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How Much Do I Need To Retire In My 50s?

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Naaman Creative

How Much Do I Need To Retire In My 50s

Normal retirement is typically at 65 years old for most people. But, what if you want to retire early? How much do I need to retire in my 50s? And what exactly does someone need to retire around 55 years old? I want to walk through some common questions and give a general example about what someone should be thinking about, if the goal is to retire in their mid-50s.

Every time I ask people, “when do you want to retire,” most responses, no matter the age, are “tomorrow.” I always chuckle because, whether they are serious or just joking, there is always a level of truth to them saying that. This often leads into the conversation about what they specifically need for retirement? The true answer is: it depends.

Do I Get Social Security at 55?

The short answer is no. Unless you qualify for Social Security Disability Insurance (SSDI) because of a disability, you have to wait until at least 62 years old to start collecting a reduced benefit.

Full Social Security Income depends on when you were born:
  • 1960 or later = 67 years old
  • Born between 1955-1959 = between 66-67 years old
  • Born 1943-1954 = 66 years old


How Much Do I Need To Save To Retire In My 50s

Exact age reference:
Social Security Administration Retirement Benefits

Social Security Income (SSI) can play a huge factor in retirement. The longer you delay taking SSI, the more you push age 70, which when the benefit maxes out and you should just take it. Also, another factor to consider, if you’re married, is when your spouse wants to retire. If they plan on continuing to work or there is a significant age difference, those are important factors. For example, if the spouse is in their mid 60s, they may start taking SSI. Or, if they’re significantly younger, maybe you’re able to stay on their health insurance.

What Should I Do For Health Insurance?

If you are married and your spouse continues to work, you may be able to be on their health insurance. Other options are private health insurance coverage, COBRA coverage, or the Marketplace.

If you’re retiring earlier than 65 years old, you’re not Medicare eligible yet. So, this can be a cost that needs to be very seriously considered. In addition, for many people that retire in their 50s, health insurance is the most expensive part of monthly expenses other than general living expense like mortgage, taxes, insurance, utilities, and food.

Can I Take Money From My 401(k) or IRAs In My 50s?

If you leave your job after you turn 55 years old and you have money in a 401(k) or 403(b) plan, you can take money out of those types of retirement plans prior to the normal age of 59.5 with no 10% penalty. The Rule 55 allows people 55+ years old to withdrawal from a qualified retirement plan other than an IRA without having to pay a 10% penalty, which is typically the case.

For IRAs you have to wait until 59.5 years old otherwise there is a 10% penalty for early withdrawal. With a Roth IRA, you can take the original principle invested prior to 59.5 years old but the gains would be assessed a 10% penalty. Generally, it’s better to not take money from an IRA prior to 59.5 years old.

Additional Savings Alternatives

Another savings alternative to withdrawal money from in early retirement would be a non-qualified taxable/brokerage account. I refer to this as the “Middle Bucket” because it’s not the money tied up in retirement plans or IRAs (Long-Term Bucket).

Additionally, it’s not money you want sitting at the bank (Short-Term Bucket). The Middle Bucket is invested but can be withdrawn at anytime without penalty. Only taxes would be paid on long or short-term capital gains outside of dividend income from a position. This would be a great way to fund the initial years of retirement, before 59.5 years old. That’s when you’re able to take money out of IRAs without the 10% penalty.

How Much Do I Need For Retirement

How Much Do I Need For Retirement?

The first step in figuring out how much you need for retirement is putting together a clear budget based on current expenses that will still be there in retirement. Also include any new expenses such as potential health insurance costs. Once you have a clear budget, you can work backwards to figure out how much you need in your nest egg.

Most financial experts would agree that you should only withdrawal 4-5% off of an investment balance. The reason for this is because of sequence of return risk. This is illustrated very well in this Forbes article.

For example, if you need $50k/year or roughly $4k/month, you’re going to need at least $1 million saved for retirement. If your nest egg of $1 million drops 20% because of an economic decline, you now have $800k. However, you’re still going to need $50k/year, which you’re now taking off of a smaller balance. This makes it harder for that money to rebound. If you were taking 10% vs the 5%, you’d be taking $100k off the $800k. As a consequence, you’d likely run out of money over time.

How Much You Need For Retirement

Even though, over time, the stock market has averaged 10% rate of return, including dividends being reinvested, it’s unlikely that you want all your money invested in the stock market because of the downside risk.

A more diversified portfolio of stocks, bonds, and alternative investments is the better investment option. This method will smooth out the ups and downs on your nest eggs, but won’t make the higher long term returns as a 100% stock portfolio would make over time.

Use that 4-5% withdrawal rule of thumb after you put together your budget to see how realistic retiring early will be for you. Remember that eventually SSI and Medicare will kick in to help lessen the burden of monthly expenses. This can be better calculated within a full financial plan based on all your financial goals and retirement expectations.

Will I Have Enough Money For Retirement?

Don’t forget about inflation. This is a very important variable, especially for someone retiring earlier. If you retire in your mid 50s, there’s a good chance you could live another 30-40+ years. Things cost a lot more than they did 30 years ago. And prices are likely to keep moving the same way they did over the next 30 years. A good rule of thumb is to assume that every 24-28 years prices double because of inflation. This is assuming a 2.5-3% average inflation rate, which has been about the average over the long term.

Right now, if you think you’re going to need about $6k/month to live the way you want, then in 35 years you’re going to need about $16,900/month assuming a 3% rate of inflation. This is where working with a CERTIFIED FINANCIAL PLANNER™ or CFP® is very beneficial. Over the next 35 years your life will probably change financially, along with your goals of retirement. Some examples: If you have a mortgage in your mid-50s, you’re likely going to pay that off. You might move or you may travel less the older you get. Your health may deteriorate or you may decide 10 years into retirement that you want to work part time again.

Life goals change over time as different situations and circumstances present themselves. There is no straightforward answer to “how much do I need to retire in my 50s,” but, with proper financial planning, you can help smooth out the inevitable bumps along the way.