What amount of Networth & Passive Income is needed to comfortably retire in OC?

[panda]

What amount of Networth and Passive Income do you think is needed to comfortably retire in the OC? When you envision your retirement whether it be be in your 40s, 50s, 60s, or 70s what is the networth and passive income targets you have in mind?

Do you plan to retire in Orange County? If not, which state or country would you move to when you are ready to retire? 


Source: 2013 data from Tax Policy Center

%                Networth                              Estimated 5% passive income (Annual basis)

99.90 %      $30,644,280.00                  $1,532,214
99.50 %      $11,898,128.00                  $594,906
99.00 %      $7,869,549.00                    $393,477
95.00 %      $1,868,640.00                    $93,432 
90.00 %      $943,656.00                        $47,182
80.00%        $428,540.00
70.00%        $247,026.00
60.00%        $147,732.00
50.00%        $81,456.00
40.00%        $38,322.00
30.00%        $14,840.00
20.00%        $4,314.00
10.00%        -$2,066.00

Household Annual Income

99.00 %        $521,411
95.00 %        $208,810 
90.00 %        $148,688
80.00 %        $107,628

 

[SubSolar]

Depends if house and other debts are paid off or not.

 

[Paris167]

I anticipate in retirement our net income will be on the higher side while truly the passive income needed should be low. By then all debt should be paid off so really the only reason to have higher passive income would be to have fun spending it on life experiences like travel.

 

[Goriot]

For traditional old fashion Asian family, the kids are the retirement plan.  Just hope they become doctors and lawyers.  We should have an option on top for this = $0 net worth + $100k passive income.

 

[AW]

I'm gonna include social security as my passive income that will still be available when I retire, otherwise I'll be forced to rent out my rooms and have roommates

 

[Paris167]

For traditional old fashion Asian family, the kids are the retirement plan.  Just hope they become doctors and lawyers.  We should have an option on top for this = $0 net worth + $100k passive income.

FYI doctors and lawyers are no longer the wealthy subset of our population. I know many of them drowning in debt and barely "making it" because of high taxes and student loan debt. It's sad but true. Hope your kids go into corporate America or entrepreneurship to be your retirement plan.

 

[capboba]

I thought law school has been a bad choice (unless top tier institution) in the past decade due to job demand (lack thereof)

but yeah this really depends on if your major expense (mortgage) is paid off or not by the time you retire. and there's "dirt cheap" OC vs. "stupid expensive" OC, to consider too.

gonna go with 2 mil networth (you can exclude/include primary residents if you want) and about 100k in passive income. that should do the trick for comfortable middle/semi-upper-middle class living.

 

[AW]

Nonsense, with a low tier law school, you can still pass the bar, and go into elder law, then get mixed up with some unscrupulous people and end up managing a Cinnabon!

 

[Irvinecommuter]

For traditional old fashion Asian family, the kids are the retirement plan.  Just hope they become doctors and lawyers.  We should have an option on top for this = $0 net worth + $100k passive income.

FYI doctors and lawyers are no longer the wealthy subset of our population. I know many of them drowning in debt and barely "making it" because of high taxes and student loan debt. It's sad but true. Hope your kids go into corporate America or entrepreneurship to be your retirement plan.

Lawyers are getting squeezed with too many law school grads and increasingly demanding clients.  Just like most other industries, specialization have resulted in a big gap between attorneys with specialized fields and general attorneys. 

Job security is no longer real for most attorneys as firms make partnership almost impossible to obtain and try to get 3-5 year attorneys to do the work.

 

[irvinehomeowner]

Nonsense, with a low tier law school, you can still pass the bar, and go into elder law, then get mixed up with some unscrupulous people and end up managing a Cinnabon!

Nice.

I think I like it better than the adventures of Heisenberg.

 

[panda]

The poll data seems to be very authentic as those are the ranges I was also thinking. It seems that majority of you (85%) believe a networth between $2M to $4M with a passive income between $100,000 - $200,000 is needed to have a comfortable retirement in Orange County. 5% passive income return is a reasonable and safe return in my opinion. Below are my top passive income systems where I have also included a Passivity Grade.

List of Panda's five passive income systems

1) Rental Systems (Passivity Grade A)
2) Computer / Software Systems (Passivity Grade A-)
3) Content Systems (Passivity Grade: B+)
4) Distribution Systems (Passivity Grade : B)
5) Human Resource Systems(Passivity Grade : C)

Annual Passive Income : $100,000    Monthly Passive Income : $8333.33/month
Annual Passive Income : $125,000    Monthly Passive Income : $10,416.67/month
Annual Passive Income : $150,000    Monthly Passive Income : $12,500/month
Annual Passive Income : $175,000    Monthly Passive Income : $14,583.33/month
Annual Passive Income : $200,000    Monthly Passive Income : $16,666.67/month

I want to ask the audience the following question. How many of you own a home in Irvine purchased at or above $1,000,000 and would call yourself a millionaire today? (millionaire = investable assets of $1,000,000 in CD, Real Estate Investments, S-Corps, Cash, Stocks, etc. outside of equity in primary residence)

If you are a millionaire who owns a millionaire dollar + home in Irvine, what is your primary residence equity vs the your networth? For example if your primary residence equity is $400,000 and your networth is $1,000,000 your primary residence equity would be 40%. How much is your monthly passive income today?

