How to Grow Money?

Am I referring to alchemy? 

No, I am not.

A simple way to become richer and richer is not to spend all your passive income and your net worth will actually grow.

Concrete Steps to grow money even when retired

1. Calculate maximum daily expense for a year and divided this number by 4%.
2. Add some additional money to the amount obtain at step 1.
3. Work hard, save hard until you accumulate enough index funds such as VTI or VOO.
4. Live happily and watch your wealth grow.

Calculate maximum daily expense for a year and divided this number by 4%

4% is pretty safe withdrawal rate for SPY. If you had retired at the worst times possible in the past 20 years, your asset values would actually grow sell 4% of your all-SPY portfoilio living.

If your annual living cost is $50,000, you need $50,000/0.04 = $1,250,000 to retire. 

Calculator

Annual Expense: $
Withdrawal Rate: %

You need $1250000 to retire.

Add some additional money to the amount obtain at step 1

The reason I want to save a little more than what I need is that I can grow my asset even when I am retired. The amount of money I can spend actually increases overtime.

Continued with the previous example. Now I save another $300,000, but keep spending the original planned $50,000 each year. I would retire with $1,250,000 + $300,000 = $1,555,000.

The first year, I spend $50,000 and the addition savings of $300,000 gives me $300,000*0.04 = $1,200.

This $1,200 will generate $1,200*0.04=$480 in the second year. This means I can spend $50,000 + $480 without touching the either the original retired fund of $1,555,000 nor the accumulated capital of  $1,200.

Divide $480 by $50,000, I have got 0.96%, which is the rate of increase in how much I can spend relative to the original planned annual spending.

The rate of increase in how much money I can spend annually has this formula:

Increasing Rate = withdrawal rate *  additional fund / original fund

or

Increasing Rate = withdrawal rate *  additional fund / (annual expenses  / withdrawal rate)

which is

Increasing Rate = withdrawal rate^2 *  additional fund / annual expenses

Calculator

Annual Expense: $
Withdrawal Rate: %
Increasing Rate: %

You need $1406250.00 to have a growing spending money set at the rate above.

Beating Inflation

Let's assume the inflation rate is 2% which is the current goal of the Fed. I need a increase rate of 2% to just cover the inflation. Using the example above, I will need $1875000 to retire.

Withdraw More

Setting 4% as the withdraw rate is quite safe. But it does make retirement goal harder to get to. What about a higher withdrawal rate?

Annual Expense: $
Increasing Rate: %

How much pressure does inflation put on retirees?

Here I use the same formula to calculate how much money we need to retire for speanding the same amount of money adjusted for inflation. I now refer the increasing rate as the inflaiton rate.

Annual Expense: $
Withdrawal Rate: %

Well, at least the pressure put on retirees by inflation is linear.