$1 million seems to be the magical number where people assume they can retire and live off their investments.

But is $1,000,000 really the magic number? While most people will suggest you need more than a million-dollar portfolio to successfully retire, I’ll suggest that you can retire on less than $1 million.

The key is to understand your numbers. Your income, expenses, and cashflow are the three numbers that will set you free and determine how much money you’ll need in your portfolio to retire.

What’s Your Ideal Lifestyle

You can retire very quickly if you live in a tiny apartment building in a secluded area, split the rent with two roommates, and only spend your money on water and cheap food.

But is that how you want to live? For some people, the answer is yes, but each person is different. When deciding on what your ideal lifestyle would look like, consider your life goals. Playing a round of golf each week is considerably more expensive than just kicking a soccer ball around at the nearby park.

That’s no diss on golf, but if part of your ideal lifestyle is getting in that weekly round of golf, you need to factor in that weekly expense when planning your retirement.

You can look for affordable ways to maintain that ideal lifestyle. Buying used clubs rather than new clubs can help, and playing 9 holes instead of 18 holes will also save you money.

Be completely honest with what your ideal lifestyle looks like so you don’t bump into unexpected situations during your retirement. You also have the cost of living expenses such as groceries, property, and more. Factor those into your planning as well, so you get a clear understanding of all of your expenses.

For the sake of this article, we’ll assume that you spend $5,000 each month.

Calculating The Necessary Portfolio Size

Once you determine your monthly expenses, the next step is to calculate the necessary portfolio size to retire on the cashflow alone. This calculation will reveal how much money you’d need in your portfolio to retire if you didn’t want to work another day in your life.

$5,000 per month equates to $60,000 per year in total expenses. The annual number is easier to use for calculations.

Now let’s assume a 4% dividend yield, which will likely result in you buying relatively safe stocks that aren’t likely to appreciate much in the future. The stronger emphasis in retirement is on reliable cashflow rather than if the stock price can double or not.

Now we perform the calculation…

$60K / 4% = $1,500,000

If you want to make $60,000 per year in cashflow from a portfolio yielding 4%, you’d need $1.5 million. This is where we get the traditional idea that you need a $1+ million portfolio to achieve financial freedom.

But what if you didn’t need a $1 million portfolio and could retire sooner? Most people have the wrong view on retirement.

We shouldn’t just stop working because we’d lose our sense of purpose. If you decide to stop working, life may feel more exciting at first, but then you’ll quickly get bored.

Rather than fully cut off work, I believe in a semi-retirement approach where you work from home and leverage multiple income streams. You can be a transcriptionist, write articles, create courses, and tap into a variety of additional income streams.

You can embrace the gig economy which ranges from DoorDash and Airbnb to Uber and Lyft. Some income streams are more lucrative than others, and some require more time than others.

However, you should never stop working. And even $2,000 per month will go a long way for your retirement.

If you can earn a consistent $2,000 per month while semi-retired, you only need $3,000 in monthly cashflow to achieve your ideal lifestyle ($36K per year).

To make $36,000 each year with the portfolio from the previous example, you don’t need $1 million. Here’s the calculation $36K / 4% = $900,000.

Making an extra $2,000 per month from part-time side hustles allows you to to “retire” much sooner. Instead of $1.5M to retire in the traditional sense, you only need $900K to semi-retire.

And the great thing about cashflow is that it will continue growing over time. If you primarily invest in dividend stocks that raise their dividend payments by 5% each year, you’ll go from $36,000 in cashflow each year to $37,800 per year the following year.

That extra $1,800 per year covers you for almost an entire month, and those numbers will continue compounding over time. You can semi-retire early and let the compounding alone result in a traditional retirement in a few years (I’d never recommend a traditional retirement but understand some people want that lifestyle).

Making the extra income also allows you to continue investing into your portfolio rather than living off the dividends and hoping nothing crazy happens to the stock market.

The Meaning Of Financial Freedom

Financial freedom is the ability to choose the work you do rather than being forced to stay at a job for the money. It’s about having the flexibility to work your own hours rather than the hours you are assigned.

Financial freedom doesn’t mean never working another day in your life. We should continue working and earning income, but we can use cashflow to prop up our income as we look for income streams that provide financial freedom AND additional income.

Viewing your retirement path from this lens makes the numbers easier to attain and will still provide income and a sense of purpose on the other side.

This article was originally published By Marc Guberti, medium.com.