How Much Money Do You Need To Retire?

I’ve always obsessed about money, it’s not healthy and I’m not proud to admit it.

Lately I’ve been thinking (surprise surprise) about money, specifically how much of it you need to retire.

When I say retire, I mean being in a situation where the interest earned on your money covers your living expenses.

So, if you spend $50,000 in a year, and you store money in a bank that gives you 2% interest (generous, I know) you would need to have $2.5 million in the bank.

This would generate $50,000 a year in interest and you would meet the definition of ‘financial independence’.

In reality, it’s a little more nuanced than this simple calculation.

Firstly, we can do better than 2% interest a year.

Secondly, your living expenses fluctuate dramatically depending on where you live, your age etc.

So the goal is to maximise your interest rate and minimise your living expenses.

The table below shows just how dramatic a difference this can make. For reference, the values inside the table are what you’d need saved in order to retire, at various different yearly expense rates and interest rates.

Yearly expenses vs interest received on your money.

How can you reduce your living expenses?

There’s a quote that’s always stuck with me. Tai Lopez said it, but I’m pretty sure he was quoting someone else.

“People are penny wise, and dollar foolish.”

Tai Lopez (but possibly someone else)

When you think about it, this makes a lot of sense.

Big purchases are emotional. You’re not buying a 4 bedroom house in the city, you’re buying the lifestyle and the status that it brings. These emotions cause you to throw any financial discipline out the window, or at least shove it back in the closet.

Compare that decision to the choice between a large or small latte at Starbucks. There’s no status here, no emotional attachment to a larger coffee, so it’s pretty easy to opt for the small option.

The truth is that no amount of frugal coffees are going to make up for a disastrous large scale purchase.

You need to be penny wise AND dollar wise.

This might mean downsizing your home, trading in your Mercedes Benz for a second hand car, or anything else that’s relevant to your particular situation.

How can you increase your interest?

This is the part of the equation that I believe has the most impact. Not only that, it has the most impact without reducing your quality of life.

Being frugal is great and all, but it can f#c$*ng suck if it means you’re missing out on that vacation, or going out with your friends.

There are countless ways to increase the return on your money, so much so that I’m not going to dive into any specifics here. I’ll write a separate, more detailed post about this down the line.

Ultimately, increasing your interest comes down to increasing your knowledge about financial markets.

Generally, people in markets are rewarded for allocating capital efficiently.

If you invest in a company that uses that money wisely and grows into a mega company because of it, you are rewarded handsomely. If you invest in a company that uses the money foolishly, you’re punished.

A Practical Example on Financial Independence

Lets use myself as an example. I live predominantly in Thailand, with the occasional trip back to Australia.

Depending on where I choose to live, my financial independence target will change immensely.

My Living Costs In Thailand

The chart below summarises my yearly expenses in Chiang Mai, Thailand with the following assumptions;

  • Renting a 2 bedroom, mid range apartment close to the city center.
  • Opting for global life insurance, by no means the cheapest option.
  • Eating out every meal, 3 times a day (not fancy restaurants, not cheap either).
  • Drinking 3 yai (large) beers a couple of times a week.
  • Renting a scooter year round.

If you’re interested in learning more about my living expenses in Thailand, be sure to subscribe! This blog is super new but I’ll write lots of posts on this topic soon.

As you can see my yearly living expenses equate to around $22,318. This is A LOT lower than what it would be for a comparable living standard in Australia, as we’ll soon see.

That’s half of the equation done, now for my yearly return on capital.

As I don’t have a conventional job, I rely on investing as a way to get by, because of this the interest I’m able to earn is likely higher than the average person. At the moment I’m getting around 8-12% a year, but we’ll say 8% to be conservative. (again, this is something I’ll write more about people, subscribe already!).

So doing the math, $22,318 / 0.08 = $278,975.

Therefore I need $278,975 invested in order to reach financial independence in Thailand.

My Living Costs In Australia

The chart bellow summarises my yearly living expenses in Melbourne, Australia with the following assumptions;

  • Renting a 2 bedroom, mid range apartment close to the city center.
  • Private health insurance in Australia.
  • Eating in most meals, with 2 meals out a week.
  • 3 Pints at the pub, twice a week.
  • Maintaining a cheap, fuel efficient car.

My total expenses come to $52,412, that’s more than double my yearly expenses in Thailand.

With my return on capital being the same regardless of my living location, this means that I’d need $655,150 in order to reach financial independence while living in Australia.


This clear example shows just how much of a difference lowering your living expenses makes to your goal of financial independence. Obviously there’s some factors that I’m not including here, such as inflation. Still, the underlying principles remain the same.

Financial independence is a way of framing retirement that removes the *age* factor from the equation. Hopefully you find this as empowering as I do, it isn’t something you hit at the age of 65, but rather it’s something that you can chip away at everyday. By taking certain measures and having a concrete goal of where you need to go, hopefully you can reach it sooner rather than later.,