How much does one need to retire from working-for-a-living job
I wrote this in Rahul’s blog earlier, but repeating.
All money, we need for your family’s and possibly future generations is 50 times our annual expenses.
If your annual expenses are 10 Lacs then you need 5 crore Rs only for your financial freedom and also for next many generations.
If you put 5 Crore Rs in 50 good stocks that are likely to exist far into future, then you will get 2% dividend yield, which is 1/50th of your original amount i.e. 5 Crores. This is in case of growth companies, if you buy Public Sector Bank that you can also get 5-7% dividend yield on your principal.
You can keep spending 2% return on your investment every year which is 10 lacs, and companies will keep growing to take care of inflation. Dividends will also rise. Infact money will grow so much that even if you have half a dozen children, they would not need to work. Hence we don’t need more than 50 times our annual expenses to be free from working-for-a-living jobs.
It involves investing in dividend paying companies, sacrificing growth a bit. We may consider 30% in FDs to protect ourselves from volatility of equities when they are historically high PE ratios on Nifty, we will also need to revise the list every year and keep tabs on companies. We may also want to invest 25% of our funds in another country (possible to invest in 24 exchanges across the world now through Kotak Securities) to protect from wars. With active investment, returns can even be improved.
Not to forget, to protect against eventualities – health, house, car insurance is required and expenses reined within those limits.