Is It Possible to Retire By 45 If You’ve Banked $2 Million?

According to Northwestern Mutual’s Planning and Progress study,  Americans believe they’ll need $1.46 million to retire. Since that’s the case, if you have $2 million at 45, you may feel pretty confident that you’re ready to leave the workforce early and start enjoying a life of leisure while you’re still young enough to do everything you want.

The problem, though, is that you may actually not be quite ready to stop working even with a multi-million dollar investment account balance.

Here’s why $2 million may simply not be sufficient to stop working at the very young age of 45. 

Why $2 million may not be enough to retire at 45

There are a few key reasons why a $2 million nest egg may not enable you to leave your job in your mid-40s. 

The biggest reason is that you have a really long time to rely on your investment accounts.  You’re probably going to want to ensure that money will last for another 40 years or longer since living until 85 isn’t an unreasonable expectation and you won’t want to run out of money in your mid-80s. 

Since it’s critical that your money not run out, you’ll have to pick a safe withdrawal rate. Experts suggest 3.7%, although you may want to be even more conservative than that since your timeline for your investments to support you is so long. Still, if you assume that the recommended 3.7% is pretty safe, your nest egg would give you around $74,000 per year to live on. 

Considering that the median household income is around $60K according to the Bureau of Labor Statistics, that might sound like plenty. The issue is, you probably didn’t amass $2 million by age 45 if you were only making $60K a year. You most likely had a job that paid you a lot of money (unless you inherited your funds or got lucky).

If you were earning a six-figure income, you may be used to a certain standard of living, and may have committed to certain expenses that will be hard to cover with just $74K per year. So, unless you are 100% confident you can live on that amount for the foreseeable future, you can’t stop working at 45 unless you have quite a bit more than $2 million.

Really early retirement comes with a host of other costs

You should also know that retiring at a really young age also comes with a lot of other costs that you’re going to have to deal with.

Healthcare is probbaly going to be one of your biggest expenses unless you have a spouse who will keep working and provide you with group coverage. Individual coverage can be really costly and even if you get a plan that seems affordable, coverage usually isn’t as great as what you can get on a group plan so you may find yourself paying more out of pocket.

You’re also going to shrink your Social Security check, which is based on average wages over 35 years, since you probably won’t have worked 35 years yet if you are retiring at 45. And you’ll need stuff to fill your days, which means you could spend more than you expect on things like travel or hobbies.

You need to think about all these costs before you quit. A financial advisor can help you to understand what retirement age 45 with $2 million would look like so you can decide if that’s a lifestyle you want to live. Be sure to talk with your advisor first before you quit so you aren’t left with regret. 

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