How Much Do I Need to Retire at 55?

According to Fidelity, those saving for retirement should have at least seven times their annual salary by age 55. That means that if your annual salary is currently $70,000, you should aim to save at least $490,000. This is, of course, a rough estimate, and with inflation, your salary will have increased by the time you retire. The bottom line is that you should save as much as possible for retirement. Aiming for seven times your current salary by age 55 may be a wise strategy. However, experts point out that there is no one-size-fits-all solution, and depending on your time horizon and the cost of your retirement, you may need to save significantly more.

But you shouldn’t just consider how much money you’ll need to retire at 55. Because you don’t want to outlive your retirement funds, you should also consider the lifestyle you will most likely lead during your retirement years. Here are five things to think about:

Marriage: If you’re married, you should consider retirement planning for married couples. In other words, if both of you have salaried jobs that contribute to your household budget, you should have saved at least seven times your salaries.
Location: If you live in a high-cost-of-living area of the country or plan to relocate there, you will require more income than in a low-cost-of-living area. A cost of living calculator can assist you in deciding where you want to live in retirement.
Do you have any other sources of income to supplement your savings? Like Social Security, a 401(k), or an IRA, you probably do or will. If you do not have any additional income, you may want to postpone retirement or live a semi-retired lifestyle in which you still work part-time.
Debt: Will your mortgage be paid off when you retire at the age of 55? Will you have a lot of credit card debt? If debt is a burden in retirement, you should try to resolve some of your debt problems before retiring early.
Hobbies and travel: You may also be perfectly content retiring and staying put, or you may want to travel the world in your retirement, which will require significantly more income than someone who isn’t a wanderer. If you have expensive hobbies, such as collecting art, you should factor that into your decision to retire early.

What if You Don’t Have Enough Money to Retire at 55?

If retiring by the age of 55 is a goal for you, but you’re not sure you’ll have enough saved up, here are three things to think about:

Reduce your spending: If you haven’t already, now is the time to join the FIRE movement. FIRE is an acronym that stands for Financial Independence Retire Early. This movement encourages people to reduce their expenses to the bare minimum and live on 25% to 50% of their income. You then invest the extra money you have to build up your retirement accounts.
Increase your savings: Whether you cut back on expenses or downsize, you will still need to save more if you want to retire by 55 and believe your retirement accounts are inadequate. Many experts recommend putting aside at least 10% of your annual income to save for retirement. If you want to retire early but aren’t interested in the FIRE movement, you should try to save more money than you are now.
Create a side hustle that generates passive income: This strategy appears simple but is frequently difficult to implement. Nonetheless, it is worth considering. For example, if you bought a house and rented it out, you would receive passive income every month, and if you have good tenants, it could be a profitable source of revenue. You must be available to pay for and fix any problems when your tenants experience home maintenance issues.

How to Develop a Retirement Plan

At any age, many financial advisors recommend saving at least 10% of your annual gross income for retirement. These savings are in addition to funds set aside for short-term goals such as a new car or for unexpected expenses and emergencies such as medical bills.

It is never too soon to begin saving for retirement. There are practical, smart steps you can take at any age to meet the recommended retirement savings:

#1. Learn How to Be Financially Astute in Your Twenties

Up to 1x your annual salary is suggested for retirement savings.

How to save: People in this age group can contribute to their company’s 401(k), pay down student loans, and open other retirement plans such as IRAs.

You may face challenges such as student loans, but if you can afford it, set aside 10-15% of your salary for retirement. Another saving strategy you could consider is investing your money; when you’re young, you can afford a higher risk tolerance because you have plenty of time to recoup any losses.

Again, another excellent strategy is to establish an emergency fund. That way, if something unexpected happens, you won’t have to dip into your retirement savings. An emergency fund should be kept in a high-yielding savings account.

#2. Start Making Savings Progress in Your Thirties

1-2 times your annual salary is recommended for retirement savings.

How to save: Even if you have more expenses than you did in your twenties, such as buying a house, starting a family, or continuing to pay off student loans, don’t forget to save for retirement.

It would be best to make more money now that you’re furthering your career. Make the most of your company’s 401(k) match and contribute independently. A traditional IRA or a Roth IRA are also good retirement accounts if you haven’t already.

If you discover that you aren’t on track to save 1-2x your annual salary for retirement, consider tightening your budget to compensate.

#3. Consider Retirement in Your Forties

3-4 times your yearly salary is recommended for retirement savings.

How to Save: Hopefully, you’ve paid off your student loans and can now concentrate on saving for retirement. Although retirement may still seem far away, getting serious about saving for retirement can help you build a solid foundation for your nest egg.

