Retiring on $1 million at 50 will depend on longevity, health costs, lifestyle, retirement income, inflation and other factors. Here are different scenarios. So if you’re entranced by the idea of retiring early, you might be running through various scenarios. And you might be wondering exactly how much money you will need to sock away to retire as soon as possible. We’ll take a look at how you can retire at 50 with $1 million saved.
If you want individualized help planning for early retirement, you should consider working with a financial advisor.
What Retirement Lifestyle Do You Want?
The truth is that if you can absolutely retire at 50 with $1 million, you might have to make some big sacrifices. That doesn’t just mean giving up luxuries like world travel or a foreign car. If you want to continue making mortgage payments on your home or help your kids with college costs, $1 million might not go far enough.
You can use the 4% to give yourself a baseline expectation of how much you’d need to save to live a certain lifestyle. The 4% rule is a simplistic rule of thumb that says if you withdraw 4% of your total retirement savings, adjusted for inflation, each year, your savings should last around 30 years.
In this scenario, that means you could withdraw approximately $40,000 each year and your savings would last until you turn 80. If that doesn’t sound like enough, you can consider ways to lower your annual expenses such as downsizing your home, or you can plan to put aside more money before you retire. For example, if you wanted to up your annual retirement income to $50,000, you’d need to save $1.25 million instead.
You can use SmartAsset’s free retirement calculator to play with different scenarios and estimate how much you’ll need to save and at what age you’ll need to retire to have the lifestyle you want.
What $1 Million Will Look Like in Retirement
Per the 4% rule, you can expect roughly $40,000 a year in income from your retirement savings, which will last for approximately 30 years. Even if that amount of income sounds perfect for you, you have to consider what will happen if you live past 80. No one wants to run out of money in their 80s. You can look at your personal health numbers and family history to get an idea of your lifespan, but there’s no guarantee.
Another important thing to consider is how much Social Security you’ll get. Your Social Security payout is determined by the age you claim Social Security, how much money you made and some other factors. You can use SmartAsset’s Social Security calculator to estimate your benefit amounts.
Let’s say you were born in 1985, you’re single and your annual income is $60,000. We’ll also assume a 2% rate of annual general inflation. In that case, if you take Social Security as soon as you’re able—at the age of 62—you’ll receive $26,440 a year in Social Security payments.
If you can wait until the age of 65, that amount goes up to $32,735. If you claim Social Security at 65 in this scenario, your annual income will go from $40,000 a year to $72,735 a year with your new benefits.
Planning for Healthcare Costs
If you’re committed to retiring at 50 with $1 million, you’ll need to plan your health care coverage. Medicare doesn’t kick in until age 65. So you’ll have to cover your own healthcare expenses until then if you currently depend on an employer plan.
That said, if you want to use marketplace insurance via the Affordable Care Act, you might qualify for tax credits if you make less than 400% of the federal poverty limit. In 2023, the federal poverty limit is $14,580 and 400% of that is $58,320.
So if you’re living on $50,000 a year, you could very well qualify for help with your insurance plan while you wait for Medicare to kick in. You can use this calculator from Healthcare.gov to see what savings you could qualify for.
Considering Estate Planning
Retiring at 50 years old with $1 million likely means you want to stretch your savings. And that will involve being creative with the assets you currently have like a house, car, jewelry or other valuable items.
For example, if you have a mortgage or vacation home paid off, you can pass it down to your family. That way, you don’t have to spend extra money on a new home and you can continue to use your money with other income streams.
How Inflation Impacts Retirement Savings
You might be wondering why you need to factor inflation into your retirement plans. Unfortunately, while Social Security benefits scale with inflation, you’re likely to see painful impacts in other areas of your retirement.
The biggest impact you’re likely to notice is the rising cost of goods on a set income. You’re probably noticing this even now—according to the U.S. Bureau of Labor Statistics, $40,000 in January 2000 has the same buying power as $70,893 in January 2023 (the most recent data available).
Even in the past three years, inflation has been painful. Because of inflation, $40,000 in January 2020 has the same buying power as $46,388 as of January 2023. During periods of inflation in retirement, you’ll be in a better position if your retirement savings and income come from diverse sources.
That way it’s more likely that if one income stream tanks, another might rise. Especially if you have investments in sectors that typically rise with inflation.
What Kind of Savings Accounts Do You Need?
If you want to retire at 50, you’ll need to make special plans. Most tax-advantaged retirement accounts, including the most common ones like individual retirement accounts (IRAs) and 401(k) plans, will usually penalize you for taking withdrawals before the age of 59 ½. This means you’ll need to plan to use traditional savings accounts or other investment accounts during this time frame.
Stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs) and other investments are a good way to get a return on your money without locking it up until you’re nearly 60. It’s already a great idea to diversify your savings. So by putting some of your savings in 401(k) plans and IRAs to save on taxes while putting some in other vehicles that offer greater flexibility or higher returns, you can put yourself in a better financial position.
There’s no doubt that $1 million is a lot of money. but considerations like inflation, healthcare expenditures and tax bills can whittle it down fast. Start planning in great detail as early as possible to be able to enjoy your retirement years to the fullest.
Tips for Retiring Early
- Retiring at 50 necessitates multiple income streams, which can complicate your taxes. If you’re lost, you can get help from a financial advisor. 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.
- Having a spending plan is essential for retiring early. Your monthly income will dictate your lifestyle. To that end, here’s how to make a retirement budget.
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