Can I Retire Comfortably With $1.5 Million at 45?

It is possible to retire comfortably at 45 if you have $1.5 million. However, it’s not guaranteed to work. And whether it will for you depends on a number of variables, only some of which you can control. Having to wait 17 years for Social Security benefits and 20 years for Medicare coverage are important factors to consider when you retire this early. Your lifestyle, location, health and lifespan also will have a considerable impact on this plan’s viability.

A financial advisor can help you decide when you can comfortably retire.

Retiring at 45 with $1.5 Million

Age 45 is significantly younger than the average retirement, which varies 61 to 64, depending on which organization is studying the matter. This complicates a plan to retire at 45 with $1.5 million, in part due to the necessity to wait for government benefits to become available in your mid-60s.

At the same time, $1.5 million is significantly more than the average defined contribution retirement savings balance of $179,200 for 45 to 54-year-olds. And if invested wisely, that sum may well be able to support a comfortable lifestyle. Much depends, however, on what level of expense you consider acceptable. It’s also influenced by where you retire and other factors.

Key Factors to Consider

Life has a lot of moving parts and life in retirement is, if somewhat simpler, still fairly complex. When attempting to answer the question of whether $1.5 million is enough to retire at age 45, you will consider a number of factors, including:

4% Rule

The 4% rule suggests that a $1.5 million portfolio will provide for at least 30 years approximately $60,000 a year before taxes for you to live on in retirement. If you take more than this from your nest egg, it may run short; if you take less or your investments earn more, it may provide somewhat more income. The 4% rule anticipates that withdrawals will be adjusted annually for inflation and typically applies to a portfolio invested 50% in equities and 50% in bonds.

Annual Pre-Tax Income

Annual pre-tax income of $60,000 is approximately equal to the earnings of the average working 45-year-old. And most experts say retirees typically spend 55% to 80% of pre-retirement income in retirement. This suggests that your plan may well work, as long as your expenses aren’t above average. If you want to live on a golf course and take several cruises per year, that income may be inadequate. Where you retire and whether you have children at home can also affect your expenses.

Government Benefits

Age 62 is the earliest you can receive Social Security old-age benefits. So, your nest egg will have to support you for at least 17 years without any monthly government retirement check. And 65 is the youngest most people can qualify for Medicare. So you’ll need to pay for private health insurance for 20 years.

Early Retirement Plan Withdrawal Penalties

Early retirement plan withdrawal penalties. If all or part of your $1.5 million is in a tax-advantaged retirement plan such as a 401(k) or individual retirement account (IRA), you may have to pay a 10% penalty on early withdrawals you take before reaching the age of eligibility. This varies depending on the type of plan and some other factors, and there may be ways to avoid or reduce the penalties, but it could reduce your available income.

Life Expectancy

The average 45-year-old can expect to live another 32.59 years if male and 36.76 years if female, according to the Social Security Administration’s life expectancy table. That’s approximately how long your nest egg is likely to last, according to the 4% rule of thumb. If you live longer, however, you might have to cut back or risk running out of money.

A Sample Case

Let’s assume you take distributions of $60,000 in your first year of retirement. You choose to retire in Texas City, Texas where there’s no income tax, and have no children at home and otherwise average expenses for the area. Here’s how a budget calculator suggests your retiree budget might look:

Hypothetical Retiree Budget

If that budget looks comfortable, it’s a good sign that you can reasonably expect $1.5 million will cover it if you retire at 45.

Bottom Line

Retiring in comfort at 45 with $1.5 million is likely doable as long as your retirement living expenses are no more than average, your investments generate a typical return and you have good health. Challenges include waiting 17 years for Social Security and 20 years for Medicare.

Tips to Help You Save for Retirement

• A financial advisor can help you build a long-term strategy for reaching retirement. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area. And you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Social Security benefits alone won’t be able to support your current lifestyle. However, they can certainly help with your living expenses in retirement. Try our Social Security calculator to see how much of a benefit you can expect.
• While you’re at it, check out our retirement calculator to see if your savings are on pace; and try our cost of living calculator to get a better idea of your income needs.

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