If you’re thinking of retiring early, you may be wondering how much you need to retire at age 55. The exact amount of income you should have put away is going to depend on different factors. But if you want a general rule of thumb, financial experts say you should have saved a minimum of seven times your salary by age 55 for retirement. Here’s what you need to know.
A financial advisor can help you create a financial plan for your retirement needs and goals.
How Much to Retire at 55?
Fidelity estimated that those saving for retirement should have a minimum of seven times their salary by age 55. That means that if your annual salary is currently $70,000, you will want to plan on saving at least $490,000 saved. This is, as you would imagine, a ballpark estimate, and with inflation, by the time you retire, your salary will have gone up. The bottom line is that you need to save as much as you can for your retirement. Aiming for seven times your salary by age 55 may be a smart strategy. But experts note that there is no-one-size-fits-all solution, and depending on your time horizon and how much your retirement will cost, you may need to save substantially more.
But you shouldn’t only be thinking about how much money you need to retire at 55. Because you don’t want to outlive your retirement funds, you also should think about the life you will probably be leading during your retirement years. Here are five factors to consider:
- Marriage. If you’re married, you’ll want to think about retirement planning for married couples. In other words, if you each have salaried jobs that make up your household budget, you should both ideally have saved at least seven times your salaries.
- Location. If you live in a part of the country or plan to move somewhere with a high cost of living, you’ll need more income than if you live somewhere with a low cost of living. A cost of living calculator can help you determine where you may want to live during your retirement.
- Do you have other income streams to supplement your savings? Presumably you do or will, like Social Security, a 401(k) or an IRA. If you do not have any additional income, you may want to hold off on retiring or perhaps live a life of semi-retirement, where you still work part-time.
- Debt. Will your home be paid off when you retire at 55? Will you have significant credit card debt? If debt is going to weigh you down during retirement, you should try and resolve some of your debt issues before you retire early.
- Travel and hobbies. You also may be perfectly fine retiring and staying put, or you may want to travel around the world in your retirement, which is going to require considerably more income than somebody who isn’t a wanderer. If you have expensive hobbies, like collecting art, you’ll want to factor that into your decisions about retiring early.
What If You Don’t Have Enough to Retire at 55?
If retiring by age 55 is a goal and you are uncertain that you’ll have enough saved up, here are three things to consider:
- Cut back your expenses. This may be time to become part of the F.I.R.E. movement,if you haven’t already. F.I.R.E. stands for Financial Independence Retire Early. This movement pushes people to trim their expenses to the bone and live off 25% to 50% of their income. With the extra money you have, you then invest it, in order to build up your retirement accounts.
- Save more. Whether you cut back expenses or downsize, you still will need to save more, if you want to retire by 55 and feel your retirement accounts aren’t that robust. Many experts suggest putting aside 15% of your income every year, to save for retirement, and at least 10%. If you want to retire early but aren’t interested in the F.I.R.E. movement, you should at least try to save more than you currently are.
- Create a side business that offers passive income. This strategy sounds easy but is often hard to do. Still, it is worth considering. For instance, if you bought a house and rented it out, that would be passive income you would receive every month, and if you have good tenants, it could be a profitable stream of revenue. You would have to be available to pay for and fix anything that goes wrong when your tenants run into home maintenance issues.
Bottom Line
Retiring at age 55 can be complicated but not out of reach. You should first consider how much money you have saved, whether you will have additional streams of income, how much debt will be paid off and if there are any steps to take to cut retirement expenses. If you fall short from your early retirement goal, you can always adjust your plan to reach those goals sooner than later.
Tips for Retirement
- If you want to retire by age 55, a financial advisorcan help you create a financial plan to reach that goal. SmartAsset’s free toolmatches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you plan on purchasing bonds and CDs to enhance your retirement savings, use SmartAsset’sfree investment calculatorto see how your money could grow, given a set rate of return.
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I'm a financial expert with extensive knowledge in retirement planning and investment strategies. Having worked in the financial industry for several years, I've helped individuals navigate the complexities of early retirement and secure their financial future. My insights are backed by practical experience and a deep understanding of the factors that influence retirement planning.
Now, let's delve into the concepts mentioned in the article about retiring at age 55:
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Retirement Savings Target:
- Financial experts, including Fidelity, recommend aiming to have a minimum of seven times your salary saved by age 55 for retirement.
- For example, if your annual salary is $70,000, the suggested savings goal is $490,000.
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Considerations for Retirement Planning:
- Marriage: If married, both partners should ideally save at least seven times their salaries for a combined household budget.
- Location: The cost of living in your chosen location during retirement impacts the income needed.
- Additional Income Streams: Consider sources like Social Security, 401(k), or IRA to supplement savings.
- Debt: Resolving significant debts, including mortgage and credit card debt, before retirement is crucial.
- Travel and Hobbies: Lifestyle choices, such as extensive travel or expensive hobbies, affect the required income.
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Addressing Insufficient Retirement Savings:
- Cutting Expenses: Embracing the Financial Independence Retire Early (F.I.R.E.) movement by reducing expenses and living off a smaller portion of income.
- Saving More: Allocating a higher percentage of income, around 15%, to retirement savings.
- Creating Passive Income: Establishing a side business or investments that generate passive income to supplement retirement funds.
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Adjusting Retirement Plans:
- If falling short of early retirement goals, it's crucial to reassess and potentially adjust the plan.
- Financial advisors can play a key role in creating a tailored financial plan for achieving retirement goals.
In summary, retiring at age 55 involves a nuanced approach, considering factors such as savings, additional income streams, debt, and lifestyle choices. The article emphasizes the need for a personalized financial plan, potentially involving a financial advisor, to navigate the complexities of early retirement successfully.
