If You’ve Banked $2 Million By 35, Is It Possible to Retire?

A $2 million nest egg is a lot of money and it is far more than most people have — especially most people who are 35 years old. However, it does not necessarily mean that you are set up for life or that you have enough money to retire without any financial worries.

Before you consider leaving work at 35 just because you have $2 million saved, there are a lot of factors to think about to make sure you’re in a good place with your money and will stay that way for the rest of your life. Here’s what you need to know. 

How much income will you have at a safe withdrawal rate?

First things first: You need to figure out how much income $2 million is actually going to produce for you because it may not be as much as you might think. While $2 million is a big sum, it’s not that big when you consider the fact this money might have to support you for 70 years. 

The key to making sure your money lasts will be to set a safe withdrawal rate. Most experts now suggest that you can take 3.7% out of your account in the first year of retirement if you want your money to last for 30 years. If you retire at 35, you’ll need your money to last far longer than that. So you may want to be pretty conservative and adopt a 3.5% withdrawal rate. If you stick with that to help ensure your money lasts, you’d be looking at around a $70,000 annual income. 

While that might be enough for you, that’s not a ton of money, so you need to think carefully about whether that will really be sufficient for you. 

What are your spending needs?

Your spending needs will help determine if you can retire with $2 million at the age of 35.  If you can’t keep your spending well below the $70K you can expect your nest egg to produce at a safe withdrawal rate, then you can’t retire yet. 

Your spending needs may be higher than you think, as you can’t afford to overlook the cost of healthcare. If you are no longer working for an employer that subsidizes coverage,  you may have to spend tens of thousands of dollars per year on insurance premiums as well as on copay and coinsurance costs since individual coverage often isn’t as good as the coverage you can get when you work for a company. 

You should also consider how your spending needs might change in the future, as you have many years to live on your limited income if you retire at 35. Do you have kids who will need college paid for? Will you ever want to move to a more expensive area? Do you have expensive hobbies you’d like to fill your days doing once you retire?

Leaving work with $2 million at 35 means you’re going to commit yourself to a lifetime of having a somewhat limited income. You may decide you are OK with that because you aren’t a big spender but you need to at least be aware that you are limiting your options. 

Where is your money invested?

It’s important to also consider where your $2 million is currently invested and how much of it is going to produce returns for you. If you have a $2 million nest egg but $500K or $1 million of that is tied up in your home equity, then you really aren’t in a good position to retire since you can’t access that money if you don’t plan to sell your house. 

If you do happen to have $2 million that you can invest and live off of, then you should make sure you’ve thought about your risk tolerance and created an appropriate asset allocation plan. You should have several years of living expenses set aside in cash to cover your costs in case of a market crash or economic downturn but also have a good amount of money in the stock market so you can earn the returns you need to make your money last. 

A financial advisor can help you to create a solid investment plan that makes sense if you’re planning to try to retire at 35. 

How will early retirement affect your Social Security?

Before you jump into early retirement, it’s worth considering the effect on your future Social Security benefits. You can typically qualify to get retirement benefits after 10 years of working and earning work credits — so you’ll eventually get Social Security decades in the future even if you retire at 35. However, you will likely receive a very small benefit.

Social Security calculates benefits based on your average wages over 35 years when you earned the most. If you retire at 35, you’ll likely fall far short of having a 35-year work history. For each year that you are short, a $0 average wage will be factored into your benefits formula. You will end up receiving a very low retirement benefit, so you can’t count on this money to do so much to help support you as a senior. 

That could be a big problem if your $2 million is starting to run short by the time you reach 62 when you first become eligible for Social Security to begin.

How will you spend your days?

Finally, before you retire at 35, you need to really think about what you are going to do — especially since you have only $2 million invested so you don’t exactly have a ton of money that enables you to just do what you want. Many people rely on the connections they have at work to help them find a social life and they rely on their jobs to give them purpose. if you are one of those people, early retirement isn’t likely to make you happy. 

By thinking through these issues, you can decide if you are ready to retire at 35 with your $2 million nest egg. If you live in a low-cost-of-living area, don’t plan to count on Social Security too much, have a good mix of assets, and know you can live on the income your money can produce, then leaving work now may make sense. Otherwise, you should seriously consider continuing to work, save more, and allow your nest egg to grow so you can retire later on with more wealth to enjoy your later years. 

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