Updated on 09.19.14

How Much Money Is “Walk Away From It All” Money?

Trent Hamm

Roger writes in with an interesting question:

When you talk about “walk away from it all” money, how would you estimate that? I know it would be different for each person, but what elements do you take in mind, and what percentage of savings or what size emergency fund (24 months of living expenses, for example?) would you constitute reaching that point?

Before you even start looking at this, you need to have a very strong bead on your realistic spending over the course of a year. What do you really spend over the course of a year? Do you anticipate something significant changing that in the future? Figure out your real numbers, not the ones you think you spend in your head.

I think this largely depends on how you define “walk away from it all” money. I see three common definitions:

First, enough money so that you can survive a cold career change without skipping a beat. This is the easiest level to achieve. Basically, it means that you are financially secure enough that you could decide to just go back to college and start over with a new career and financially survive all of that.

Second, enough money so that you survive an extended job loss, but are intending to work in some capacity for the rest of your life. In other words, the level of money you need to simply walk away from your job if you’re burnt out and spend three years recharging, but not enough to truly never work again. This is what most people think of when they think of “walk away” money, I believe.

Third, enough money so that you never work again, period.

Let’s look at each case, because they’re vastly different from each other.

“Cold Career Change” Money

This type of situation implies that you’re not walking away from the work force at all, merely changing direction. It may require a period of time for re-education, but for the most part the biggest change will likely be a reduction in salary at first that will recover over time.

Thus, this kind of “walk away” money is best figured in terms of a cash emergency fund. That fund should be able to replace your living expenses (plus 20% or so, in case of significant life changes) over the period of time you need for re-education, plus a small supplement for the first few years of your new career – say, another year’s worth of living expenses.

So, if you’re going to return to school to get your MBA, for example, you should have the two years’ worth of living expenses you’ll need to get through your schooling years, plus another year’s worth to help you with the readjustment to the workplace – three years’ worth.

During such a transition, one is usually covered in terms of health care. Most universities offer some degree of health support and once your studies are complete, you’ll roll onto another job.

So, my thumbnail for this scenario is a year’s worth of living expenses to help with re-entry, plus enough living expenses to cover the time needed to re-educate. The best way to save up for this relatively low amount is probably in cash in a high-yield savings account or in a certificate of deposit.

“Extended Drop-Out” Money

Some people want to walk away from everything for a while – they’re completely burnt out and need some time to recharge or discover their true passions. Such “wilderness years” usually end with an epiphany of some sort and a new direction in life.

Thus, this scenario basically consists of the “cold career change” scenario with an unspecified amount of time tied onto the front end.

This amount will need to be higher if you need to cover your health care costs during the recovery period. If you’ve got a supportive spouse with health care, this isn’t an issue, but if you’re going at this alone, you need to consider your health care situation during that period. Are you covered by COBRA? Do you have another plan available to you? Will you self-insure? Or will you just go off of health care entirely?

Aside from this aspect, though, a good thumbnail for this scenario is a year’s worth of living expenses to help with re-entry, plus enough living expenses to cover the time needed to re-educate and the time you expect to be in the “wilderness.” For many people, this would mean at least five years’ worth of living expenses.

In this scenario, it may be worthwhile, as you’re saving, to put some of it into the stock market in the form of index funds. Since your target is higher, you will likely be saving for a longer period of time, stretching it out into a period where the stock market might help you. Again, once you start to near the point of needing the money, take it out of stocks and put it someplace safer.

“Never Work Again” Money

When you start looking at walking away for good, the game changes yet again. You’ll need to have enough money saved up so that you’re protected from inflation over the long haul but also have enough to live on. The safest way to do this is to buy TIPS – treasury inflation protected securities. These are basically like any other treasury note you might buy – they’re backed by the federal government. The only difference is that they increase in value with the consumer price index – in other words, the value of the TIPS goes up with inflation.

To see how this works, imagine you buy a TIPS for $10,000 this year. It’s got a coupon rate of 4.25% – meaning that each year, it pays out 4.25% of its principal to you. Each year, though, the government adjusts the value of this investment upwards to match the increase in the consumer price index. So, if the consumer price index goes up 3%, the principal on your TIPS goes up to $10,300. Since you’re getting paid 4.25% of the face value of that note, your old payment before the upward adjustment would have been $425 a year. After the adjustment, it’s $437.75 – a little bit of a bump.

This is the safest place to put your money. If you’re willing to swallow more risk, you can balance these with stocks and such, but if you’re intending to never work again, you do want your income to be stable.

How much do I need?

