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The key to financial independence is to have sufficient assets in order to generate passive income. But how much is enough? And how much would you need to save each year?
The answers to these questions would depend on how much you already have, how much income you want and the rate of return of your investments. A simple rule of thumb formula can give you an idea and help you start saving and investing.
Say you want to retire in 10 years time. You already have $200,000 in assets and would like to earn $1,000 per week in retirement. This would require roughly $1.0M in assets assuming these assets earn 5% return ($50,000 per year).
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READY RECKONER
Lump sum target less what you already have divided
by years to retirement:
| $1.0M - $200,000 = | $800,000 | = $80,000pa required |
| | 10 years | |
By using the formula, you would need to accumulate $80,000 every year between now and retirement.
Unfortunately, what we need to accumulate usually far exceeds our disposable income. This is why you need to think outside the square and adopt "The Millionaires Model"
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