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My plan is to live off the dividends without touching the principle. One million dollars at an average 4% dividend throws off $40,000 a year. If the portfolio is comprised of dividend growth stocks, then that dividend increases each year at a rate greater than inflation. So, next year, you'd get a raise, and so on.

This begins my 13th year of income investing for retirement, and I'm still not old enough yet to start Social Security. This method works great if it is done correctly.

Rules of thumb can be close or they can be off by 100%. The total savings one needs at the first year of retirement will depend on the following major variables (there are likely many more minor variables):
- required annual household income
- Social Security benefit(s)
- Any legacy (money left at end of life) the retiree wishes to plan for
- Years in retirement (life expectancy)
- Expected average annual rate of return
- future lump sum needs (example: purchase a second home)
- existance of a pension

So a couple working for a state government and set to draw generous pensions (lets assume that for now) and will retire at SS FRA, with modest income requirement because their house is paid off and no debt, may only require 4X final year salary. Another couple with no pension, high annual income requirement and wishing to retire at 55 may require 15X final annual salary.

As relatively simple 'rules of thumb' go, the best approximation I've found is the 'adjusted annuity factor', which is calculated as follows:

1. Final year houehold gross income, subtract expenses houehold will no longer have (FICA tax, retirement plan contributions, professional costs)
2. Subtract Social Security and any pension benefits
3. Add any new costs, such as health insurance premiums
4. Multiply this by the adjusted annuity factor below correstponding to the number of years one expects to be in retirement (this factor assumes an average annual inflation adjusted rate of return of 3%)


So if final household adjusted income need is $30,000/yr and the retiree is 64 and plans to live to 94, the savings need would be 30,000 X 19.6 = $588,000.

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