 

[nosuchreality]

I think middle high income working people grossly over estimate their actual spend come retirement.  There are some big factors: medical coverage, housing, and children status.  If you've got medical through a retirement plan, that's a huge cost savings, likewise, paid off housing (unless you massively downsize).  Finally the status of your children, finished with college or not.

The final factor is your age.  If you're young, you have a more likely chance to be relatively pinned down with children schedules, if you're older, your consumption pattern changes.

Overall, working people compensate with spending due to time constraints.  Dinners out, take out, maids, nannies, day care, commuting, babysitters, etc.  Not to mention tax impacts of W-2 earnings and tax rates. 

Sure, a dual income couple/family making $200K-$300K can spend a lot, but by the time you back out taxes, saving for retirement, and the mortgage and strip it back, they aren't really spending that much.  The amount you don't spend on taxes alone is stunning when you crank your realized income below a $100K

 

[panda]

Below you can see the capital needed to generate $30,000 of passive income. The safest passive income as we all know are CDs and money market accounts. Barclay's Online and GE Capital currently yield 1% APY. To generate $30,000 in a money market account in GE Capital (least risk), one would need $3,000,000 in capital. If we are looking to create $30,000 passive income through stock dividends that pay 3%, one would $1,000,000 in the stock market that generates an average dividend yield of 3%.

Careful selection of real estate investments (my favorite and preferred passive income system) is one asset class I know where I can generate 15% annual cash on cash return of $30,000 passive income with $200,000 capital investment. This chart is here to guide you on the capital needed to generate the desired passive income amount. 

Below is a Real Wealth Management Process Plan for building a passive income portfolio with SFRs in Johns Creek. The chart below only shows real estate wealth built on capital appreciation, not accounting for cash flow, depreciation tax benefits, and amortization.

Taking this one step further: Suppose you have acquired $1,987,998 in real estate assets which makes up 40% of your networth (Total networth of $4,969,995). Given an annualized average return of 10.06%, your real estate assets are now generating an annual passive income of $200,000, $16,666.67/month.

 

[lnc]

For example if your primary residence equity is $400,000 and your networth is $1,000,000 your primary residence equity would be 40%. How much is your monthly passive income today?

This common core math question is hard!

Ok, I give up.  What's the answer.

 

[Rizdak]

If I made $100k/year then I'd want half that income - ie $50k/year - in retirement. "Comfortable" is all relative to income and lifestyle.

To self-sustain $50k/year, I would want $1.25MM in investments assuming a 4% yield. I don't care about net worth which is a waste of time counting a non-income generating primary residence, depreciating cars, etc.

Of course, if I fall short then the safety net of MediCare and MediCal will let the gracious taxpayers of CA cover all my healthcare and long term care expenses.

 

[hello]

If I made $100k/year then I'd want half that income - ie $50k/year - in retirement. "Comfortable" is all relative to income and lifestyle.

To self-sustain $50k/year, I would want $1.25MM in investments assuming a 4% yield. I don't care about net worth which is a waste of time counting a non-income generating primary residence, depreciating cars, etc.

Of course, if I fall short then the safety net of MediCare and MediCal will let the gracious taxpayers of CA cover all my healthcare and long term care expenses.

I dont know how accurate it is but I recall reading that most people require something like 70-80% of income in retirement.  My goal is 100% of my income in retirement. 

 

[Rizdak]

Yes, you have a good point. I have read 70% as well. I am just frugal/cheap, probably more than average. For me 50% would also assume the mortgage is paid off, and kids finished with college and out of the house.

 

[AW]

Yeah, when I retire, goal is to not have any mortgage debt left on primary residence, should be less than 100% for sure.

For some high earners, maybe very difficult?
Need to own apt complexes and/or 50 other properties?

 

[eyephone]

Yes, you have a good point. I have read 70% as well. I am just frugal/cheap, probably more than average. For me 50% would also assume the mortgage is paid off, and kids finished with college and out of the house.

That's what they say. Currently we are in the boomerang phase. They go to college or get a job and come back to the nest aka home.

 

[lnc]

Can we count reverse mortgage and HELOC as passive income when we retire?