How much money does one need to afford to stop working for the rest of life?

Question

Let's suppose you are in your 20s and want to fully devote your life to something you are highly passionate about, but there's a problem: you are unsure whether that activity will bring you any substantial money in your lifetime. For example, you want to do some research that is difficult to get funded. At any rate, what your desired activity requires is pretty much just a computer and an Internet access, and you can do that from anywhere in the world. Approximately what minimum amount of money do you need as a lump sum deposited to your bank account (e.g., as a result of getting an inheritance or winning in a lottery) to ensure that you can devote your life to that activity and cover your living expenses for the rest of your life?

Some clarifications and constraints:

1. You are a citizen of a highly developed country like Japan or USA, but do not mind migrating to a different country to cut the cost of living, and you are prepared to learn any foreign language. However, as we know, different countries have different immigration requirements.

2. You do not have any addictions or expensive hobbies and run a modest lifestyle, but want at least reasonable standards of living:

   • a separate unit of reasonable size (e.g., a studio of 30 square meters or so), owned by you or leased to you, with electricity, shower, hot and cold water supply, a washing machine, sunlight, and practically unlimited Internet access,
   • safety (i.e., crime rates small enough not to substantially affect your life expectancy or cause stress),
   • healthy and fulfilling diet, and
   • acceptable ecological environment (i.e., one that won't substantially decrease your life expectancy).

3. You do not want to work in any way, even by running a small farm to feed yourself or by physically building your home. You are prepared only to do shopping and household chores like cleaning, washing, ironing, and cooking.

4. You can invest in anything and buy whatever you can buy with your money, but you do not want to regularly spend a substantial fraction of your time managing your investments.

5. Your plan must also address your future ageing: you should allocate money to getting proper care from a state or a private person.

6. Let's exclude possible romantic relationships and marriage from consideration, in order to get a reference point. In particular, your plan must not rely on the possibility to solve your financial or immigration issues by marrying anyone.

7. You do not want to break any law, or, to be more precise, to risk getting jailed, having to pay a huge fine, or otherwise destroying your plan by being caught violating a law.

8. You are prepared to live only in a sufficiently civilized environment (with effective police, medical care, real estate market, etc.), where you do not need to develop a large network of social connections to get things done and can just rely on yourself, your money, and law enforcement.

If possible, please come up with a concrete estimate in US$ and start your answer with your figure. I am also curious to read at least a brief substantiation (e.g., how to choose the location and invest the money).

UPDATE: There may have been similar questions on this SE, but an important thing about my question is that you can choose any country to live in (provided you can find a way to migrate there). The immigration rules and the cost of living vary widely, and I am curious as to how much you can realistically reduce the cost of living by choosing the location, but without compromising on things outlined above.

UPDATE 2: The question is not intended to be a shopping list question, because the focus is not on which location is the best; I rather want a rough estimate of the amount of money needed. I guess there is a fundamental limit below which you just can't go if you want to lead the lifestyle outlined in my question, and I guess there are quite a few cheap countries that do not require significantly more money than that limit. So my question is basically about what is that limit.

Answer 1

You are effectively looking to fund a very early retirement, so the retirement planning literature including "financial independence, retire early" (FIRE) may be most useful. A rough estimate can be made as follows. Guides for expat retirees looking for low-cost but livable countries suggest individual costs for a decent lifestyle (of the kind you describe) around USD 1,000 per month. Retirees traditionally use the 4% rule for withdrawals, but since you want to start in your 20s and the money needs to last much longer, it would be prudent to use a lower rate of 3%. Thus, USD 400,000 would be a ballpark for how much is needed.

Answer 2

I am of retirement age, so this question is something I look at frequently.

The two most important factors are annual income needed and expected return on investments.

The American stock market has been averaging around 8% for the last several decades (depending on which report you look at). So let's use that as the expected return rate. That means that you would invest in something like the S&P 500 index to get close to that return. Note that in some years you might get significantly more than 8% (like in 2019) and some years you might get significantly less (like in 2008).

Next, you have to determine the level of annual income you need.

The formula is Annual Income Needed / Rate Of Return

For $40,000 of annual income, you need $500,000 (40000/.08 = 500,000)

For $50,000 of annual income, you need $625,000 (50000/.08 = 625,000)

For $60,000 of annual income, you need $750,000 (60000/.08 = 750,000)

For $70,000 of annual income, you need $875,000 (70000/.08 = 875,000)

As stated above, this is the expected average income levels you can expect. Most years, you will either get something more or something less than the average amounts.

And if you can consistently get a rate of return higher than 8% (many have tried and few have succeeded) then the amount of cash you would need for your investment portfolio would be less.

Answer 3

$2,461,000. My assumptions are it’s in a taxable account, you live in Florida, spend 65k per year adjusted at 3.2%, the portfolio earns 6.11%, you’re 25 now and die at 90. You’ll have $313 dollars the day you die. Let me know if you feel inclined to provide more details and I’ll prove a more detailed answer.