Figure up how much you need for living expenses over a year (including paying for your own health insurance), add 25% to that (for an emergency buffer), and then figure up what your taxes would be. Add those three numbers together to see how much you’ll need those TIPS to produce each year. The advantage of being in TIPS is that you don’t have to worry about inflation – it’s covered.

So, let’s say your living expenses are $40,000 and you need another $10,000 for health care coverage for your family. Add another 25% on top of that for a buffer – you’ll need $62,500 a year. With taxes considered, that takes you up to almost exactly $70,000 a year. With the TIPS at 4.25%, you just divide that annual amount by the TIPS rate – giving you a target number of $1.65 million for a very secure long-term situation.

How do I get there?

The best way to achieve that number is probably in stocks in an index fund. If you put away $1,000 a month into an index fund returning 8% a year, you’d hit your target number in 33 years – that’s a long way off.

Obviously, you can survive with less if you’re willing to take on risk and also if you’re going to rely on Social Security and Medicare in your senior years, or if you’re going to assume you’re living until you’re 90 and want to have nothing left by then. Both of those allow you to reduce your target number.

But for long-term security, nothing beats TIPS that will work in perpetuity to provide you the inflation-protected living expenses you need forever, plus give you something solid to pass down to your kids.

The Big Lesson

No matter what, it is always beneficial to start socking away money now for any big changes that may come your way in the future. At a bare minimum, it can help you retire earlier – it may also provide you a chance to completely change your life and walk away from a career that isn’t a good fit for you any more.

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  1. Frugal Dad says:

    Walking away money – interesting concept. This sort of reminds me of the ideas in “The 4-hour Workweek,” which I am finally working through this week. Ferriss advocates these 1-year “drop-outs” or extended sabaticals as ways to recharge and make ourselves more productive doing the things we really love.

    I am in love with the idea, but I’m not sure it is practical for a single-income earning family with mouths to feed and bills to pay. However, you have provided some thought-provoking advice here that may just inspire us to cut expenses to the bone, pile up savings and step off the treadmill of corporate life for a while. My wife and I both share career goals different from what we are doing now, but do not currently have the means to walk away long enough to retool, re-train, etc.

  2. Rob (aka Roger) says:

    Thanks for addressing this. It makes me realize I have to shore up quite a bit of savings to have the breathing room to “walk away from it all”. While I don’t have any interest right now in retiring or not working at all, it would be nice to have the time and resources for the “Extended Drop Out” to take the time to follow your passion – whether that means pursuing writing, or coming up with interesting new projects (regardless of earning potential) or focusing on volunteer or not-for-profit work (with an assumption of no income).
    Also – totally didn’t know about the TIPS option – which will be valuable for the long term view. Hopefully this will allow me not to HAVE to work when I’m 90.

  3. Just so we’re clear, putting all of my money into the lottery each week is a bad retirement plan?

  4. squawkfox says:

    Frugal Dad: I really like the idea of taking sabbaticals. Vacation time usually fails to recharge me…I suppose the pressure to “do everything” during vacation zaps all energy. I think I’m in a place where I could take some time off. I’d love to be in a “walk away” situation though.

    John: Yeah, I don’t think the lottery qualifies as retirement planning. That’s just my opinion though. ;)

  5. KC says:

    I’ve always said “wealthy” people are folks who don’t have to work and can live off their savings, pension, social security check, dividends, and any other non-work realated payments. That is an age dependant term. My 90 year old grandmother is wealthy by those standards – but I’d hardly call her style of living wealthy – but she is able to live comfortably off her savings cause her budget is so small – no car, paid for house, minimal food & utility needs

    My in-laws are wealthy – they both have pensions and health benefits, but retired early (55ish) due to a sizeable inheritance and wisely saving money when they were younger despite knowing they’d come into an inheritance. I would describe their lifestyle as wealthy – Eurpoean travel, upscale cars, very nice paid-for home.

    But for me (a 35 yr old) to be wealthy by the no work standard would easily take 3 million. I arrived at that number by saying what amount times 8% would allow me to maintain my lifestyle on the principal generated? I chose $3 million cause in a few years I’d need that extra money due to inflation. At $3 million I could very easily pay off my home and live VERY comfotably off the 8% interest. That would make me and my husband independantly wealthy. Oh well, I’m only about 2.8 million away from my goal – sigh…

  6. almost there says:

    I plan on walking away for good after the frost is on the pumpkins this year. Can hardly wait. I figured that with “peak oil” looming and lots of commuting to/from work they would have to offer me quite a bit to stay on evan part time and I have the ability to be a person of leisure for the rest of my life. Of course, the spouse is still working but if that income went away we would survive nicely.

