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A rule of thumb I subscribe to is that the very basic necessities of life (food, clothing, shelter) should be 100% covered by various streams of monthly guaranteed income (social security, pension and/or annuity income). Aspiring to cover our basic cost of monthly living with guaranteed income allows us to take a more long term approach to our other invested assets and a greater percentage of those dollars being allocated to stocks, since short term market volatility isn’t directly impacting our near-term lifestyle.
Being able to sustain whatever lifestyle one has chosen, and to have sufficient assets and/or income streams to not be overly worried about common contingencies (e.g., death, serious/protracted illness, market crashes).
For me, the biggest thing needed for financial independence is a good handle on the expenses, and the ability to keep the expenses, especially the essential expenses, low. Lifestyle inflation extends our dependency on money. It makes FI a moving target- what seemed enough a few years ago is no longer enough today.
The other important thing for me is flexibility and adaptation if things don’t work out the way we had hoped. As a risk-averse person, I value having a backup plan just in case:).
But to take a more quantitative rather than behavioral approach, I would say that the 4% rule is outdated. Given the low return environment we all find ourselves in today, something like 3% is probably safer. Of course, remember that the 4% or 3% rule is a rule of thumb that minimizes the risk of running out of money. By definition, if you follow such rules, you will end up spending less than you could have in retirement (or retiring later). It boils down to your longevity risk aversion.
Knowing when to say “enough.” As John D. Rockefeller famously said when asked, How much money is enough money: “just a little bit more.” I’m guessing that lots of people fall into that trap (including myself). If you asked them twenty years ago how much was enough, they would probably have a much lower number than they do today.
Instead of focusing on the asset side of the equation (how big my nest egg is), perhaps we should focus more on the liability side (how much do I really need?). If we can learn to live on less, we could retire earlier, all else equal.
I’d say you need enough in savings/investments to at least replace the income you had during your working years. That’s the amount you built your lifestyle around and are accustomed to. Add to that a good sized cushion for all the unexpected contingencies that may come your way.
“FI” is a squishy term to me. I’ve written a lot about it. To me, there are just so many risks and unknowns out there. What might happen in the stock market? What if you have a big health scare? What if you face a lawsuit? What if you have more kids than you thought? FI is a spectrum. While many say you must have 25x your anticipated expenses saved, I think that number should be much higher. You must also factor in your age–the younger you are, the wider the range of possible life outcomes.