Can I Retire At 55?

Ben Carlson fielded a question from a 45 year old man who hates his job, has $1 million accumulated so far, earns $300,000, spends $12,000/mo and is asking about retiring at 55. He figures he needs $3.5 million at 55 to maintain his lifestyle. 

High level conclusions/observations from Ben;

• The reader is on track but maybe a little variability as to when he'll be able to retire
• There is a question from the reader about return assumptions which Ben notes can be tricky
• Ben makes the obvious but still necessary statement that retiring at 55 means the money needs to last longer
• The reader says he has $30,000 in savings, outside of his 401k and plans to put $50,000/yr into taxable accounts so ten years from now he'd have $530,000 plus whatever growth rate the reader can get
• Ben reminds the reader not to forget about inflation which could mean that in ten years, $12,000/mo might be $16.000/mo

I don't have a lot to disagree on but I think there is some nuance to add. Ben suggests that the reader either "roll the dice" which I take to mean that Ben is not certain things will go as the reader hopes, change careers and/or hire a financial advisor.

First thing I would add is to figure out what he will be spending in ten years. The $12,000 included the mortgage and cars. He doesn't say but the house could be paid off by then. If the house isn't that close to being paid off, paying in an extra $1000/mo would shorten the loan considerably. He could also just keep driving the same cars, the car loans (unless they're leased?) will be paid off by then. Maybe he can cut his nut in half?

If he actually puts away $50,000 into a taxable account every year for ten years, then that pot of money could be very useful as like a bridge to the next financial milestone. Note, we've talked about "depletion strategies" in this exact context but it appears that bridge has become a common term for this. The idea is using the taxable account to live on until it is depleted and by then, he'd probably be able to access 401k/IRA money without penalties (yes there are ways to access 401k/IRA money sooner w/o penalty). I think Ben is more skeptical of the utility of what this piece of money could do than I am.

One point that Ben did not mention is about Social Security. Anyone wanting to retire before 60 should take the time to understand what that will do to their Social Security payout. Social Security is based on the highest 35 earnings years. At 55, looking back to 20 is going to take in some very low earnings years in most cases. Most people will earn more from 50-60 or 55-65 than when they were 20-30. 

It's not that someone should necessarily change their plan of retiring early but they should go through the exercise of seeing what it would do to their payout. When you look at your statement is says something to the effect, this will be your benefit if you continue to earn whatever you just earned. I believe the SS website has a widget where you can tell it to refigure based on retiring earlier. If not, you can plug your earning record into the AI of your choice and get the answer. It would be useful to know if $4000 would drop to $3500 as a made up example to allow for accurate planning. Based on how the reader wrote into Ben, he comes across as very detail oriented and my guess is he would want to know his adjusted SS numbers. 

The last point I would make in response to the reader saying he hates his job two times in the email is that he should just quit now. The bigger point is that if he really stays in a job he hates for ten years, he is essentially going to wish away ten years of his life. It's not that he's a little older and of the mind set that ok, time to start winding this down, he hates his job. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.