  7. Kiran says:

    Vacation is never enough. After going to school and getting weeks off in the winter, and a 3 months summer. This work everyday and only have enough vacation to take one week ‘off’ (you use days here and there for events and such) is rough.

    Personally I measure my money in ‘freedom’ units. How many months could I survive living in the Midwest with a roommate and living rather frugally. I figure between 1100 and 1600 a month depending on classes and part-time work. It was tough to put money in the Roth IRA, 4000 dollars is 3 months of freedom (admittedly it should give me months of freedom in my old age).

    I should look into TIPS.

  8. Will says:

    Calculations for walk away from it all money should include research for applicable unemployment benefits so they can be included in the projections.

    I wrote about assistance options in case of unemployment on my blog. It might be a very nice complement to this post. Link: http://yourfinishrichplan.com/blog/2008/04/08/6-assistance-options-if-youre-unemployed/

  9. Andy says:

    If I am reading the chart correctly, the last tips auction (9 year) had a yield of 1.25% – so right now its pretty low. And there is always some interest rate risk, so TIPS aren’t perfect (and you never said they were). Putting it all in TIPS just seems like something most financial advisers wouldn’t recommend unless the client was very risk averse (and I may be wrong here, if there are any financial advisers reading). Especially for people retiring early, they can probably be tolerate more risk with their retirement money, as they can always go back to work if the market takes a turn for the worse in the first few years. Just some thoughts, good post though, I like retirement planning.

  10. mjukr says:


    Mind the tabs at the top (kind of an awkward interface). This site will measure how well your portfolio would have fared over 97 different 40-year periods in the past. Pretty neat.

    @Andy: Yes, rates are low across the board. UST finally offers 30yr bonds again, but the rates are significantly lower than in the past (such as the 6-9% on which the “Your Money or Your Life” plan is based on…)

  11. Trent, I’d be interested to read your thoughts about the Consumer Price Index and how accurately it tracks “real” inflation. In my opinion, because the Core CPI excludes food and energy prices – the things we all need to survive – it’s not a very valid measure of inflation.

    This has real consequences for people looking at TIPS as an investment. If food and energy costs are rising rapidly (like they are now) then inflation is definitely NOT covered by TIPS. However, they may be the best of many not-so-great options.

  12. Kate says:

    I am actually living the “Cold Career Change” now, but it is only as the result of a long-term and extremely frugal savings strategy.
    In 1998, I began working to get out of credit card debt before the coming “Y2K crisis” could screw up credit card company records in its aftermath. I made my goal and fortunately Y2K didn’t turn out as badly as some feared.
    Although I didn’t earn a high salary, the company where I worked paid an annual bonus to all employees. While my co-workers talked about how they would spend theirs on cruises and flat-screen TVs, mine went in the bank. Or actually, a credit union with higher rates of savings returns.
    I was able to put away money for seven years before unexpectedly losing my job in 2006. Fortunately, I had already begun working on a second bachelor’s degree in business one class at a time (which the company was paying for) and was able to make (free) use of career counseling services at my school’s Career Center.
    This goal may be more of a plan for a mid=lifer like me than a twenty-something because I had to meet several other savings goals to do it. I don’t have kids, live in a small but paid-for house and drive a paid-for (used) small car. I work off and on as my class schedule permits but when I am studying all the time, my living costs are actually very low.
    The only downside to me is that I have had to put investing on hold for now. But since I plan to be working for many years in my new career, “retirement” is a different concept for me anyway.

  13. Have you read “the number”? My mom is of the boomer type and just couldn’t figure out what her walk away amount is.

    I had her read that and then we sat down together and worked out what her number is. Now she’s 6 weeks away from retirement!

    Like the intro says, its different for everyone and means something different for everyone. For mom, her number allows her to leave a stressful job (thanks ‘no child left behind’) and get back to actually TEACHING at a specialty school.

  14. Cheryl says:

    My husband walked away from corporate life and is working towards becoming a famous musician. Is my salary enough to cover everything? Everything we need, yes, everything we want, no. But we’re doing it anyway because happiness comes FIRST.
    Read my blog if you want to know more about our journey.

  15. Rick says:

    While TIPS are safe from market losses and are protected from inflation losses they are not tax efficient. The interest from TIPS is still taxed as income unless it is in a sheltered account such as an IRA.
    If you are wanted to walk away before retirement age, you will need to keep money in non sheltered accounts so you can draw from them. Tax efficiency is going to be really important; otherwise the tax man will drain your principle forcing you back to work!
    The Bogleheads’ Guide to Investing has a chapter that deals with tax efficient investments that would be good to look over before deciding on a portfolio.

