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How Much Is Enough?

A regular feature ofThe Motley Fool'sRule Your Retirementservice is our success stories -- profiles of people who have become financially independent. One of the most remarkable stories is about Billy and Akaisha Kaderli, who, at age 38, left their fast-track lives, moved to Nevis, West Indies, in the Caribbean, and started traveling the world. Their story follows.

The challenge was not realistic. No matter how hard or long we worked, we couldn't compete with Bill Gates' net worth. It just wasn't going to happen.

Once we got that fantasy out of the way, we asked ourselves: How much money is enough to retire? What size of nest egg do we need?

Obviously, this is a personal decision, and it's one that should be taken seriously.

For us, the amount we required to live per year was determined to be $20,000 (in 1990 dollars), and it needed to be generated from our financial holdings. But what amount of capital would do that for us? And how would we allocate that sum of money? Stocks? Bonds? CDs? Annuities?

How one invests his or her money is a question of risk management. Many years ago, we learned that we could be owners (equities) or lenders (bonds). Through business experience, we realized that we could make more money owning a business than lending money to one, though the risks are greater.

Working in the brokerage business demystified the stock market for us. We had owned stocks for years, so we decided to use equities for our portfolio. The fact that stocks have produced a compound annual average return of 10% for the past 70 years made investing in equities a common-sense approach for us, as well as a risk we were willing to take.

Once we made this decision, the math was easy. For every $100,000 invested, approximately $10,000 in annual income could be produced. So, bare-bones, we could meet our goal on just $200,000 invested. But that's cutting things too closely, and it did not allow for inflation, emergencies, unexpected expenses, or market downturns. In fact, as often discussed in The Motley Fool's Rule Your Retirement service, a much safer withdrawal rate is in the neighborhood of 4% a year. But we did discover that we were on the right track to achieve our financial freedom.

If stocks are too risky for you, and if you prefer CDs or bonds, the size of your nest egg will need to reflect your preference and the lower returns that it will generate. There is no "one size fits all." When it comes to your portfolio, you must be comfortable and confident with your personal risk tolerance.

Do you ever have enough money?
When you reach the amount that allows you not to hold a job any longer, your life opens up. You might choose to work, but you no longer have to do so. When you reach this stage, the income generated from your financial holdings supports your base lifestyle expenditures.

Once the funds for comfortable living, gift-giving, and emergencies are covered, how much more do you need? "You can't take it with you" is a common phrase, and it's true. In the game of life, the one with the most money doesn't win anything different from the one that came in last. We ultimately all get the same prize. So what we choose to do with our time and money here is up to each one of us. How do you want to spend your money and time?

You must realistically decide what lifestyle you want to live and what your desires are for your future. If you want to buy yachts and fabulous cars, or utilize high-end travel and dining options, then perhaps you need to keep working. If a simpler lifestyle appeals to you, then you could need less than you think. Some experts say that 25 times your current expenses is an excellent starting point. If you're confident that your portfolio can produce enough income to cover your expenses, plus inflation, we believe you're already there. It's really that simple.

In 1991,Billy and Akaisha Kaderliretired from the brokerage and restaurant businesses to a life of international travel. Visit their website atRetireEarlyLifestyle.com, and check out their new CD book, The Adventurer's Guide to Early Retirement.


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