Increase your contributions to your retirement plans and, if necessary, tighten your budget. The average annual salary in this age range is between $58,000 and $59,000, so someone earning that much should have between $150,000 and $200,000 saved. Consider your salary to determine how much retirement savings you need to make up for.

#4. Prioritize Retirement Savings in Your Fifties

6-8 times your annual salary is recommended for retirement savings.

How to save: Prioritize meeting your retirement savings goals in your final decade before retirement (or if you plan to retire early). Consultation with a financial advisor may be beneficial.

The average retirement savings by age 55 may be just over $220,000, but for many people, that will simply not be enough. Online retirement calculators, such as those that factor in your expected retirement spending, can help you determine if you’re on track.

If you need to catch up, you can contribute an additional $1,000 to your IRA and $6,500 to a 401(k) or 403(b) in your 50s as a “catch up” for 2022 limits.

#5. Last Chance: Retirement Savings in Your 60s

8-10x your annual salary is recommended for retirement savings.

How to Save: You’ve probably thought about how you want to spend your retirement at this point. When evaluating your current retirement assets, consider your desired lifestyle. As part of that lifestyle, you should probably budget for medical expenses.

If you haven’t reached the 8-10x mark on your retirement fund, consider monetizing assets or working for a few more years. Remember that you can maximize your Social Security benefits by deferring your claim until you are 70.

How to Make Up for Lost Retirement Savings

Are your retirement savings falling short of what they should be by the age of 55? Here are six steps you can take to increase your retirement savings before you retire:

Increase or max out your monthly 401(k), IRA, or other retirement plan contributions: Are you taking full advantage of your employer’s match? How much of your annual salary do you save?
Examine your budget carefully: If retirement savings is important, prioritize it. Retirement savings, along with necessities like food, shelter, and utilities, should be near the top of your priority list.
Postpone your retirement: How much more money could you save if you worked a few more years? This not only keeps your income steady but also reduces the number of years you’ll be retired. Another possibility is to work part-time during your retirement.
Save found money for retirement: If you get a bonus, a gift, or a tax refund, put it toward your retirement savings.
Don’t overlook Social Security: In 2020, the average monthly Social Security income for retired workers is $1,503. You can increase your Social Security income by deferring benefits until you reach full retirement age or later.
Pay down your debts: Americans in their 50s have an average debt of $17,623, according to MagnifyMoney and the University of Michigan Health and Retirement Survey. Outstanding bills reduce your effective income in retirement. Speak with a financial expert about the best way to reduce your debt before retiring. Also, talk to your financial advisor about the right financial products to ensure you have a comfortable retirement, no matter where you are, in meeting your retirement savings goals.

Meanwhile, consider adding an IRA product to your existing employer-sponsored 401K or 403B retirement plan if you want to diversify your retirement portfolio.

You can retire at 55, but you can’t collect Social Security benefits until you’re 62, and the benefits increase significantly if you wait until your full retirement age (66-67 for most people). As a result, having other sources of income, such as retirement savings, investments, or a part-time job, is critical.

Can You Retire at the Age of 55 and Still Work?

Absolutely. Many early retirees choose to work part-time, freelance, or launch a small business. This strategy generates extra income while keeping you active and engaged.

Can I retire at 55 with $5,000,000, $1,000,000, or $600,000?

Your lifestyle and expenses determine the amount required to retire at the age of 55. If your annual costs are high, $5 million may be sufficient. With $1 million, you could withdraw $40,000 annually without touching the principal (assuming a 4% safe withdrawal rate). With $600,000, however, you may need to supplement your income or reduce your expenses to maintain your lifestyle.

Is $3,000,000, $4,000,000, or $5,000,000 Enough to Retire at 55?

Assuming a safe withdrawal rate of 4%, $3 million could provide $120,000 in annual income, $4 million could provide $160,000, and $5 million could provide $200,000. However, once again, your lifestyle and expenses determine the “enough” part.

Conclusion

Retiring at 55 is not a pipe dream, but it does necessitate careful planning and financial discipline. Your path to early retirement should be shaped by a thorough understanding of your finances, an adequate savings and investment strategy, and a clear vision of your desired post-retirement lifestyle. With careful planning, it is possible to retire at 55 and enjoy a fulfilling, comfortable retirement.

Whether your nest egg is $600,000 or $5 million, the key is to manage your resources wisely, understand your income options, such as Social Security and annuities, and live within your means. Retirement is not the end but rather the start of a thrilling new chapter. So, why delay? Begin planning now, and look forward to reaping the benefits of your efforts well into your golden years.

How Much Do I Need to Retire at 55?

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