How Much Do I Need to Retire Early?

Retire early

It doesn’t take a windfall to retire early; it just takes great planning.

 

Early retirement might seem like a dream. But it’s one that you can achieve if you plan early and save as if your life depends on it. In fact, it does.

Examining different possible scenarios can give you a better idea of what you’d need to retire early. And with a retirement calculator, you can see where you stand if you keep the course you’re on. But more important, you can see areas for improvement and watch your projected outcome change for the better.

Early retirement means different things to different people. For some, it’s a matter of shaving off a few years. But for others, it can mean leaving the workforce a decade or more sooner than the majority of the country. If the idea intrigues you, here are a few possible ways that it can happen.  Peruse these examples to get an idea of what it takes or — better yet — use a retirement calculator to figure out how you can retire early!

 

Retire early

Retiring even 5 years early can put strain on your retirement income.

 

How Much Do I Need to Retire at 65?

This couple is in their early 40s, and they’ve been on track for a while. And although they do want to retire early, that only means by age 65 instead of waiting until they turn 67, which is what some experts recommend for maximizing retirement savings and income.

Here are their statistics:

  • Ages: 42 and 43
  • Current Mortgage balance: $60,000
  • Monthly mortgage payment: $950
  • Combined monthly income: $4,200
  • Combined Social Security benefits at age 65: $2,594
  • Insurance products: Life insurance, long-term care insurance, health insurance
  • Combined value of 401(k) and IRA plans: $175,000
  • Other savings: $300,000
  • Amount contributed to savings each month: $1,000
  • Percentage of savings in stocks: 25%
  • Other debt: $25,000

These two are in fairly good shape. Using NewRetirement’s calculator, their savings is projected to last from a retirement age of 65 until age 79 to 120 years old.

Based on their current situation, including income, savings patterns, investments, and debt, they’re projected to need between $480K to $2.2M, lacking a lifetime annuity or Medicare Supplemental Insurance. If they choose to add those insurance products, their projected need changes to $650K to $1M.

Whatever this couple chooses to do, their current savings and investments should last well past their projected life expectancy of 78. But there are possible medical and long-term-care needs that could increase their income need in retirement, which could change their situation dramatically.
Maximum amount needed to retire at age 65: $480K to $2.2M

How Much Do I Need to Retire at 60?
This husband and wife both turned 39 in 2014, and they’re saving fairly aggressively, especially for people in their age bracket. But although their contributions are moderately high, they only commit 10 percent to stocks. They could take more risks if they still have 20 years until retirement at age 60.

Here is where they stand:

  • Ages: 39
  • Mortgage balance: $200,000
  • Mortgage payment: $1,400
  • Combined monthly income: $7,400
  • Combined SS benefits at age 65: $3,000
  • Insurance products: Life insurance, long-term care insurance, health insurance
  • Combined value of 401(k) and IRA plans: $74,999
  • Other savings: $20,000
  • Amount added to savings each month: $2,000
  • Percentage of savings in stocks: 10%
  • Other debt: $45,000

While their savings isn’t terribly high, they contribute a healthy portion every month. So in 20 years, it will have grown substantially. Their retirement savings is projected to last until they reach the age of 81, which is past their life expectancy.

They are projected to have between $720K and $1.1M by the time they reach their early retirement age, and their projected need is between $460K and $2.4M. But they also lack a lifetime annuity or Medicare Supplemental Insurance, which could lower those figures to $310 to $960K.

Even without additional insurance, this couple’s savings should last through retirement. They have long-term-care insurance, which covers the risk of unexpected health care costs. If they increased their savings distribution to 25 percent stocks, they should have a well-funded retirement.
Maximum amount needed to retire by age 60: $460K and $2.4M

 

Retire early

You don’t need a partner to live well and retire early.

 

How Much Do I Need to Retire at 55?

This single woman has been doing all the right things, and it shows in her retirement preparedness. She’s 50 years old, and she can reasonably expect to retire at age 55 with all of her financial needs met. Her savings risks are reasonable, and she saves a moderate amount of her income. But because she has been saving consistently for years, she has built a nest egg that will last.

Here are her statistics:

  • Age: 50
  • Mortgage balance: $59,999
  • Mortgage payment: $650
  • Combined monthly income: $4,400
  • Projected SS benefits at age 65: $1,700
  • Insurance products: Life insurance, long-term care insurance, health insurance, annuity
  • Combined value of 401(k) and IRA plans: $160,000
  • Other savings: $350,000
  • Lifetime annuity payout: $1,600 monthly with COLA
  • Amount added to savings each month: $1,000
  • Percentage of savings in stocks: 25%
  • Other debt: $14,000

Between tax-deferred savings, stocks, and other savings, she’s already tucked away over $500,000, which is nearly double the amount she’s projected to need to retire in 5 years. Add to that her lifetime annuity of $1,600 monthly, which has a cost of living adjustment (COLA), and her plan is so solid, her savings is projected to last until he is 90 to 120 year old!

She should only need about $220,000 to live a comfortable life for many years to come. And if she elects to add Medicare Supplemental Insurance, she may retire early, at 55, and sail on through without any concerns about unexpected health care costs later.

Projected amount needed to retire at age 55: $220,000

How Much Do I Need to Retire at 50?

This couple recently left their twenties, and they’re starting out slow and steady. Their home is modest, and their expenses moderately low. And although they have a fair amount of debt and pay higher interest rates than some, there’s still time to pay debt down and refinance for better rates to save more money. One thing this couple is doing right is investing a larger percentage of their savings in stocks. Over time, that should pay off and help their plans to retire in 20 years, at age 50. But they still have room to improve.

Here’s a snapshot of where they are today:

  • Ages: 30
  • Mortgage balance: $100,000
  • Mortgage payment: $950
  • Combined monthly income: $5,200
  • Projected SS benefits at age 65: $2,300
  • Insurance products: Life insurance, health insurance
  • Combined value of 401(k) and IRA plans: $25,000
  • Other savings: $60,000
  • Amount added to savings each month: $900
  • Percentage of savings in stocks: 30%
  • Other debt: $15,000

This couple is starting young to retire young. But at the rate they’re going, their savings is projected to dwindle by the time they turn 69. With their income, they can afford to max out their 401(k) and IRA contributions, and save more than their current savings contribution of about $900 monthly.

A “nick of time” strategy where savings is projected to deplete when projected life expectancy comes could easily create a shortfall. Many people live well past their late 70s, and that is a time when health care costs could skyrocket.

They’re on track to have between $560K and $990K when they retire at age 50. But their projected retirement needs fall between $700K and $4.4M. If they added a lifetime annuity, Medicare Supplemental Insurance, and long-term care insurance, their need could change to $1.4M.

Maximum amount needed to retire at age 50: $4.4M

How Much do YOU Need to Retire Early?

A lot goes in to calculating what any given person will need save in order to retire comfortably at a certain age. There are numerous factors, such as the current value of a home. The home could one day be used as income to supplement a shortfall if a reverse mortgage is taken.

Calculators rely on some assumptions, too. For example, NewRetirement’s retirement calculator assumes that pre-retirement income grows at about 3 percent annually, and so do home values. These are factored in, and so real-life outcomes can vary.

Retiring early, whether it’s by a few years or by a decade, takes focus and a great plan. You might already have a plan that seems to be working, but do you really know where you’ll be in 5, 10, or 20 years? With NewRetirement’s retirement calculator, you can.

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