You can buy this type of pension for 4 million dollars if you stop working at the age of 55

By | December 21, 2023

Is $4 Million Enough to Retire at 55?

Is $4 Million Enough to Retire at 55?

With a savings pot of €4 million you can probably retire comfortably at the age of 55. The biggest challenge will be to accumulate that much capital at age 55. about ten years before most people stop working. Other issues include the need to pay for private health insurance, a waiting period of at least seven years for Social Security benefits and penalties for early withdrawals from tax-advantaged retirement accounts. A financial advisor can help you create a plan to pay for a secure retirement.

Is Retiring at 55 With $4 Million Possible?

According to a 2021 Gallup Poll, the average age at which most people retire is 62. But if you have $4 million in savings, it’s entirely possible to retire at age 55.

Retiring early offers many advantages. This includes better health, which likely means lower health care costs; improved ability to work part-time for additional income and satisfaction; and generally a more enjoyable and long-lasting retirement.

The main reason why more and more people are not retiring at age 55 is that they do not have enough savings. Raising $4 million by 55 will take sacrifice, discipline, focus, planning and probably a degree of luck.

Other disadvantages include delayed access to Medicare, Social Security, and penalty-free withdrawals from retirement savings. However, if you can save $4 million and don’t expect to live an overly lavish retirement lifestyle, you can probably achieve your dream of retiring from the workforce at age 55.

If you’re ready to be matched with local advisors who can help you achieve your financial goals, start now.

How to Retire at 55 with $4 Million

Is $4 Million Enough to Retire at 55?Is $4 Million Enough to Retire at 55?

Is $4 Million Enough to Retire at 55?

To know if you can retire with $4 million at age 55, you need to know how much you expect to spend after you stop working. A common approach is to use 70% of your pre-retirement income as a benchmark.

According to data from the Bureau of Labor Statistics, Americans between the ages of 55 and 64 earned a median income of $61,204 per year, as of the fourth quarter of 2022. Seventy percent of this is $42,842. Of course, your actual income needs may be higher depending on your healthcare costs, where you live and several other factors.

The next question is how much income you can expect to generate in retirement. Many advisors use a safe withdrawal rate for the estimate. Under this method, withdrawing between 3.3% and 4% of your savings in your first year of retirement and then adjusting subsequent withdrawals for inflation could safely extend your savings for 30 years.

If you follow these guidelines, you can safely withdraw between $132,000 and $160,000 from your $4 million portfolio at age 55. That’s more than three times the $42,842 an average 55-year-old would need, suggesting your $4 million savings will be more than enough. .

Obstacles to Retiring at 55 with $4 Million

Is $4 Million Enough to Retire at 55?Is $4 Million Enough to Retire at 55?

Is $4 Million Enough to Retire at 55?

Raising $4 million at age 55 is a challenge. The conventional approach to retirement savings, which involves putting about 10% of your income in a tax-advantaged retirement account and investing it in a target-date fund, may not work unless you are an exceptionally high earner. You may need to significantly reduce your living expenses before retirement, save much more and adopt a more aggressive, growth-oriented investment strategy.

Your ability to withdraw money from your tax-advantaged retirement accounts is another major challenge that early retirement presents. If you take money out of a 401(k) plan and an Individual Retirement Account (IRA) before age 59½, you will generally have to pay a 10% early withdrawal penalty on the amount withdrawn, plus any due taxes. More than four years of early withdrawal penalties can take a serious bite out of your retirement savings.

Another problem with retiring at age 55 is that in most cases you have to be at least 62 to receive Social Security benefits. This seven-year period can make you overly reliant on withdrawals from your portfolio, potentially exposing you to returns sequence risks if the market is in a recession.

Medicare is another valuable benefit that isn’t available to most 55-year-old retirees. Until you reach the usual qualifying age of 65, your post-retirement budget should include paying premiums for private health insurance.

In short

You can probably retire at age 55 if you have $4 million in savings. This amount, according to conventional estimates, can reliably provide enough income to afford a comfortable retirement. But at least in the early years, you’ll likely have to go without Social Security and either forego or pay penalties for withdrawals from tax-advantaged retirement accounts, while also paying premiums for private health insurance until you become eligible at age 65. Medicare.

Retirement planning tips

  • Creating a plan to fund your retirement is a lot easier with the help of an experienced and qualified financial advisor. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • A proven method to increase your purchasing power after retirement is to move to a cheaper city when you stop working. SmartAsset’s guide to the cheapest cities for retirement can help move you toward a comfortable retirement, even if your income will be limited.

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