There is a noticeable trend in the USA of people aiming to retire when they reach the middle of their 50s. Still, is $2.2 million the amount that will keep the same level of living for you for 30 years or more? The financial experts share their views.
The phenomenon of high earnings professionals, who still feel they lack time freedom and are suffering from burnout, as well as the rising healthcare costs makes for a perfect storm. In response, many are finding the idea of retiring at 55 the ideal one. Most probably, only people with high earnings. Still, this is only true if their $2.2 million is in the account. In addition, early retirement also depends on having a willing partner. Take this for example: if your spouse is young, will they accept to retire? On the other monetary side, the question is will they forgo the salary for a slower life in order to enjoy it with you? With $2.2 million early retirement is not a guarantee of financial freedom unless a person has the same type of retirement like their parents did and like their children are going to have.
If you are in your mid-50s and considering retiring early, it means you are planning on surviving for another three or four decades with only investment incomes. It also implies that there is no access to full Social Security, Medicare, or penalty-free retirement withdrawals for an extended period. In this case, can $2.2 million guarantee a convenient life without having to cut back on expenses?
Wedevs at Personal Money responded by talking to some financial experts to figure out $2.2 million goes these days, as well as the tactics early retirees should follow to safeguard their retirement fund without reducing the number of residences or the pleasures of life.
How $2.2 Million Lasts Gradually?
Normally, financial professionals make use of the 4% rule as the benchmark—i.e. withdrawing l4% of the portfolio each year—to extend savings for about 30 years—there are no other sources of income. That gives you roughly $88,000 per year.
\”That might be a good goal,\” says Jamie Linton, retirement advisor, “but don’t forget that you may retire at 55, which means you will need at least 35 to 40 years of income, not 30. And along will inflation leave you with no value of this money over time?”
So, if in the equation, we include the money from the government from the age of 62 and beyond, then the situation is altered – however, in the span between 55 and 62, the situation needs to be managed carefully when planning for cash flow.
Health Care Is the Big X-Factor
Insurance has to be the biggest factor of all that will create a huge financial burden between 55 and 65. Without Medicare coverage, private plans or ACA marketplace insurance could cost $800 to $1,500 per month — even for healthy individuals.
“Health costs can’t be taken lightly,” says Linton. “A luxurious retirement can quickly turn into a frugal one if a serious health event occurs before Medicare qualification.”
A Health Savings Account (HSA), long-term care insurance, a bridge insurance plan for early retirement, or, alternatively, a combination of these will all serve as the means to the end, that is, bridging the gap your health insurance fails to cover — the catch being that these should be put in place before you quit your job.
Travel, Dining, and Home Upkeep — What Lifestyle Really Costs
Lots of folks who are 55 are itching for a chance to travel, take up hobbies, and dine out regularly once they are retired. But if even that much modest luxury stuff — like taking two vacations per year, going to the movies, etc. — can consume as much as 100,000 dollars per year of your retired life.
So, if your house is fully paid off, you are living alone, you need no financial support to your children or anyone else, then your $2.2 million reserves could indeed last a long time. Yet, if you haven’t finished your mortgage payments yet or you are still financially supporting others, your own lifestyle may need to be scaled-back significantly.
“It’s not about the size of your savings,” Linton remarks. “It’s the way you’re using your money. Living on a budget of 100K per year is really possible — but not if you also buy a new car every 3 years and redo the kitchen at the same time.”
The Safe Path: Semi-Retirement or Phased Exit
A lot of high-net-worth professionals prefer a smarter way to transition to retirement at the age of 55 – move to consulting, freelancing, or part-time positions that will cover their expenses while the capital continues growing and bearing fruit until they can really retire.
Even making $2,000-$3,000 per month will lower the stress on your portfolio and prolong the Social Security withdrawals, allowing you to have more flexibility in the future.
$2.2M Can Work — But the Plan Matters More Than the Number
If you’re 55 years old and have saved $2.2 million, you are better off than the majority of the American population. However, retiring a tad too early needs meticulous planning, particularly to enjoy a flexible and comfortable lifestyle for more than three decades.
Do thorough long-term planning and get health insurance and taxes under control, and do not sugar-coat your spending patterns. A structured withdrawal strategy, reduced spending, and perhaps some extra income in the early years might be the deciding factors between an early retirement and the unfortunate realization of a mistake.
