How Much Do I Need to Retire at 55

What to expect in this article

A typical question today among employees and investors is how early they might be able to retire. Today we take one of those and discuss. In “How Much Do I Need to Retire at 55,” we discuss key considerations that need to be addressed when considering retirement at 55, or any other age.

Keep in mind there are many issues and variables that go into such questions, and only you can answer them. But by going through the process of consideration, this should help you determine how realistic it is for you to retire at any age and with any amount of assets.

Key Considerations:

• Experts suggest this amount
• How long your assets may have to last
• Pre-retirement budget
• Post-retirement budget
• Retirement income

Intro

You’re sitting at your desk and you know it’s nice out, so you’re thinking of being out on the water in a boat, or getting a round of golf in with a couple friends.

Who can blame you? We all daydream at times, including at work. But this isn’t just daydreaming a bit on your boss’ dime.

This is actually more about a much bigger issue for you. Namely, you’re 50ish and you want to know when you can afford to retire, as you are ready to move as quickly as possible to the next stage of life.

You’ve played by the rules and have some saved, but you don’t know exactly what you might need to live comfortably in retirement, maintaining your current standard of living. What you do know is you want to retire by the time you are 55 if at all possible, so you decide it’s time to start figuring out how to make that happen.

Yes, you’re definitely past the daydream stage.

It’s time to start the process of determining what you might need so you can answer the question about retiring at 55.

Expert Answer

If you want the quick answer, AARP suggests you will need approximately 80% of your pre-retirement income when you leave your job. So, if you earn $85,000 at age 55 when you retire, you will need to have $68k available per year or $5,667 available per month saved to maintain your standard of living in retirement.

There you have it. End of story…

Key Considerations

Not so fast. That is definitely a “rule of thumb” assessment that may or may not apply for you, based on many issues and variables that are specific to you and your situation.

Those unique issues and variables specific to you must be considered to ensure you have a good handle on what you would need to retire at 55, or any other age.

How Long Should You Plan For?

Whatever age you retire at, one of the first things you need to consider is how long retirement might last. If you plan to retire at 55 you have a decent chance of living into your 90s, so you better consider up to 40 years in retirement.

That said, for many the period will be less. The Center for Disease Control and Prevention (CDC) reports that life expectancy declined for Americans recently, to 76.1 in 2021 from 77 in 2020. For females the average life expectancy in the U.S. as of 2021 is 79.1 years, while that of males is 73.2.

Key factors include heredity, health, habits (good and bad), where you live, and much more. You definitely want to plan for the longer end just in case, as you certainly don’t want to end up outliving your assets, which is a nightmare scenario.

Pre-Retirement Budget

When contemplating retirement at 55, you will want to consider your current budget. Doing so will provide some context in terms of what your future budget might look like during retirement.

If you can comfortably cover your monthly bills and the debt you might have on things like cars, home mortgage, etc, then you can use that figure for a comparative basis regarding retirement.

Ask yourself what you spend your money on each month as well. Focus on your fixed expenses, as well as those that are more discretionary, such as movies, dinning out, hobbies, spending on kids and grandkids, travel, and more.

Reverting to the earlier example, if you are 50 now with an annual salary of say $85,000, your gross monthly salary is $7,083. According to Talent.com, your net pay if you lived in Texas would be $67,030 per year, or $5,586 per month.

Be sure to recognize those figures don’t take into consideration qualified (before-tax) contributions to retirement accounts (think 401(k) or IRAs), health savings accounts, etc.

So if you are able to cover your expenses comfortably now, then when you retire that monthly figure is a good starting spot in terms of what you will need then, perhaps even less.

The key will then be determining if you can replace that income to ensure you are able to maintain the same standard of living when you retire.

Post-Retirement Budget

Once you’ve covered your current, or pre-retirement budget, now you can consider you post-retirement budget, including what it will and won’t include.

Starting with the current budget, add costs associated with your retirement desires, such as engaging in charitable giving, passing money on to your kids and grandkids, and bucket list type activities, such as travel or moving to a warm locale, etc.

Some of your current budget items will likely decrease or be eliminated when you retire, such as those associated with raising kids, commuting costs, the home mortgage and car payments, etc.

Alternatively, you can expect your healthcare costs will likely go up – perhaps significantly. There’s also the issue of long-term care, which many simply skip and hope they won’t need, which is a big risk.

While going through this process and trying to be as accurate and inclusive as positive, attempting to cover the bases and all possible scenarios, understand there will be surprises and unknown issues you can’t necessarily account for at the current time.

With all that considered, you decide on a figure you believe will equate to your monthly expenses. Say that is $3,800. In that scenario you might need to replace that amount with   retirement savings over 40 years, which would equate to a need for $1.824 million to maintain the same standard of living.

