Financial freedom – how much money do you actually need to not have to work anymore?

Beach Financial freedom

In the 2. After World War II the whole world wondered not IF but WHEN Great Britain would go into peace negotiations with Nazi Germany. But Winston Churchill stuck to his position that he will never negotiate with Germany and that he will fight and defeat the Nazis.

Despite this vision, Churchill was aware that he could not turn a blind eye to the real facts. He was afraid that bad news could be kept away from him because of his charismatic personality. Therefore, at the beginning of the war, he set up a department whose primary task was to produce a complete report incl. the brutal reality and facts, to deliver directly to him. Churchill did not want to live in a dream world. "Facts are better than dreams" is a famous quote of his.

Facts are better than dreams..

… also could not be better on the subject retired respectively. retire early apply. What Churchill did with his "brutal reality" section, this blog article is meant to be for you when it comes to your pension or. for your early retirement.

So let’s start with the first big question…

How much money do you need to retire on?

Chart_How much cash do you need to retire early?

There are different approaches and considerations here.

  • First option: Do we have a fixed age in mind with which we want to retire? Something like: "I have to have enough dough at 55 to retire early. How much do I need to save for it now?" We have already discussed this angle in the article "How much do I need to save for old age??" illuminates. Another way to look at it would be…
  • Second option:"How much money do I need to be able to retire early? No matter at which point in time." This is something that is extremely circulating especially on blogs in the US. Let’s take a closer look at this option…

The 4% rule and what it means for your financial freedom

4 % rule coin tree

What the heck is the 4% rule?

You multiply your annual expenses by 25, then you get the amount you need to not have to work anymore.

Let’s say your total annual expenses are, for example, 40.000 €. Multiply this by 25 and you get the amount you need to "not have to work anymore" (40.000 € x 25 = 1.000.000 €).


If you 1.000.000 € on a securities account, then you withdraw 4 % in the first year. So 40.000 €. From the second year on, you increase your annual withdrawals by the rate of inflation (at 3% e.g. 41.200 € next year). And you can do this every year, because…

Various studies from the 90’s have shown that 4% annual withdrawal will pay off forever. Hence the name "4 % rule". Your investment (i.e. your million) must not be in a savings account, of course, but must be invested "in the market". Otherwise you cannot keep the withdrawal rate.

But the 4% rule has a problem

4% rule cointree no money

It changes constantly

A big factor is how much return you can get on the market. Leading retirement experts now see the 4% rule as more like the 2% rule – especially if you’re going to live a very long time (d.h. if you plan to stop working very early). That’s what it means when you save to live 40.000 a year (as in the example above), then you actually need 2.000.000 € and no more 1.000.000. We could continue debating here and analyzing why 4% is more correct or 2% is more correct…

Most analyses are also based on the USA – there we have a different tax situation than in Europe.

But I personally don’t follow the 4% rule for "retirement planning" anyway

The main reason is that I don’t plan to stop working at all. That is, the approach itself is not so exciting for me, because it is not my goal to stop working at 38. My goal is to create a (working) life for myself that I don’t want to "retire" from. &

However, it makes sense to know the concept of the 4% rule when it comes to financial freedom

For me, the 4% rule is more an indicator of financial freedom. And this is something worth thinking about. No matter if you use the 4 % rule or anything else. Forget about all the mathematical calculations in the first moment. The really difficult questions are:

The first thing you need to think about is whether or not you want to retire early. If you don’t want to work at all – not one more day in your life? Or do you always want to do something anyway?

Can you live with some uncertainty, or does it have to be 100% certain that you will never run out of money?? Do you want the most expensive cars and live in the luxury district of the city or do you not need that at all??

These questions are the beginning to get a feeling for what is necessary. The mathematical calculations are then relatively easy.

Your next steps

The basis for achieving financial freedom is a sound financial plan. Including everything you know about insurance, pensions, investments& Co need to know.

To get started you can get our ultimate financial planning guide for university and UAS graduates.

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