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How to Retire at 45 With $2 Million


Retiring before you’re 50 may sound like a pipe dream, but a nest egg of $2 million can make this a reality. If you already have $2 million that you’re ready to retire with, know what to evaluate can help you decide whether retirement is a real possibility. However, if you have yet to accumulate that much, then getting to that seemingly out-of-reach milestone is the real task that you need to plan ahead for. Regardless, you may find it helpful to work with a financial advisor on your investing and retirement plans.

Factors that Determine If $2 Million Is Enough to Retire at 45

Retiring at 45 isn’t as simple as leaving your job with $2 million in the bank. Numerous factors impact your ability to live on that amount of money for the next several decades. That said, here are some of the important things to consider:

Life Expectancy  

First, your life expectancy affects how far $2 million will take you. For instance, if you expect to live until 90, you must plan out a 45-year retirement. Throughout that time, healthcare, transportation, and housing expenses can fluctuate and increase.

Cost of Living 

On that note, your cost of living is also a key factor to consider. Everything from your lifestyle, hobbies, vacations and regular trips to the grocery store will determine how much you should plan to spend in retirement. For example, the average single retiree in Savannah, Georgia (one of the most tax-friendly states for retired folks) can expect to spend about $16,000 on housing and almost $6,000 on food annually. However, minimizing your housing costs by paying off your mortgage can help keep expenses down during retirement.

Healthcare Costs

Retirees also must grapple with rising healthcare costs throughout their golden years. Specifically, a report from HealthView Services Financial estimates a couple retiring at 65 with no serious health conditions will spend an average of $673,587 on medical care. As a result, a couple retiring at 45 should plan for a similar amount plus an additional 20 years of medical costs. For example, a good rule of thumb is to designate 15% of your annual income toward healthcare.

Education Expenses

Furthermore, retiring at 45 might mean still having kids at home. This dynamic will incur more costs, especially if you want to send your children to college. Therefore, you may need to contribute to a 529 plan during retirement or plan for your kids to secure full rides for themselves.

Streams of Income 

In addition, your income streams influence your ability to retire young. While $2 million may seem like a lot of money, it needs to generate a sufficient return to live on. For example, if you follow the 4% rule, you plan on your money providing a 4% return on average. As a result, you would live on $80,000 per year. Another option to achieve this income level is investing half of your money in a brokerage account portfolio that returns 5% per year ($50,000) and the other half in an annuity that provides $30,000 annually.


Speaking of income, taxes are a reality for a retired 45-year-old. For instance, a brokerage account will be subject to capital gains taxes. In addition, you’ll pay standard income taxes on the entire withdrawal from a qualified annuity or solely on earnings from a non-qualified annuity. As a result, understanding how taxes will impact your income is vital.

Example of Someone Retiring at 45 with $2 Million  

How to Retire at 45 with $2 Million

Below is an example to make this situation concrete (using a retirement calculator can be helpful with this). Say a single person is preparing to retire at 45 with $2 million in diversified assets. They will retire in Florida to avoid state income taxes. Here are their annual expenses:

  • $20,000 for housing
  • $8,500 for the care of one child
  • $18,000 for healthcare
  • $7,000 for utilities and property taxes
  • $6,000 for food
  • $5,000 for entertainment, phone, and internet
  • $2,500 for auto upkeep and insurance

This person’s annual cost of living is $67,000 in all.

On the income side, they invest $1 million in a brokerage account that returns an average of 4.5% ($45,000) annually. However, this income incurs capital gains taxes of 15%, meaning the retiree receives $38,250 after taxes.

In addition, the retiree has $750,000 in a qualified annuity that provides $30,000 per year. They also have $250,000 in a high-yield savings account with a 3.5% interest rate, meaning it earns $8,750 per year. These streams bring their regular annual income to $38,750. After paying federal income taxes, they’ll keep about $34,300. This figure brings their total annual income to $72,550. Therefore, they can retire at 45 with about $5,500 to spare annually.

Two additional factors influence this scenario: inflation and Social Security. Specifically, discounting the current inflation trend, experts recommend planning for an inflation rate of 3% per year. Therefore, this person’s retirement budget will increase by 3% of $67,000, or $2,010, in the second year of their retirement, and so on. As a result, they will need to increase their withdrawals or reduce their expenses to continue a sustainable retirement.

