What size portfolio to be financially independent?

We are going to talk about the big NUMBER 25!

Financially independence is reached when you grow your portfolio to 25 times your annual spending, or 25 times your cost of living. Of course, the lower your cost of living then the sooner you can reach this special number 25. Why 25? Because a safe withdrawal rate is 4 percent a year hence 25… (4 times 25 equals 100). If you have read the trinity study, then you will see that hovering around the 4 percent withdrawal rate is very safe for keeping your portfolio healthy over the long term like 20 to 30 years.

Run some numbers, keep track of how much you spend a month or year so you can figure out what 25 times your spending equals. Personally, I can live off of around 6,000 a month without having to feel like I’m restricting myself in my everyday life. To be able to pay myself $6,000 a month then I need to have a portfolio size of $2,130,000. How did I get that number? The tax rate on long term capital gains tax for $85,200 would be 15%. That means I can pay myself $72,420 a year ($82,200 minus 15% equals $72,420) or pay myself $6,025 a month after taxes ($7,100 a month, -15% for taxes equals $6,035 a month).

If your cost of living is lower, less is needed. If your cost of living is higher, more is needed. Knowing this will allow you to plan and have a number in mind. Once reached, you will have more options and flexibility in everyday life.