How Long Will Your Money Last in Early Retirement?

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Although early retirement is a dream for many, there are two main obstacles that can get in the way. First, the earlier you retire, the less time you have to build up your savings. Second, and perhaps more importantly, the longer your retirement lasts, the more you’re going to have to stretch out your savings.

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Whereas someone retiring at 70 may only need 15-20 years of savings, an early retiree who stops working at 40 might need their nest egg to last a whopping 40-50 years, or perhaps even longer.

To paint these numbers in black and white, here’s a look at how long varying amounts of savings will last if you retire at age 62, age 55 or age 40. This analysis assumes an annual investment return of 5% and yearly withdrawals starting at $54,132 — the average annual income of a full-time earner as of Q2 2022 — increasing by 3% per year to keep up with inflation. Let’s examine the scenarios.

$1 Million Saved

Although many workers never reach it, the lofty sum of $1 million has long been touted as the size of the dream retirement nest egg. If you’ve reached this goal, congratulations! Your money will typically last a long time in retirement. But remember, the earlier you retire, the longer that money has to last. Here’s a look at just what this means.

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Age 62

Given the parameters above, a $1 million nest egg will last 23 years in retirement. If you retire at age 62, you’ll make it to 85, which is just a hair above the life expectancy of a woman but about three years longer than a man’s, on average. With a few adjustments, this means you can likely retire at age 62 if you’ve saved up $1 million. Over that time, your total withdrawals will equal $1,804,685.

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Age 55

At age 55, you’ll need to stretch your savings an additional seven years. Given the scenario above, your $1 million will only last until age 78. While this might potentially cover your lifespan as a man — who would be expected to live until age 80.52 — it’s a much bigger stretch for a woman. With a life expectancy of 83.85, you might run out of money 5 years or more too soon.

Age 40

Retiring at age 40 is young enough for you to live your dreams while you’re still fully capable physically of traveling the world or doing anything your heart desires. However, you’ll really have to find a way to make your money stretch.

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Your $1 million may only last until age 63, which is a time when most people start considering retiring. While you can start drawing Social Security at age 62, it’s not going to replace the tens of thousands you’ll need to live on by that age.

$500,000 Saved

While $1 million in retirement savings is out of reach for many, $500,000 is a much more achievable goal. Unfortunately, this means your savings will last an even shorter time, particularly if you take an early retirement. Here’s a look at the numbers. 

Age 62

Unfortunately, given the parameters above, $500,000 will only last about 10 years in retirement. Although your total withdrawals will total $648,391, your money can be expected to run out at about age 72.

Social Security and any pensions you have may go a long way to supplementing this income, but if you’re just planning to live off your $500,000, you might run into trouble if you live a long life — or even meet your life expectancy.

Age 55

With a 10-year lifespan of $500,000, your money will run out at age 65 if you retire at 55. While you can transition to living off your Social Security at that point, it’s not likely to fund the “early retirement lifestyle” you may be imagining.

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Age 40

There’s little chance that a $500,000 nest egg will fund your retirement at age 40. Your funds will run out at about age 50, which is the same age that most workers are reaching their peak earnings years. Without a side gig or even a return to the workforce, you’ll need multiples of $500,000 in your bank account if you want to retire at age 40.

So, How Much Do You Need To Retire Early?

If you want to retire early, you’ll have to dedicate yourself to saving aggressively beginning at an early age. Although $1 million could potentially fund an “early” retirement at age 62, retiring with less money — or at an even earlier age — will be a stretch.

The amount you will need is heavily predicated on the type of lifestyle you want to lead, but you can use these numbers as a rough guidepost as to what you should be targeting. In a nutshell, you’ll likely need at least $1 million to retire early, and the earlier you want to stop working — or the grander the lifestyle you want to lead — the more you will have to bump that number higher.

Talk with your financial advisor as early in life as you can if you want to pursue a life of early retirement so you can develop a plan to reach your goals.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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