If Your 401(k) Reaches $3 Million By 45, Can You Stop Saving for Retirement?

A $3 million nest egg is a lot more money than most people are going to end up with, even when they’ve reached their retirement age. So, what happens if you end up with $3 million by the age of 45?

Have you built a big enough account balance that you can just coast on what you have saved already and count on compound growth to help you hit your savings target?

Is $3 million enough to enter a COAST FIRE phase?

Many people who save $3 million in a 401(k) by age 45 do so because they are part of the FIRE movement. FIRE stands for Financial Independence, Retire Early. Those who are part of this movement typically save aggressively so they can build a large enough investment account to support themselves at a much earlier point in their lives than the traditional retirement age. 

There’s also a sub-movement within this group called COAST Fire. Those who adopt this philosophy aim to really save a lot at a young age and then just relax a bit with investing and let compound interest do the rest of the work in building wealth. The idea is, once your account balance grows big enough, it can grow without your intervention and still make early retirement possible.

So, is $3 million by 45 enough to do that? It depends on how much money you actually want to end up with and how long your timeline is. Say, for example, that you’re hoping to retire with $10 million (a common goal within the FIRE movement) and you want to do it by age 50. With five more years to invest, and assuming an 8% average annual return, you’d fall short because our compound interest calculator shows you would end up with about $4,407,984.23 million if you just let your $3 million grow and didn’t invest more.. 

However, if this timeline were the same but you didn’t need anywhere close to $10 million to retire, then you could just coast until you’re ready to quit.

A $4.4 million nest egg gives you a $162,800 income at a safe 3.7% withdrawal rate, so if you are reasonably confident that you could live comfortably off that amount when retiring at 50, you’d be able to just sit back and relax and let your money grow. For many people in inexpensive parts of the country who will have a paid-off home in their 50s, $4.4 million would be more than enough.

A financial advisor can help you decide how to achieve your goals 

As you can see, there are a lot of factors that go into determining how much you need to save for retirement, and when you have enough. The age you want to retire, whether you live in a high or low cost-of-living area, and what you plan to do with your days in retirement all impact the amount you should be investing over time.

Getting help from a financial advisor is often the best way to take all of these factors into account and to make sure you are making the right choices with the big picture in mind.  Your financial advisor can help you to determine what you want life in retirement to look like, can work with you to decide on your target retirment age, and can help you make sure you don’t have any forgotten expenses such as health insurance premiums that you may not think about if your employer is currently subsidizign your coverage.

Your advisor can also work with you to determine when and how much to save, and how best to allocate your assets and invest money for the future you deserve. The sooner you start working with your advisor, the easier it will be to achieve your early retirement dreams while determining the most effective ways to use your money in the meantime. 

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