Would you like to become a Rentier? Are you already living on an income but have doubts about the sustainability of your life?
In this article, I want to explain to you if it is possible to live on an income?
The answer is not that shocking and it is positive.
Just look around to see that there are not a few who do it.
Some pretend to work keeping busy with various activities, which fail to guarantee the standard of living.
Others, on the other hand, have made a more informed choice and have decided to manage the heritage by preserving it and drawing a utility from it.
Others are in a phase of life, that of retirement, in which by definition work activities have been set aside to live off the fruits of what they did as young people.
In all the cases represented, what gives sustenance to people are not the fruits of labor, but precisely an income, which derives originally from the capital inherited or earned during one’s working activity.
In this article
- How can I live on an income?
- How Much Do I Need to Live on Annuity?
- How can I speed up the process?
- Conclusions
How can I live on an income?
First of all, you need to estimate how much your annual requirement is today and prospectively.
This means that it is not enough to have a heritage that allows us to live today thanks to the interests generated, put that in perspective we must look at the life cycle of the members of our family unit to understand if it is possible to support future commitments, such as growth. of our children, a possible increase in taxation et cetera.
We, therefore, assume that we have identified what the necessary annual income is, that is, what our annual expenditure is today and over the entire life that awaits us.
You will now need to consider another important factor in estimating the capital to be set aside, which is the estimated return on capital.
In this regard, we can take the 10-year BTP rate (rate of return on risk-free investments) as a reference, increasing it by at least 150 points as a risk premium for the investments made.
At present, a rate of around 4% would be obtained.
This way you can estimate at what rate you can invest your money.
I must say that it is not trivial to get this return from your money, but with a good consultant and good asset management, it is an achievable goal.
You will then have to estimate your useful life, wishing it as long as possible.
How Much Do I Need to Live on Annuity?
An easy mathematical model can be built, but let’s say that rules of thumb tell us that to live on an income you need a capital equal to 20/25 times your current needs plus about 20%.
Let’s imagine that we have a requirement of 80,000.00 Euros per year, which, increased by 20%, returns a sum of 96,000 Euros.
Starting from capital of 2,500,000.00 euros, invested at 4% net, the income would be precisely equal to about 100,000.00 that we could use for 80,000 to live, setting aside the remaining 20,000.00 to cover the devaluation of our capital from ‘inflation.
I am talking about a requirement increased by 20% because it is not right to start from the requirement alone if the years for which the annuity is necessary are still many.
We must not forget inflation and the loss of value of money over time.
This is why at least for the first few years it will be necessary, even if you no longer work, to increase your assets at a rate at least equal to inflation, and then possibly only in the last part of your life to use this capital.
The lower the requirement, the higher the rate we get from our investments, and the lower the inflation and the easier it is to live off an income.
How can I speed up the process?
Just act on the above factors, so the simplest aspect is certainly to reduce your needs and control your finances 100%.
It must be considered that there are a series of expenses that by leaving work can be reduced, having more time available and that there are a series of extreme choices that can be implemented.
In this regard, many think of moving abroad to countries with a lower cost of living precisely to minimize the assets necessary to live on an income.
On the other hand, it is not so easy to increase the return on one’s capital because the risk is to expose one’s assets to a risk of depreciation and curtailment of the same.
Conclusions
Ultimately it seems to me that it can be said that it is quite simple to calculate how much it takes to live on an income while maintaining your lifestyle.
What is not easy is having the courage to leave your job truly trusting your accounts on which an increase in the taxation of financial income or an ad hoc tax on assets could always weigh heavily.
In any case, it is perhaps possible to leave it at the beginning gradually and keep a small part-time job to continue to increase one’s assets at least at the beginning.
There are intermediate situations in which it is possible to guarantee a lower income from work, combined with an income you can count on that can derive from investments.
The latter is the situation in which all those who, for merit or inheritance, find themselves managing important assets.