Here's How Much Money You Actually Need to Retire at 55 (2024)
Most people work 90,000 hours in their lifetime, which is one-third of the average life span, according to a study from Gettysburg College. Want to shave off a few hours from that number, cut your time on the 9-to-5 grind short, and get to retirement early so you can spend more time traveling? We talked to a financial educator about early retirement — specifically, how to retire at age 55 — to shed light on the subject.
"As the proverb goes, the 'best time to plant a tree was 20 years ago,'" Danetha Doe, a financial wellness educator, tells Travel + Leisure on the topic of when to start planning for retirement. "The second best time is today."
In other words, it's never too soon to start saving for retirement, especially if you want to retire early.
According to Doe, those looking to retire early should start saving as early as their 20s or 30s. However, she adds, "Don't despair if you didn't start saving in your younger years. It's also never too late to start saving for retirement. However, the longer you wait to start, the more strategic you will need to be to ensure you save enough for your retirement years."
To figure out just how much money you need to save to retire by 55, Doe suggests using a common rule of thumb: Take your current salary and multiply it by 10. Keep in mind that this is just a jumping-off point — there are many other factors you'll need to consider. To that end, Doe takes this formula and builds off of it.
She offers the following example: "If you earn $80,000 per year, the formula states you will need to have access to $800,000 to retire. Now, keep in mind, if you are planning to retire at 55, you will need to have enough saved for 20 years or more. Using the formula I just shared, that means you will be living on $40,000 per year or half of the salary you were accustomed to ($800,000 over 20 years). For some people, this would not be enough. Or, $40,000 per year may be enough if you choose to retire in a part of the world where the cost of living is [lower than you're used to]. My suggestion is to use the formula to set a baseline. Then, do research on what it would cost to live the lifestyle you wish to experience in retirement."
Want to make it to retirement even sooner? There are ways to do it, but it means putting in a lot of effort. Doe suggests looking into the F.I.R.E. approach. F.I.R.E. stands for Financial Independence Retire Early.
"The basic premise of F.I.R.E. is to cut expenses drastically and live off of 25 to 50 percent of your income," Doe explains. "With the extra money you have, you invest it into low-fee funds such as index funds."
Others can try to accomplish early retirement by creating a successful side business, which could help provide some additional income. Some even approach side hustling with the goal of generating passive income, which effectively creates an additional income stream without too much exra work (think: owning a rental property). However, even if you don't hit a magic number, Doe says there are still ways you can achieve that retirement feeling without giving up work altogether. Her methods may be particularly helpful for those wanting to travel more now, rather than waiting for their golden years.
Of course, Doe is also aware of the inflation woes of 2023. But she has a tactic for that, too."If you live in the U.S., consider transferring some of your funds into a Treasury I bond. For most of 2022, the interest rate was 9.62 percent, and it's now set at 6.89 percent through the first quarter of 2023," Doe explains.She adds, depending on your risk tolerance, you may be interested in alternative investments, including wine or equity crowdfunding. "Equity crowdfunding is a way to invest in innovative startups.Prior to 2012, investing in these startups was only available to folks with a net worth of over $1 million," Doe says. "Now, the everyday investor has an opportunity to be a part of this incredible wealth-building opportunity." (And just in case you need a little help, Doe says that her company will analyze different equity crowdfunding deals to help you decide if it's a good fit for you.)
"At the core of it all, most folks wish to retire early because they want financial freedom. They want to take a year to travel, explore an artistic outlet, or devote their time to philanthropy. All of these experiences can be achieved without retiring in the traditional sense," Doe says.
She adds, "My advice has remained the same over the last decade, but is especially relevant now. My overall financial advice for 2023 is to practice an abundance mindset. It will be tempting to pinch pennies or make financial decisions from a place of fear or scarcity, but that approach won't afford you a life of travel and leisure. Instead of focusing on how to save a dollar here or there, think about how you can create ten dollars here or there. Folks who practice an abundant mindset will thrive in 2023."
How Much Money Do I Need to Retire at 55? On average, you'll need to have saved $1,051,814 to retire at 55 years old. This is based on the median earnings of Americans according to the Bureau of Labor Statistics' October 2023 Current Population Survey in weekly earnings.
If you have multiple income streams, a detailed spending plan and keep extra expenses to a minimum, you can retire at 55 on $2 million. However, because each retiree's circ*mstances are unique, it's essential to define your income and expenses, then run the numbers to ensure retiring at 55 is realistic.
Retiring at an age as young as 55 is a dream of many Americans. However, turning this vision into reality involves some significant financial planning and maneuvering. For example, you'll need to build significant savings, invest your money, account for early withdrawal taxes and take a lot more into consideration.
It's definitely possible, but there are several factors to consider—including cost of living, the taxes you'll owe on your withdrawals, and how you want to live in retirement—when thinking about how much money you'll need to retire in the future.
$700k can last you for at least 25 years in retirement if your annual spending remains around $40,000, following the 4% rule. However, it will depend on how old you are when you retire and how much you plan to spend each month as a retiree.
On average for a comfortable retirement, an individual will spend £43,100 a year, whilst the average couple in retirement spends £59,000 a year. This means if you retire at 55 with £300k, an individual will run out of funds in approximately 7 years, and a couple in 5 years. So, on paper, it doesn't look like enough.
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
Putting that much aside could make it easier to live your preferred lifestyle when you retire, without having to worry about running short of money. However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.
According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
If you retire at age 55, you probably won't be eligible to receive Social Security retirement benefits for several years or be able to withdraw money from your retirement accounts without paying a 10% early withdrawal penalty. Additionally, for most people, Medicare won't kick in for another 10 years.
The normal retirement age is typically 65 or 66 for most people; this is when you can begin drawing your full Social Security retirement benefit. It could make sense to retire earlier or later, however, depending on your financial situation, needs and goals.
What is the rule of 55? The IRS rule of 55 recognizes you might leave or lose your job before you reach age 59½. If that happens, you might need to begin taking distributions from your 401(k). Unfortunately, there's usually a 10% penalty—on top of the taxes you owe—when you withdraw money early.
When it comes to saving for retirement, the common advice is to aim for $1 million. This number has been cited so often that investors may feel as if they're failing if they don't reach it. But that shouldn't be the case. In fact, statistically, just 10% of Americans have saved $1 million or more for retirement.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
If you're retiring at 55 instead of 66, you have 11 extra years of expenses and 11 fewer years of income that your savings will need to cover. The good news: As long as you plan carefully, $3 million should be a comfortable amount to retire on at 55.
$100,000 is not the ideal figure to aim for as a retirement savings amount, especially if you have the time and ability to save more. But it's also not impossible to make that much money work, provided you're willing to be flexible.
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
Introduction: My name is Dan Stracke, I am a homely, gleaming, glamorous, inquisitive, homely, gorgeous, light person who loves writing and wants to share my knowledge and understanding with you.
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