I stumbled on this advice on a blog from a couple who retired at age 38, live around the world and now sell advice to others on retirement planning and living.
Have you ever heard that your income in retirement can be drawn from your net worth? I haven’t and when you think about it, it makes no sense. Your net worth includes the value of your house, your car and your wife’s jewelry . . . your collection of Beanie Babies too.
Assets minus Liabilities equals Net Worth. Place a value on everything you own and subtract what you owe. This figure is your net worth. Now divide how much you spent last year by your net worth number and you will have your percentage of spending to net worth. If you are spending 4% or lower, congratulations, you are in great shape financially. If your percentage is higher, then adjustments need to be made to your balance sheet. Increase your net worth, lower spending or employ some combination of the two.
Retire Early Lifestyle Newsletter Source: 5 Things
If you plan on following the 4% “rule” for retirement income, what you can take for your income each year is not based on your net worth, but on your investment assets – either your dedicated retirement funds or your total investments including those not part of a retirement plan such as a 401(k) or IRA.
That is unless you are planning on selling your wife’s jewelry.