How much do a couple with combined annual expenses of $80,000 a year need to retire at 55 years old?
This is considering living on rent with no pension or benefits and grown up children who have left the nest.
How much do I need to retire at 55 years old?
byu/ImaginaryAd3004 inpersonalfinance
Posted by ImaginaryAd3004
28 Comments
At least $2,000,000 to cover expenses.
3M would be very comfortable. 2M would be practical. Somewhere between a 3 and 4% withdrawal rate is safe. This also assumes no SS income.
25x is always a good place to start
I’d be looking at the old 4% rule and guessing around $2 million, especially retiring somewhat early.
I’d also ask if you’ve included any additional healthcare costs for 10 years before Medicare in that $80k expense cause that’s not going to be cheap
Do the math backwards. $80,000 / 0.04 = $2mil roughly.
$2million at 4% withdrawal rate
Biggest issue is healthcare. Figure out that part and the rest is easy.
Everyone multiplying $80,000 by 25 needs to learn the limitations on that particular rule of thumb. It’s only intended to allow for only up to 20-30 years of withdrawals. For more than that (e.g. starting at age 55) you need a bigger factor of safety or else inflation and random market swings are going to end your retirement early.
Also remember that at 55 you can’t touch tax-advantaged retirement accounts yet at, and you aren’t eligible for Medicare yet. You need non-IRA and non-401k savings, and more income until you hit 65.
Everyone is so worried about healthcare. If you’re only making 80k a year I wouldn’t worry. I have been self insured for 10+ years. Pay zero monthly and pay out of pocket when we rarely go to the Dr. yes something major could come up but if it does you get it then. And if even if you get a big bill they can’t come after your home. And medical debt doesn’t affect home buying they don’t count it. I’ve personally witnessed 2 people with 100k medical bills go to 10k or 0 because they say they don’t have insurance and can’t afford it. Anyway I pay my cash price and don’t pay any bills that come after. I’ve never been denied a loan and my credit is approximately 800ish. I toss extra bills in the trash and never had a problem. Medical debt isn’t a debt you try to take out like a car or a house. So yeah. Source done it for 10 years and am in real estate.
Are people really this lazy that they can’t do simple multiplication of 80k x how many years they think they will live to figure out how much they need?
No one here knows your life or spending habits… this is shit only you know..
Ya they can spit out a number for you, but it is nothing but a guesstimate.
And let’s be real honest here…
If you have to ask how much you need to retire at 55, chances are you are not there.
I mean really, by 55 retirement should be your next major goal you are building towards.. this should be something you have some what if a plan…not asking Reddit for advice
Depends on how old you are because of inflation…
I’m 36 and our family’s household expenses are around $90k. Using something similar to the 4% rule; assuming I live to 85; and adding into those 19 years of 3% inflation with 7% to 9% growth in the account before retirement my number is around $4.5 mil.
I used the Know Your Number Course from The Money Guy Show. I’ve also met with a local account who did a different calculation and got about the same number.
At 55 you need healthcare. Your employer pays for most of that while you work, but you get to see the real cost if you have to pick up the bill yourself. I retired at 63 and the cost is 1500-2000 per month, so you need to add that to your 80,000 – so call it that you need $100,000/y to maintain your current lifestyle.
With the 4% rule, you need 100,000 divided by 0.04 (4%) which is $2.5 million.
So that should be the answer – $2.5 million in savings invested in the market.
I’m ignoring taxes for simplicity, so YMMV.
A couple of things to think about
1) you still pay taxes on income from your investments or savings account unless all of your investments generate tax free gains and withdrawals. That tax payment needs to go on top of your 80k/year in expenses. Your effective tax rate will go way down but won’t be zero.
2) some things get more expensive. Health Care is likely to be much more expensive when retired compared to employer provided. You aren’t eligible for Medicare until 65. ACA is an option so might check out healthcare.gov. I just compared an ACA plan with what my employer offered. Employer was 350/month, ACA (no subsidy) $3800/month. There are much cheaper policies of course, with copays and deductibles much higher. Your investment income would likely keep you under the cliff so you would get a subsidy to cover a meaningful chunk of that.
3) your expenses may go up or down depending on how you want to spend your retirement. If you always wanted to, say, travel and you can’t offset it with something, then factor in higher expenses. Maybe you pay off your house and no longer have a house payment, your expenses go down.
Probably closer to $4 million.
The rule of 300 is where you take your needed monthly draw and multiply by 300 to figure out how much much total you need comes up with $2 million. However, this assumes a safe withdrawal rate that only lasts 30 years, does not account for inflation, and doesn’t account for sequence of return risk – having to pull money during bear markets and realizing losses.
By retiring early, you are going to experience more years of inflation and more years that need to be funded. $80k might be comfortable now, but how much will that buy you 30 years from now?
Edit: Early retirement is much more of a sacrifice than many people realize. Not only will you need a bigger nest egg, but you have less time to grow it.
You don’t have $80 k in expenses in retirement. Way too much. Cut costs
Probably around $2.5-3.5M (depending on your withdrawal rate) not including ss.
I just want to add that I pay between $900-$1000 a month for sn insurance plan, plus I pay all dr and rx costs up to $7000 deductible. I have a well known PPO with a 60/40 high deductible so I can put $5000 per year in an HSA to lower my taxes. You have to factor in health insurance increases.
Depends on if this is a private stock account or a 401k/Roth type IRA, if IRA you can’t touch those funds until you are 59.5 yrs old, so you would need a plan
Only you know what you need to live on. How much do you need a year?
80k*25=$2M is one way to look at it.
The S&P growth has averaged something like 13-15% for the last 30 years. I’d assume an 8‰ withdrawal rate. So even 1.5M in a good mutual fund should do it for you.
Edit: I think the 4% rule is outdated, and expects that you keep your money mostly in bonds. I don’t personally plan to do that. I will ride out the lows as necessary. Keeping a good reserve in bonds maybe, but only for the market lows. Not as a main strategy.
Last time I looked it up you need 30x your salary to retire at 55. I wish I could be in that position when I hit 55 but it will be hard for me to be able to retire at 59 1/2.
Does your $80k include healthcare?
You need close to a $2M portfolio to sustain $80k spending (initial safe withdrawal rate is somewhere between 4% and 5%, so if you have a $2M portfolio you can generally take $80-$100k the first year and then adjust for inflation each year after that).
Also need to factor in social security and when you’ll take it.
I personally would not retire with less than $2M if I wanted to have an $80k spend per year (including healthcare costs before Medicare) because I’d expect there are going to be some big one-time expenses too (new care, home maintenance, etc.).
If you have some flexibility (reduce to $60k spend if markets are bad), you could get by with a smaller portfolios
What are you going to do retiring that young? Life is already lazy
Depends where you live and your lifestyle
With expenses at 80k a year you need minimum 2 million.
55 eh, you won’t have access to your Roth for close to 5 years, still for 10 years, ideally. You have to figure out your insurance for 10 years, cobra is a bitch. If you had 2 million saved in a taxable investment account and could live off 3% adjusted up for inflation each year, and were fine with that being your total income in the beginning, you’d probably be fine. If you have most of your savings in your Roth, id probably try to live off what you have in your taxable for the next 5 years, then withdraw 4% plus inflation to from your Roth in 5 years. For example, if you have 500k in your taxable, then withdraw 100k each year until you can start pulling from your Roth, but yeah if thats going to be your only income moving forward, reallocate into bonds and the like to minimize risk. You need safe reliable income, not growth.
$2M plus whatever cushion you feel comfortable with.