Secondly, Social Security can kick in as early as 62 or as late as 70. A retiree fighting inflation might want to supplement their budget as soon as possible and collect Social Security at 62. Remember, your Social Security benefit increases by 8% for each year you delay it between 62 and 70. For instance, you’ll receive about 24% less money in Social Security by taking it at 62 instead of 65. This feature is crucial for retirement calculations.

How to Retire at 45 With $2 Million

How to Retire at 45 With $2 Million

Retiring at 45 is cost-intensive, and building up a $2 million fund will take hard work and persistence. The following strategies can help you grow your nest egg and retire at your target age:

Boost Your Savings

Your monthly savings habit is vital to retiring early. Specifically, if you were to work for 23 years – from age 22 to 25 – you would need to deposit about $2,935 each month into an investment portfolio with a 7% return to hit $2 million by retirement. This contribution amounts to $35,220 per year. A solid rule of thumb is to save 15% of your income for retirement, so you’ll need an annual income of about $234,800. Therefore, you must develop a lucrative side hustle or enter a high-income career to increase your savings sufficiently.

In addition, saving requires discipline. Fortunately, you can automate your savings so you don’t have to think about it every month. Instead, you’ll pay yourself first and adjust to living on the remainder of your income.

Live Below Your Means

Spending less than you make is a tried-and-true strategy for accumulating wealth. Following this rule means your combined monthly expenses, including housing, debt payments, food, etc., are less than your income. This way, you can save your surplus cash in your retirement account. Plus, if you’re already hitting your retirement savings goal and have extra money at the end of the month, you can start building up an emergency fund.

Pick the Right Investments

Reaching $2 million means picking investments with the best returns. For example, a diversified mix of exchange-traded funds (ETFs), mutual funds, and real estate investment trusts (REITs) can get you there. The trick is to get maximum exposure to profitable stocks and minimize fees. On average, the stock market has provided about a 10% return throughout its history. In addition, countless funds have passive management, meaning they have low administrative costs. So, keeping costs low and returns high should be your priority.

You may wonder why there has been no mention of investing in a 401(k) or IRA. Although these are excellent retirement savings vehicles, the funds they hold aren’t accessible until age 59 ½. Withdrawals before this age incur a 10% penalty, meaning you take an immediate hit on your income. Therefore, retiring at 45 with substantial funds in a traditional retirement account means locking yourself out of the money for almost 15 years. Because you’ll need to withdraw the income from $2 million upon retirement, you’ll need to have a significant portion of your assets in other accounts.

Pay off Debt

Nothing impedes your financial growth like debt. If you have a credit card balance or student loans, they act like inverse investments. Failing to address debt can lead to it spiraling out of control. For instance, a credit card with a 15% APY means your debt can grow by hundreds of dollars per month. Plus, this rate is higher than the average return of most assets, making investing a wasted effort unless you get rid of the debt first. As a result, it’s nearly impossible to save an adequate amount of money if debt continues dragging you down.

It may be best to repay high-interest debt before you start saving for retirement. You can take one of two approaches if you have multiple debts. First, you can use the snowball strategy, where you pay your lowest balances first. Then, after you rid yourself of each balance, apply the payment amount to your next lowest debt to accelerate repayment.

You can also use the avalanche strategy, meaning you pay the debt with the highest interest rate first, then move on to the next highest. Because high rates accumulate more debt, tackling these first saves money in the long run.

Make Adjustments When Necessary

Life happens, and your financial plan can get off track. For instance, a surprise medical bill or change in income can disrupt a budget that runs like a well-oiled machine. Therefore, rolling with the punches is a must if you want to maintain your progress toward retiring at 45. Whether you pick up a second job, eat dinner at home seven days a week for the next year or buy your next car used, the adjustment you make will pay off when you reach 45 with $2 million in assets.

Bottom Line

Retiring at 45 with $2 million takes diligent saving and detailed planning, but it is possible. However, you’ll have between 20 and 25 years to save, so you must save nearly $3,000 each to hit your goal. Your nest egg should provide about $80,000 of annual income, so if you can drop your expenses to that level, early retirement is feasible.

Remember, you’ll have to factor in taxes for multiple income streams, and a traditional retirement account might present challenges because of age restrictions. In addition, your Social Security benefit can provide a financial cushion once you reach age 62.

Tips for Retiring Young With $2 Million

  • Retiring young with millions of dollars requires a meticulous plan and financial wisdom. However, a financial advisor can help you with your plans. Finding a 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 have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Taxes play a critical role in retirement planning. Some states are more tax-friendly for retirees than others. Here’s a look at the most and least retirement tax-friendly states in the country.

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