Calculated over 30 years to age 85 (at $45,600 annually), you would need still need $1.37 million. Even assuming you won’t live more than 20 years in retirement (age 75), under the same scenario you would still need $912,000 in savings.

There’s obviously quite a bit of disparity based on the number of years in retirement, but given you desire to retire at age 55, there’s a good chance you are going to live many years. The longer you do, the more you will need.

Here’s the rub, you can’t know in advance how long that will be.

Retirement Income

While it’s natural to focus on accumulated assets when planning your retirement budget, you also need to consider other sources. This can range from social security, royalties, inheritance, part-time or consulting work, rental income, turning that hobby into a business, and much more. Those other sources may likely have a huge impact on your question regarding having enough to retire at age 55.

Let’s assume you have saved $390k over the years, those savings will be combined with the other income sources to meet your budget demands.

Over 40 years, your $390k would equate to $812 per month, leaving a monthly budget deficit of nearly $3k per month. And you need to consider this doesn’t address the taxing of your qualified saving you withdrawal for monthly use, as well as your Requirement Minimum Distributions (RMD) when you get into your early 70s and thereafter.

Even over 30 years, to age 85, your retirement savings would equate to $1,083 per month, leaving a budget deficit of $2,717.

In terms of social security, you would be eligible for full benefits around age 67. Prior to 62 you would likely be ineligible. If you started at age 62 you would probably receive a reduced benefit that would lock in forever thereafter, reducing your overall benefit.

Once you actually started taking social security payments (assuming 12 years later at age 67), you might count on the average monthly benefit for retired workers (as of 2023), which is $1,830, according to the Social Security Administration (these benefits are based on a number of factors, so you need to check with the SSA to determine what your benefits will be).

Using the same example, you would have approx. $2,913 ($1083 per month from retirement savings divided over 30 years, plus $1,830 in monthly social security benefit payments) in monthly income between the two sources, although that again doesn’t take into account taxes.

As you can see, you would still have an approximate deficit of nearly $900 per month, given your estimated monthly retirement budget of $3,800 – once you started taking social security.

In this scenario, you would need “other” income of approximately $2,700 per month (assuming 30 years of retirement – which you can’t know for sure) for 12 years after retiring at 55. Thereafter you would have a deficit of roughly $900 after you started receiving social security.

Both the pre- and post-social security payment periods would have deficits that would have to be addressed from among those “other” income sources.

It goes without saying that without the additional income, you would necessarily need to cut back on your monthly expenses.

In considering your retirement assets that will be available to meet your needs, keep in mind there are specialized tools or products and strategies that can be utilized specifically for retirement. One example is that of Fixed Index Annuities or FIAs, which are capable of providing potential double-digit returns without market risk or that of your principle, as well as lifetime income you can’t outlive.

There are also trusts and tax strategies that can be utilized to reduce taxes by thousands to tens of thousands, plus protect assets, and provide myriad additional benefits.

Conclusion

Bottom line in asking what you will need to retire at age 55, there are lots of questions and variables that must be answered.

Your current age and savings are among the most important. Also, what kind of assets you have within your investment portfolio, as well as how it is allocated, both currently and how that will be adjusted going forward.

Then there is the question of longevity, which will have a serious effect on how long your assets must last in order that you don’t outlive them.

Retiring earlier, such as age 55, will increase the number of years you are likely to have to fund. The more you start with in terms of savings, the easier than can be potentially. The less you start with, as demonstrated, you could find yourself struggling. You might even have to consider delaying your retirement to some extent – possibly years.

Expenses are ultimately very important – what they will be and your ability to cover them when you retire will determine the standard of living you will actually be able to maintain in retirement.

Health is another issue. Healthcare and associated costs, (such as prescriptions) will likely increase over time, which is a big consideration. Hanging on to your current employer-provided healthcare may make sense, even if that means holding off on retirement for a while.

The key to answering your question boils down to all of these considerations. The only way to know is to look at your own situation and take all of these variables and issues into account. Doing so should allow you to make an informed decision.

The bigger question you might want to ask yourself at this point is should you be making such a momentous decision on your own – especially when it could impact you for many years to come.

Frankly there are so many considerations and moving parts that one must ask themselves why not seek out the advice of a qualified retirement planner or financial advisor when contemplating such a critical decision.

Whatever you decide, you will need a comprehensive plan that will guide you through retirement to ensure you don’t get tripped up and instead make the right decisions. Which accounts will you draw from first versus others you will hold off on utilizing is just one critical question.  And there are many.

Working with a retirement professional can help you build a plan customized to you and your situation, thus ensuring you have the best opportunity to retire successfully and in a manner of your choosing.

We’d be happy to assist you as you contemplate retiring. We know retirement and can help you navigate the process, ensuring you cover all the bases, issues and decisions, providing peace of mind as you do so.

If you’re ready to take the next step and talk to a team of financial advisors and retirement planners who put your interests first, Schedule a call today!