Posted to Resource Articles
by Maryann Kelly on Thu, 08/19/2010 - 8:36am
People often ask me how I define a wealthy divorcee. Simply put, I consider someone wealthy if she could live off the interest of her investments without touching principal or selling any assets.
In practical terms, living off of interest alone requires a nest egg that's at least 400 times your monthly expenses. For instance, if you need $20,000 a month after taxes to pay your bills you would require at least $8 million a year in principal, assuming your investment yielded around 5 percent a year, or $400,000. (After taxes, you'd be left with around $240,000 of that amount — assuming you paid around 40 percent in taxes — which would come to $20,000 a month).
But here's one thing I can assure you of: Not many people with $8 million on hand have the discipline to live on $20,000 per month.
What's more, even if you decided to live on $20,000 a month in the short term, over time special expenses and cost of living adjustments would push that figure higher. Further, as you got older and your life span shortened you might begin to spend some principal.
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