At a recent poker game, I heard considered one of the saddest things I’ve heard in a protracted time: “$10 million isn’t enough to retire early.”
However, we were all based in San Francisco, an expensive city but additionally considered one of the most cost effective international cities on the earth. So I get it, context is essential. But I could not shake how depressing that statement was.
No one on the table of nine disagreed. Only one person even questioned it before I stepped in and said what apparently needed to be said: $10 million is plenty enough to retire early.
What impressed me much more was that I’m pretty sure nearly all of people at that table weren’t value anywhere near $10 million. Which made the entire thing even sadder.
Can you imagine being 200 feet underwater, your lungs burning, kicking and clawing your option to the surface, finally emerging into the wonderful fresh air, after which declaring that it still is not enough? This is a tragedy.
People throw out large numbers without doing math
Here’s what I feel is going on. People hear “$10 million” and it sounds wealthy. It appears like a number that offers you freedom. So they entrench themselves in it without ever actually saying the numbers. And because nobody around them defends themselves, the parable continues to grow. But because additionally they hear individuals with $20 million, $50 million, and over $100 million, they suddenly think that $10 million just is not enough.
Let me beat back.
If you’ve gotten $10 million in investable assets today, you can park them in Treasury bills and generate about $460,000 a 12 months in essentially risk-free, state tax-free income. Treasuries represent the ground, not the ceiling, as most would tackle more risk with $10 million and would likely outperform over the long run.
Could a family of 4 live comfortably on $460,000 a 12 months and do absolutely nothing for it? Of course they may. It would take truly spectacular financial incompetence not to do that.
My family has lived happily on well under $460,000 per 12 months since our son was born in 2017. Even after our daughter arrives and each children attend an independent language school that costs a combined $90,000 a 12 months after taxes, we do not need anywhere near $460,000.
With $100,000 less we could live comfortably and never feel deprived for a single day. That’s still $30,000 a month.
A practical budget for a FIRE family of 4
To make this concrete, here is a practical annual budget I put together for a FIRE family of 4 living in an expensive coastal town with $360,000 in passive investment income. That equates to a protected payout rate of three.6% on $10 million in investable assets, which is affordable. Many individuals who have retired early are still hesitant to make a withdrawal even at 4% or 5% rates of interest, in order that they can have a bigger buffer.
The two largest line items are private elementary school tuition for 2 children of $88,000 and unsubsidized medical health insurance of $32,000. Yes, these numbers hurt. But even if you happen to take these costs under consideration, the calculation adds up.
The home is paid off, as befits anyone serious about early retirement. There is room for vacation, charity and a cushty life. If things get tight, you can reduce on all three and find a less expensive education. Public schools are only high quality.
The point is that if you happen to make $360,000 a 12 months through passive investing and never must go to an office to earn it, your life is objectively good. And if you happen to ever needed more, you can get advice, get a part-time job, or monetize a hobby. The options don’t disappear simply because you stopped working full-time.
Luckily, at today’s risk-free return, $10 million can generate $100,000 greater than $360,000. That’s about $70,000 extra after taxes if you happen to do what you wish. This will not be a passing thing. This is prospering!
The real problem is the will for more
So why cannot I persuade a single person in real life to really FIRE?
It’s not the maths. The calculation is straightforward once you’ve got done it once. Once again, it’s the will for more and particularly the will to maintain up with the people around them.
If you reside in cities like San Francisco or New York, your peer group consists of tech executives, successful founders, and financial experts, which skews your baseline toward “normal.” The houses are getting larger. The cars are getting nicer. Private school waiting lists have gotten more competitive. And suddenly $10 million feels inadequate since you’re comparing yourself to people who find themselves value more.
Lifestyle inflation is insidious since it doesn’t feel like inflation. It just appears like progress. It appears like you’re finally living the best way you mostly deserved. And whenever you find that the targets have shifted again, you’re committed to a life-style that requires you to maintain working.
Reaching $10 million should feel like a win
Reaching a net value of $10 million puts you almost in the highest 1% of American households. The threshold for the highest 1% is somewhere between $11 and $13 million depending on the source, so $10 million is close.
And yet individuals with $10 million still tell themselves it isn’t enough. Meanwhile, $10 million value of persons are nodding in agreement. Everyone loses.
Once you reach $10 million, especially if nearly all of it’s in investable assets and never tied up in your primary residence, you do not have to struggle anymore. In bull market years with double-digit returns, money starts working harder than you ever could.
Your $10 million will likely proceed to grow
And here’s something else. Even if you happen to withdraw at 4%, your net value will likely proceed to grow because historical returns are higher. In 10 years, at an 8% annual return, your $10 million would turn into about $21.6 million – greater than double – even if you happen to were withdrawing $400,000 a 12 months your entire time.
So if you happen to are lucky enough to succeed in this level, allow yourself to enjoy it. FIRE doesn’t mean doing nothing. It means having the liberty to choose what you do together with your time. That’s the entire point.
And if $10 million seems unattainable straight away, that is okay too. With the appropriate budget and mindset, you’ll be able to retire with quite a bit less money. Most people could already do it. They just didn’t do the maths.
Do the maths.
Know exactly where you stand financially
If you are debating whether $10 million is sufficient to retire, step one is to know exactly what you really have. Sign in Authorizemy favorite free financial tool. I ran my 401(k) through the investment analyzer and discovered that I used to be quietly paying hundreds per 12 months in unnecessary lively fund fees.
I switched nearly all of the portfolio to ETFs and have since saved over $50,000 in fees. Struggling with a job you don’t love while wasting money on hidden fees is a painful combination that you would be able to fix totally free today.
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