My Buck Blog

It is a good question. It depends on what lifestyle do you live. For me, I would like to live the same way I live today during my retirement. For example, if I make $100K a year and were to retire today, my investment better generate $100K for me each year.

Remember, there is something called inflation. The price of things goes up every year. The average inflation rate for the past few decades is about 3-4% a year. In order to maintain the same quality of life, my investment needs to keeps up with inflation after taking $100K each year.

So, how exactly should I do it? Based on historical data, stock and bond returns 10-11% and 5-6% per year respectively over long term. If I were retired today and keep everything in bond, the net gain after inflation is only 1-2%. And therefore, I need to have at least $5-10 million in my bank, which is quite difficult to accumulate.

If I keep everything in stock, the net gain after inflation is about 7-8% and I need only $1.25-1.5 million to retire. That makes me feel better.

Of course, it is very risky to have an all-stock portfolio during retirement. To add some buffer, probably $2 million is a good goal to aim for.