For many people, the idea of retiring well into their 60s just isn’t appealing. Instead, they’d like to leave the workforce far earlier, giving them time to travel, explore hobbies, or spend time with family and friends. While retiring before age 50 is a challenge, it is doable if you set aside enough money. If you’re wondering how much money you need to retire before 50. Here’s what you need to know.
Is There a Magic Number That Lets You Retire Before 50?
Technically, there isn’t a magic number that means you’re in the clear to retire before age 50. The main reason for that is that everyone has a unique preferred lifestyle. Thus, altering how much money they’ll need to have available. Plus, your health might vary from the norm. Which could cause you to need to spend more or less in what’s often an expensive category.
Since how much money you’ll need is personal, don’t rely on a magic number presented by someone else, even if they’re a financial expert. Instead, you need to assess your own situation, allowing you to factor in your needs and preferences. That way, you set enough the right amount of money based on your unique situation, reducing the odds that you’ll experience an unexpected financial hardship after leaving the workforce.
Determining How Much Money You Need to Retire Before 50
As mentioned above, how much you’ll need to set aside to retire before age 50 depends on the type of lifestyle you want to maintain. If your goal is to travel the world, you may need to replace 100 percent or more of your annual working income. If you’re aiming for a modest life at home, you may be able to scale back to somewhere in the 60 to 80 percent range.
However, along with your lifestyle, you need to account for costs that may rise over time. For example, medical expenses usually go up as a person ages. While some of that might get offset once you reach Social Security age and can start receiving that income, whether that’s sufficient may depend on the condition(s) you have and the treatment that’s required.
Finally, it’s important to remember that lifespans vary. While you can use averages, family history, and current health levels to get an estimate, you may end up living for years past that point. As a result, you may need to assume that a buffer is necessary.
Calculations For Retirement
Once you consider those points, you can start performing some calculations to get a baseline of how much you may need. Generally, you want to begin with a simple equation that doesn’t involve any interest-earning potential, such as:
Annual retirement income x Number of years in retirement = Savings target
Your annual retirement income is simply the pre-tax amount you believe you’ll need to live your preferred life. For the number of years in retirement, you can subtract the age you plan to retire from your life expectancy. By doing that, you can get a rough savings target that can serve as a starting point.
The benefit of not factoring in interest is that any earnings post-retirement can serve as a buffer against a longer life expectancy, market downturns, inflation, or other challenges that may arise. Similarly, by not bringing Social Security into the equation, you’re supplementing that buffer, giving you even more protection.
How to Save Enough Money to Retire Before Age 50
Once you have the savings target, you can use a retirement calculator to determine how much you’ll need to set aside each month to hit your goal. While you’ll have to estimate your earnings, as there’s no way to know precisely how the stock market will perform, by using a slightly conservative number for your growth potential, you can make sure you won’t fall short.
Beyond that, if you want to retire before age 50, you’ll need to use a multi-faceted approach to ensure you have enough money set aside. First, you’ll want to max out any available retirement accounts. In most cases, using both an employer-sponsored option, like a 401(k), and an IRA is your best bet, as you’ll get to capture some tax advantages.
After that, you’ll need to shift onto other platforms. A traditional brokerage account typically isn’t a bad option. Often, you can invest in similar assets to your retirement account. Plus, there aren’t any penalties if you start making withdrawals before age 59 ½.
In many cases, you’ll need to be fairly aggressive with your investments as well. Otherwise, you may not capture enough growth potential to ensure an early retirement. While that does mean taking on risk – and potentially seeing some losses – with a properly diversified portfolio, forward progress is often more likely.
Making Sure You Remain on Target Over Time
As you set money aside for your retirement, you’ll want to assess your progress and potentially changing needs as time passes. By monitoring your balance, you can see if you’re getting close to the target, letting you know if you need to save more aggressively or not.
By reviewing your needs to see if they’ve changed, you can adjust your target accordingly. For example, if your health situation changes, you can account for cost differences. If inflation alters the amount of income you’ll need, you can shift the target upward to accommodate that.
In most cases, you’ll want to review your situation at least once a year. As you get closer to retirement, you may want to do a check-in every three to six months.
Also, you might want to adjust your investment allocations once retirement is near. While you’ll want to ensure you can still capture some earnings, reducing risk can possibly preserve more of your money, which may give you peace of mind as you get closer to leaving the workforce.
Once you reach retirement, you’ll still want to check your account at least annually. That way, you can potentially adjust your withdrawals should the need arise, allowing you to make sure that you’ll have enough money available to last your entire retirement.
Do you want to retire before 50? If so, do you think the amount of money above is sufficient, or are you aiming for more? If not, is the amount you need to save what’s holding you back, or is there another reason why you plan on delaying retirement? Share your thoughts in the comments below.
Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.