Here’s How Much Passive Income You Would Need To Quit a $75K Job
On a strictly mathematical basis, you would need to earn $6,250 in passive income per month to replace a $75,000 salary.
But if you quit your job, you’d likely be giving up additional benefits, such as healthcare insurance and employer retirement contributions, that would cost extra to replace.
For this reason, you might want to target $8,000 or more in monthly passive income to make up the shortfall. Here are some ways to do it.
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Add In Benefits To See What You Really Need
According to Selerix, benefits cost the average employer 30% to 40% of an employee’s salary every year. So, if you’re earning $75,000 per year, your benefits are worth an additional $26,000 or so.
To provide you with a comparable standard of living that includes all of these benefits, you’d have to earn closer to $101,000 -- or $8,417 per month.
If you have to pay for health insurance on your own, for example, you might have to fork over $1,000 per month or more just for basic coverage. That alone puts you above the $7,000 monthly threshold. Add in retirement contributions, life insurance, long-term care, vision and dental insurance or other employer perks and you’re likely looking at closer to $8,500 per month.
How Much Money Would You Need To Invest?
The amount of money you’d need to passively earn $8,500 per month depends on a number of factors. Your investment return is a big one, but so is your projected lifespan and whether you prefer to “die with zero” or if you prefer to leave an estate to your heirs.
Below is the basic math.
Annual Return | Live Off Income Only, Maintain Principal | Die With Zero After 40 Years |
4% | $2.55 million | $2.02 million |
5% | $2.04 million | $1.75 million |
6% | $1.7 million | $1.53 million |
7% | $1.457 million | $1.36 million |
8% | $1.275 million | $1.22 million |
Of course, this example doesn’t take into account factors like inflation or the addition of future sources of income, such as Social Security. The other problem to factor in is that higher yield usually means higher risk.
The Most Realistic Passive Income Mix
Building a suitable passive income mix for your needs is a blend of risk and reward. The ratio depends on how much return you need to earn to replace that $75,000 job and how much risk you can tolerate.
Lower-risk income sources include Treasury securities, CDs, high-yield savings accounts and money market funds. In the current market environment, these types of investment can realistically generate about 4% to 5% returns, though rates can change.
Dividend funds and income-focused investments may offer slightly higher long-term potential, especially if they include stocks, REITs or preferred shares. A realistic yield might range from 3% to 6%, depending on the investment mix. These types of investments can be a bit more volatile but may also offer the chance for capital appreciation. .
Rental real estate is one of the most popular forms of passive income. After all of the costs involved, a single rental might realistically net a few hundred dollars per month to perhaps a few thousand or more in strong markets. To replace a $75,000 salary, most investors would likely need several profitable properties.
The Bottom Line
Replacing a $75,000 job with passive income is certainly possible, but the amount of income required is likely higher than most households anticipate. After factoring in lost benefits, the replacement value of that job might be closer to $100,000 annually.
For that reason, quitting a $75,000 job might be harder than you first imagine. If you’re contemplating the change, be sure you have enough money to cover not just your lost paycheck but also your benefits and taxes, with a large margin for error.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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