a billion dollars doesn’t necessarily mean you’re wealthy. Even with that level of “wealth,” you could be struggling to make ends meet.

OK, maybe that’s hard to imagine… but certainly many millionaires are living paycheck to paycheck because their lifestyle outstrips their income.

On the other side of this coin is a friend who has been retired for more than 30 years (since he was 35). I’d describe this friend (we’ll call him Mark) as wealthy even though his net worth when he retired was probably not enough to buy a house in a high-end U.S. suburb at the time.

However, the assets he held at the time of his retirement have proven to be enough to generate income enough to support the lifestyle Mark and his wife have wanted to live these past three decades. They have been able to live off the income from their portfolio as the value of the portfolio has continued to grow.

Unlike the librarian I read about, Mark didn’t walk away from the investment markets. He knew that his nut wouldn’t carry him and his wife through the 50 to 60 years of living they hoped they had ahead of them when they decided to “retire.” He hadn’t yet made his ultimate nut, and he was OK to continue managing his investments during his very early retirement.

He made a leap of faith in his ability to continue growing the value of his portfolio at a rate to keep up with what he presumed would be an increasing cost of living the lifestyle he and his wife wanted to live.

And that bet on himself has paid off big time. The couple has lived a fulfilling life of perpetual travel and adventure ever since.

Part of the reason Mark and his wife have been able to live off the passive income their portfolio has generated is because they are living what today’s Millennials might call an “asset-light” lifestyle.

Before it was trendy not to own your house or even to own a car, my friend didn’t own those things.

Mark and his wife have rented for most of their retirement, and the couple hasn’t owned a car even since before moving into this stage. Houses and cars require maintenance and repairs. Those kind of sometimes unforeseen expenses could have hit my friend’s budget hard… so he eliminated the risk by not owning.

Not owning (anything, really, other than the clothes in his carry-on and his computer) has also provided Mark with the flexibility to move around the world at will. He and his wife have charted their perpetual traveler course in response to the fluctuating value of the U.S. dollar. They go where their dollars buy them the best possible lifestyle in places where they want to spend time.

The dollar strengthens against the Argentine peso… Mark and his wife go to Buenos Aires for a spell…

The euro weakens… they take off for a season in Europe.

Unlike my friend and the librarian I’ve told you about, most of us fall into the category of always wanting more. Even when we’ve reached the stage of having “enough,” we’re hungry for more… and then for more after that.

So the question you have to ask yourself is: What’s your number?

What amount of “riches” will allow you to live the lifestyle you want to live in the place where you want to be?

The financial experts say that the answer to that question is a nest egg that will allow you to withdraw 3% to 4% a year over your expected remaining lifespan.

The “experts” factor inflation, historic investment returns, and estimated longevity into their equation to come up with the draw-down amount that should allow you to maintain your standard of living throughout your retirement as inflation erodes your buying power and you erode the balance in your brokerage account.

This expert says that that is the kind of thinking that keeps you working longer than you need to.

I wouldn’t wait until you’ve accumulated assets enough to support that math.

The longer you continue working, the more the cost of your lifestyle expands.

More working years means more time to acquire more assets to support—cars, boats, second homes, jewelry for your wife (and your mistress)…

It’s a difficult treadmill to jump off.

Difficult but not impossible. My friend Mark and the librarian did it.

As did another friend who took early retirement from a corporate job 20 years ago. At first, he was worried he wouldn’t be able to survive on the reduced pension he agreed to as part of his early-retirement package… and he wouldn’t be eligible for Social Security for more than a decade.

However, once he sold the ATVs, boat, extra cars, and other extraneous playthings he’d accumulated by that stage of his life, he realized he could in fact live the lifestyle he wanted to live on his pension… if he moved outside the United States.

And he was right. This friend has lived a full life all these years since. He has even managed to continue to accumulate assets during this retirement stage.

He and his wife have enjoyed a fuller, richer, better retirement lifestyle than they imagined possible when they decided to retire early two decades ago.

Expanding and diversifying your life offshore can translate to many benefits… from adventure and new friends to investment upside and a chance to retire decades before conventional retirement age.

It can afford you many options for living better at any age.

And it can be the secret to being truly wealthy.

Lief Simon