  16. Beth says:

    This is, of course, where cheap living comes into play. In 2001 I was making ~60k when I got laid off; I started grad school and took a 60% pay cut that fall. And I didn’t feel a single pinch to my quality of life. Why? because I had roommates ($300 rent!), a paid-for car, and no debt. Obviously being single & having no kids was a huge factor in being able to change my life so dramatically!

  17. Miranda says:

    Great post! We are in the process of building up a fund so that we have “walk away” money for retirement in about 15 years. Although any retirement of ours will probably include doing work that we still enjoy…

  18. Nicole says:

    I’ve been debating about when to look into ESPlanner for this exact scenario – when can we scale-down while still maintaining our standard of living. It is a pretty cool method of planning for life’s changes. I hear they have a free 30 day trial if you ask for it. Maybe you could look into it and write a review.

  19. DB says:

    As a public school teacher, I don’t anticipate being able to “walk away” until I’m about 65 – which is a pretty damn old crotchety teacher (I didn’t have that “epiphany” until a little later in life, and only began my career at age 35)… On the other hand, we do have a decent defined pension plan with health care, and even though I am quite unlikely to ever take a true sabbatical, I think it’s awfully hard to put a price tag on June, July, and August!

    PS: Of course, the greatest thing about teaching is being able to touch the future by impacting the lives of my students.

  20. Bill says:

    Plans for walking away should include the scenario of a sick relative – think parent/child.

    During the 8 years of my mom’s terminal illness I also saw friends lose 2 of their 3 kids to illness, over the space of a couple of years.

    Plan on having to take time off sometime in your life to care for those loved ones who will have no one else to care for them.

    Though I hope you are older than I was when that time came – I wasn’t any older than Trent, and wish I had had more life experience.

  21. Toby says:

    I hit my walking away money 1.5 million at 32 years old. I did not work for 3 years. It was great for about 3 months and then got really boreing. I am now 38 years old now and wait tables. I love it , compared to building my own business it does not even seem like work its fun. I feel so sorry for all the kids I work with. They all complain constantly about working, I want to go home I want to go home I want to go home is all they say.

  22. Rob in Madrid says:

    Very interesting, it’s something that my wife and I have been thinking about for a while. The real secret is knowing your real (as verses your estimated) cost of living. Unfortunately for me I’m good at the concept but really struggle with details which is shy I find it so hard to track my spending.

    Our walk away from the corporate rat race to partime work is 10 years. So for us the real goal is having a paid for house. It also helps alot that the boom over here has gone bust big time and house prices are dropping like a rock.

  23. partgypsy says:

    It was not planned, but when I was young I got to walk away from it all for about a year. After college I worked at an office making around 22K a year. After a year and a half even though I valued my job, I ended up having to give my resignation out of principle (long story). However since I lived so frugally and from my job saved 7K, I lived the bohemian life for a year before going to graduate school, supplementing my income with a part time phone job for maybe 4 months out of that year. I went on a vacation with my mom, did art, and knocked around a big city doing fun cheap things with my friends. And I still had 3500 left when I went to grad school, which was a big help.

  24. partgypsy says:

    Oh, was going to say, my walking away money for my life right now would have be quite a bit bigger!

  25. Todd says:

    At 39 with a wife and 2 young children, for me to walk away (paying off any debt, securing my children’s college educations, living only on interest income) would take just over $2 million. Sometimes I think people underestimate their earning power over their lifetimes, and in doing so, squander a vast majority of it financing either lifestyle or cars.

  26. Unfortunately, the amount that you can invest in TIPS through a tax shelter (ROTH IRA, etc.) MAY be too limited to support a reasonable retirement (it is for me).

    If that’s you, too, then here are a couple of ‘tips’ in TIPS:

    1. Buy as many TIPS as you can inside a legal tax shelter, then

    2. Buy additional Inflation-Protected MUNI’s from your normal (tax-paid) accounts – these are state/federal (be sure to check!) tax free.

    3. Hold back, say, 5% of your portfolio to buy Call Options (this gives you exposure to the potential upside of the stock market and limits the downside to 5% of your total portfolio … sweet!).

    4. Read: “Worry Free Investing” by Zvi Bodie.

  27. Nick says:

    Quote from Will: “Calculations for walk away from it all money should include research for applicable unemployment benefits so they can be included in the projections.”

    I’m sorry, I’m aware this is almost a year old, but this post angered me enough that I feel I should reply.

    If you’re trying (or able) to save enough money that you can live comfortably while not working by *choice*, there’s no reason you should receive a cent of unemployment compensation.

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