There is a formula which determines the number of years in which one can sustain with the investment portfolio without the active income. This is applicable for those with the generated dividends from the invested portfolio less than the annual expenses of one. The annual expense will be deducted from the invested portfolio. This means one will need to liquidate the invested portfolio equivalent of the annual expense at the beginning of the year. Hence, it will be advisable to cater for the allowance to the annual expenses. An example is that one’s annual expense is $26,549. It will be prudent to allocate $30,000 for such expenses.
The formula is as follows:
(Value of Invested Portfolio – Annual Expenses)*1.07 (Assuming the annual yield of the invested portfolio is 7%)
Based on the above formula, one will be able to estimate the number of years one can sustain based on his/her investment portfolio. One will need to re-evaluate the feasibility of such plan on yearly basis. The above is based on one with no emergency fund as a back-up.
Take it with a pinch of salt on the strategy
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