For many people, it’s easy to worry about retirement savings. In fact, 40% of Americans already plan to work past the age of 65, mostly due to financial reasons. But what happens when you want to retire, and retire early? And how much do you really need to retire at 55?
Related: What Will It Cost to Live When You Retire? (Inflation is a Killer!)
How Much Do I Need To Retire At 55?
Of course, how much you’ll need to retire at 55 will be dependent on you, your lifestyle, and even your life expectancy. If we follow the typical life expectancy of Americans (currently 78.7 years old) that means that you’ll be alive for at least 24 years after retiring. That means that you’ll need to prepare to live almost three decades (at least!) on your retirement savings.
So what does that mean for you?
Here are a few things to keep in mind.
What will you be able to live on when you retire?
- Do you plan on staying in your home?
- Is it paid off?
- Will you want to downsize?
- Will you move to a lower cost of living area (or country)?
These are all questions that you’ll need to answer while you’re planning for early retirement.
Of course, the ultimate goal should be comfortable living, but you also don’t want to overspend. However, expenses like healthcare, a mortgage, and more could easily wipe out your savings if you’re not careful. And since many retirement benefits (like Medicare and Social Security) don’t start until you’re 65 (without penalties), you’ll need to live comfortably on your retirement savings only for at least 10 years if you retire at 55.
To see how much you may realistically spend in retirement, focus on your current spending.
As an example, if you spend $50,000 a year, realistically, you’ll need $1.5 million by 55 to live on comfortably for 30 years. Of course, this number will change based on your spending and what you’ll need in retirement.
Related: Wondering How Much Money You Need to Retire? (The Formula is Easy!)
Your Future Income
Of course, your future income will also determine how much income you’ll make in your retirement. For example, benefits like social security and a pension can easily bring in at least $20,000 a year for many retirees.
But if you retire early, you may not receive those benefits right away. So at the very least, it’s important to see what you’ll need to live on for 10 years before those benefits (if any) begin to kick in.
Where Are You Now?
Where are you currently in your retirement savings?
If you know you’re on the right track in savings, keep going. If you believe you may be behind, there are ways to see if you should catch up or make changes to fit your early retirement plans.
Of course, your net worth plays a huge part in your retirement plans, but there are ways to catch up on your retirement savings, or at the very least, learn how to live on less.
Related: Average Net Worth in America by Age – How Do You Rank?
How Much Does The Average 55 Year Old Have For Retirement?
According to the Survey of Consumer Finances from 2019, the median net worth for ages 55 and 64 is $212,500. However, the average net worth (which is calculated with high-earning outliers) is $1,175,900.
Of course, this is just the average number, and doesn’t mean that you should have this amount saved by 55.
What If I’m Behind On Saving?
If you’ve calculated what you’ll need to live on if you retire at 55, and you realize your savings is a little short based on your calculated expenses, there are a few ways to catch up on your retirement savings.
Here’s how to increase your savings rate and focus on early retirement:
- Pay off debt.
- The less debt you have, the less you’ll have to spend in retirement.
- This can include student loans, your mortgage, credit card debt, and more. Just remember, you want to have the least amount of expenses possible, especially if you plan on retiring early and need the extra few years of living expenses.
- Start seeing where else you can trim your budget.
- Will you really need a 4-bedroom home?
- Could you live without a few cars?
- Could you move to a lower cost of living area (or even a retirement friendly state/country)?
- See how little you can live on if needed.
- Max out your contributions.
- While you won’t be able to live off of many of these benefits right away (unless you’re okay with penalties), it’s important to max out your retirement accounts.
- This includes your 401(k), IRA, and any other plans or savings you use.
- Decide if you really want to retire at 55.
- Do you want to do nothing once you retire? Would you be okay working part-time?
- Do you have passive income coming in that can hold you over until you’re able to withdraw and collect money penalty free?
- While retiring early is a goal for many, some decide that they really just want financial independence, but not to completely retire.
Is 55 too early to retire?
Short answer: Of course not!
If anything, if you can and want to retire early, I say go for it.
There’s nothing wrong with wanting to do more for yourself and to give up the rat race.
But, there are a few things to keep in mind with early retirement:
- You’ll need to find a way to earn money before you take money from your retirement accounts (like your 401(k) and IRAs
- Social Security benefits won’t kick in until you’re 62.
- Medicare eligibility doesn’t begin until 65 (so how will you cover healthcare in the meantime?)
As long as you can figure out those few issues, you can make sure that you’re prepared to retire early.
Are You Ready To Retire Early?
Now that you know what you need in order to retire at 55, do you plan on taking the leap?
Many people have retired early, but of course, it’s important to focus on what’s best for you and your finances. And remember, it doesn’t have to be permanent either!
You can always go back to work if you choose (and if you’re able to), or you can find other ways to earn money to supplement you retirement. No matter what you choose, remember that it IS possible to retire at 55 and live a great life.
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AUTHOR Kimberly Studdard
Kim Studdard is a strategy consultant and course launching expert. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.