My answer to I am 24 & have 300k in low cost index fund. I live on around 20k/yr & make 70k/yr. How much more will …
Answer by Dollar Bits:
Congratulations, that is awesome. It’s quite rare to find someone who is in as good a financial shape as you are.
The common response to the question, “Can I afford to retire?” is to consider “The 25 times rule-of-thumb” — if your savings/investments are roughly 25 times larger than the amount you will need to withdraw from your retirement portfolio in your first year of retirement, you should be in good shape to retire.
If you are living on $20,000 a year, you would need $500,000. Clearly, you are well on your way. If you can live on $20K and are earning $70K, you would have $50K available to invest. Assuming a 7% return from your index funds, you would exceed $500K in less than 3 years. Of course, given such a short time-frame, the likelihood of earning or exceeding 7% each year is questionable. Over the long haul, your returns should be about 7%, but in the short run, they’re more apt to be lumpy — some years you will earn more than 7%, some years you will earn less, other years, you will lose money. Recall back in 2008 when the S&P 500 shed 37% of its value. Consequently, it’s hard to say with a great sense of assurance or confidence that you would exceed your threshold in 3 years.
Regardless, I’d suggest investing as much as you can, work a few more years, perhaps until you are 30 and then reassess your situation. If you were to work 10 more years, you would likely have well over $1 million. That would easily allow you to live on your $20K, adjusted for inflation.
Congratulations on your success to date and good luck in the future.