How Much Passive Income To Retire

Retirement is an elusive goal for many people in this country. Most workers must strive hard to make enough money to live on, while also planning to retire at a later age. Unfortunately, the more you save now, the closer retirement gets!

There are several reasons why most Americans cannot afford to enjoy their golden years. One of the biggest cost drivers is the rising price of health care. Health insurance has become increasingly expensive due to all of the new technology that can be used to diagnose and treat illness.

Another major expense is housing, as prices continue to rise and bank-sponsored loans become less accessible. A third cost is income tax, as professionals and wealthy individuals pay higher taxes than middle class earners.

Many experts believe that we will reach a breaking point where there just won’t be enough money left in our economy for both healthy economic growth and adequate spending on healthcare, education, and other key services. This would have significant negative impacts on the quality of life and opportunities available to future generations.

Fortunately, it is possible to achieve financial independence (or “retirement”) early if you adopt certain strategies. You can begin saving small amounts every day, even weekly, and grow your savings over time.

This article will discuss how much passive income needed to fund your retirement and what kind of income is the most productive.

Calculate your annual savings

how much passive income to retire

The next step in determining how much money you need for retirement is figuring out how much income you’ll have each year. This calculation is tricky, because what kind of job you do and where you live can make a big difference in how much retirement income you enjoy.

Many people assume that they will be able to pick and choose which jobs to take once they retire, but there are very few positions that don’t require at least part-time work. (For example, most nursing professionals must have their license renewed every two years.)

If you want to truly spend your time doing things that matter to you, you'll need to consider whether being limited to only certain types of employment is worth it.

Another key factor when calculating monthly retirement income is accounting for living costs. While many retirees get help from pensions or Social Security, this isn’t guaranteed.

In fact, according to research conducted by Merrill Lynch, one third of Americans who retired over the past five years didn't receive enough saved income to cover basic needs like food, shelter, health care, and transportation.

Overall, investing early gives you more opportunity to save money, but only if you invest wisely.

Calculate your lifetime savings

As we mentioned earlier, how much retirement income you need depends largely on how much you spend in your retirement years. If you’re spending less than what you make, then you can probably retire later!

If you have an extra $10,000 lying around, for example, you could easily retire at age 50 or even older if you saved enough money. Because you'll save more than you spend, your passive income will grow over time, which is the key goal here.

You should also consider how long you want to live once you do retire. If you don't expect to survive longer than five years after you stop working, for instance, you may not need as much retirement income since you'll be saving for only a short amount of time.

On the other hand, if you believe you'll live a healthy, active life beyond the next ten years, you may want to start planning for a shorter retirement so that you can keep living your current lifestyle while also earning adequate income.

Calculate your annual passive income

how much passive income to retire

If you want to know how much retirement cash you’ll have, just add up all of your monthly passive incomes and divide it by 12.

That way, you get an average number that tells you how much money you will earn per year in total revenue!

But there is a little nuance when calculating this number.

You need to account for seasonal changes in income as well as investment returns.

For example, if your job has a short summer break then July would be excluded from the calculation. And if you don’t reinvest the profits from one business into another, you could easily lose out on valuable time.

Calculate your potential monthly passive income

how much passive income to retire

Let’s look at some examples. If you are in your twenties and you want to retire as soon as possible, then focusing on high-paying, low effort revenue streams is the way to go.

If you read this article, I hope that I have convinced you that with the right research, you can create these types of revenue streams.

One such example is investing in dividend paying stocks. You will be paid a small amount of money for each stock that you invest in. These companies pay their dividends through the reinvestment of their profits.

Profit is what makes a company successful, so automatically they re-invest those earnings back into more business ventures or shareholder rewards (like buying new equipment or hiring additional employees). This process happens very quickly, which is why investors tend to enjoy how fast his or her portfolio grows.

Dividend payments usually increase every year since the company has to survive on its own revenues for another month.

Consider your future growth

how much passive income to retire

As we mentioned before, you can’t retire if you don’t have enough income to live on. But how much retired income are you really saving up?

Most people start retirement with the assumption that they will earn their current yearly salary for the rest of their lives, which is usually about $50,000 per year.

But what if you could spend less than half of that each year? What if you could cut your spending down so low that it earned you more in passive income — like through investments or business ventures — than you did from working?

This was the case for many wealthy individuals throughout history. And there are some strategies today that can help make this possible for you as well!

Here are five ways to achieve this goal (no matter your age).

Calculate the amount you should retire to

how much passive income to retire

If you want to know how much passive income you need to achieve your retirement dreams, look at the average person in America’s highest paid job — professional football player.

The average NFL career is three years, which means that most players reach the age of 30 with just 10 more months under their belt than you.

If you make an annual salary equal to what the top 1% earn, you’ll have enough money for the rest of your life. You’d also be better off than the vast majority of people who will never make as much money as anyone else does.

I calculated how many years additional income the average pro makes over his or her pay grade and determined how long it would take to accumulate the same amount of wealth.

Know your number

how much passive income to retire

In my book, I share my numbers for how much passive income you need to retire. I call this number Your Exit Strategy.

This is important to know because it gives you an idea of what size house or business you would need to be comfortable in retirement. It can also give you ideas about how much savings you should have pre-retirement so that you can enjoy these things later!

The average person needs an exit strategy that produces at least $20,000 per year after taxes to feel confident they will never have to work again. Some people choose to spend their sunset years traveling instead of staying home, so this amount really depends on each individual’s dreams.

But most individuals want to stay at home and fulfill their dream of raising a family, which is why this number seems more reasonable.

Stay consistent

how much passive income to retire

In any profession, there are always people who do more than others. You will run into this at work, and even outside of work as you grow your passive income sources.

People who earn more than you’re not necessarily doing more, they just invested in better tools to achieve their goal. For example, someone who makes $50,000 per year can invest in a good quality laptop to help them go about their business while also investing in an excellent camera to take nice pictures.

By having these resources, they win!

It is important to remember that though it may feel like other individuals are keeping up with you, that isn’t what matters most. What really counts is how well you're going after YOUR goals, not anyone else's.

You should be proud of yourself for working hard and smartly investing in various tools and systems to gain more money. But don't get distracted by the flashy numbers being posted around you - keep focusing on your own plans and milestones.

Another way to look at it is that people who make more than you have chosen to add more onto the ladder of success. They've made their choice to put in longer hours or spend extra money buying new gear, but you haven't. That doesn't mean you shouldn't strive to reach those heights, but simply acknowledge that you'll probably fall short of them sometimes.

About The Author

Tiara Ogabang
Tiara Joan Ogabang is a talented content writer and marketing expert, currently working for the innovative company With a passion for writing and a keen eye for detail, Tiara has quickly become an integral part of the team, helping to drive engagement and build brand awareness through her creative and engaging content.
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