Ready to retire? Or trying to figure out when you can?

The pager's been beeping like crazy all night and despite all your hard work you're behind on your projects and your bosses have been giving you a hard time of late - you get up one morning and think to yourself - wouldn't it be nice if I could call it quits today - well can you? How do you decide if or when you can hang it up comfortably?

There are a few ways to do this (some involve running spreadsheets and number crunching)

A relatively simple "back of the envelope" calculation involves the SWR - safe withdrawal rate. It is the rate at which you can "safely" withdraw funds from your existing asset base and meet your inflation adjusted living expenses (without the risk of your assets running out).

A commonly accepted SWR is 4%. A more conservative SWR is 3%.

So lets calculate how much one needs to retire using the following assumptions:

Yearly expenses = E
SWR = 4
Asset base required today = E * (100/SWR) = E*25

So, if you stop earning today and want to live off your investments (assumed to be a broadly diversified portfolio that contains 70:30 stock bond allocation) to support a lifestyle with yearly expenses of $12,000, you would need an asset base (invested assets in today's money) of $12000*(100/4) = $300,000

If you take a more conservative SWR of 3%, your asset base required would be $12000*(100/3) = $400,000

Ouch! Considering my yearly expenses, I think I'd better get back to work......