Want To Retire Early? These Are the 3 Magic Numbers — None of Them Are $1 Million

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Early retirement is a dream of many Americans, but many are inhibited by the concept of costs associated with such a bold move. So how much do you need to retire early?

Let’s explore, while also noting that there is a lot of backlash around this topic, with some experts arguing that there is no such thing as a magic number. We’ll explore that line of thinking, too.

See more on how to retire at any age. 

Magic #1: 70% of Your Income Annually

All of the magic numbers require doing some math. Use this method if you want to live a life in retirement that is close to how you are living now. 

“This option is essential for your day-to-day living if you plan on living a similar lifestyle,” said Michele Paiva of The Finance Therapist. “A good rule of thumb is to replace at least 70% of your income annually. If you can’t do that, you’ll have to budget whatever that difference is.”

So let’s use some of this math. Let’s say you make the national median salary, which is around $56,000 a year. To live on 70% of that, you would need $39,000 every year until Social Security kicks in and supplements some of that.

Magic #2: 3-6-8

Now for some more math, with the help of Paiva. 

Are You Retirement Ready?

“At age 40, try to have three times your annual salary saved,” Paiva said. “By age 50, that number jumps to six times. By age 60, you are looking at eight times. This is vague, on purpose, because it depends on many variables.”

If you entered the job market making $50,000 a year, use that number. “At the same time, as you earn more, try to live off of that original salary instead of overspending,” Paiva said.

If you are retiring early, you will need to accelerate your savings beyond those markers. 

Magic #3: 25 

This one is for those who wish to live well into their golden years and have a good shot at it, health-wise.

“If you plan to live at least 25 years past retirement,” Paiva said, “you need at minimum 25 times your income in your retirement savings account.” That means $1.25 million off a $50,000 salary.

Early retirement means you would need even more — at age 50, perhaps $1.75 million.

It’s Not About a Magic Number; It’s About Math 

As you can see, there’s not really a magic number to be able to retire early so much as there is magic math, if you will. You need to know which numbers to crunch and how. 

Factor In Lifestyle 

“Many people want a dollar figure for how much money they need to retire, but this is an oversimplification of the process,” said Jeremy Bohne, founder at Paceline Wealth Management, LLC. “This ignores wide-ranging differences in lifestyle, when people hope to retire, or how long they need their money to last, let alone what they might hope to do with any remaining assets to leave for their heirs or charitable causes.”

Are You Retirement Ready?

Bohne said the issue with focusing on a specific dollar amount is that “lifestyle is the lever used to close the gap between how much money people need for retirement vs. what they actually have. And when you’ve worked hard for decades, not being able to do the things you want or maintain your current lifestyle in retirement is a tough sell.”

Make Sure Your Retirement Accounts Are Accessible 

Retiring early doesn’t depend only on how much money you have; it also depends on the accessibility of your retirement accounts. 

“Generally speaking, most retirement accounts require you to be 59 1/2 years old to withdraw penalty free,” said Jake Falcon, CRPC, CEO at Falcon Wealth Advisors. “There are other [early withdrawal] options such as the rule of 55, 72t and pulling out Roth contributions. All of these come with their own set of rules, and consulting with a wealth advisor and your CPA are critical to avoid making a costly mistake.”

Don’t Forget Healthcare 

Another aspect of early retirement to factor in is the fact that you’ll have to pay for your own healthcare for a while. 

“Bridging the gap between retirement and when Medicare kicks in at age 65 is also something that must be considered,” Falcon said. “There may be a variety of routes one can go when seeking to purchase health insurance. Knowing what your options are and having a plan before you retire is a key box to check off.”

Remember that retiring early will not only require extreme saving and investing techniques, it also will require you to live as modest a life as you can. This means adhering tightly to a budget and living below your means when possible. 

Are You Retirement Ready?

“Many of my most financially stretched and in-debt clients live in large homes, in McMansion neighborhoods, drive luxury cars and have all the trimmings of wealth,” Paiva said. “Some of my most affluent clients look like ‘old money,’ and are living in their first home, happily.” 

Also, think about how you will use your time productively and happily in early retirement. It’s never too soon to plan. 

“Retiring young relative to historical norms can be an exciting endeavor,” Falcon said. “It’s important to check in with yourself and your wealth advisor to reflect on what your new purpose, community and plan will be. Going into retirement without thinking about these things can turn an anticipated enjoyable experience upside down.”

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