To many of us who have to go to work every day, retirement sounds wonderful. Early retirement sounds like an even better idea. Instead of working until we're in our 60s, retiring a decade earlier would give us that much more time to enjoy the good life.
Generation Z seems to agree. According to the 2022 Investopedia Financial Literacy Study, the median age when those age 25 and younger expect to retire is 57.
The question is: To retire at age 57—a decade before the full Social Security retirement age for those born after 1960—how much money will it take?
Key Takeaways
- Retiring at age 57 takes careful financial planning.
- If you earn the maximum in Social Security, it will make it easier to stretch your dollars.
- You will need to use your savings during retirementuntil Social Security kicks in at age 67.
- If you take SocialSecurity at age 62, the amount you receivewill be lower than if you wait.
Social Security 2024
Social Security payouts are adjusted annually based on the increase in the cost of living. The increase for 2024 is 3.2%. In 2023, the increase was a historically high 8.7% due to inflation.
How Much Income Do You Need?
Let's do some informal, back-of-the-napkin calculations to get a ballpark idea of how much income is required to make the dream come true.
Jot down the amount of money you spent last year. If you spent $55,000 to maintain your lifestyle, then you need the equivalent of $55,000 a year starting at age 57. If you spent $100,000, $200,000, $250,000, or some other amount last year, then that is the number you will need.
This assumes that the lifestyle you want next year is the same lifestyle that you enjoyed last year, so you need adequate savings and other income sources to pay your bills until you reach full retirement age at 67 and your full Social Security benefit kicks in to help.
Keep in mind that this doesn't take into account things that might affect your expenses in a major way—either pleasant (a trip around the world) or unpleasant (a serious illness).
It also ignores the insidious effects of inflation.
How Much Savings Do You Need?
If you retire, the earned income stream is shut off. So, how much in savings do you need to pay the bills?
All other things being equal, you'll need to have about 10 times the amount of your expenses saved up (not counting interest) in order to generate sufficient income on which to live until you can start collecting Social Security benefits at age 67.
Income Requirement = $55,000 | Income Requirement = $100,000 | |
Year 1 | $550,000 savings | $1,000,000 savings |
Year 2 | $495,000 savings | $900,000 savings |
Year 3 | $440,000 savings | $800,000 savings |
Year 4 | $385,000 savings | $700,000 savings |
Year 5 | $330,000 savings | $600,000 savings |
Year 6 | $275,000 savings | $500,000 savings |
Year 7 | $220,000 savings | $400,000 savings |
Year 8 | $165,000 savings | $300,000 savings |
Year 9 | $110,000 savings | $200,000 savings |
Year 10 | $55,000 savings | $100,000 savings |
From retirement at age 57 to the time you start collecting Social Security benefits at age 67, you'll need about 10 times the amount of your annual expenses saved up to generate sufficient income on which to live.
As previously mentioned, this rough estimate doesn't take into account interest on your savings or the effects of inflation over the ten-year period. Assuming $550,000 initial savings and $55,000 in annual expenses, your balance could be $108,640.65 at the end of ten years at a 3% interest rate. This interest cushion may help to offset the inflation rate over the decade.
To calculate this ending figure, you can use a future value calculator with 10 periods, a present value of $550,000, an interest rate of 3%, and periodic withdrawals of $55,000 (withdrawals can be entered as a negative value if the calculator asks for periodic deposits).
| Beginning Principal | Beginning Balance | Annual Interest | Ending Balance | Ending Principal | |
| Year 1 | $550,000.00 | $550,000.00 | $16,500.00 | $511,500.00 | $495,000.00 |
| Year 2 | $495,000.00 | $511,500.00 | $15,345.00 | $471,845.00 | $440,000.00 |
| Year 3 | $440,000.00 | $471,845.00 | $14,155.35 | $431,000.35 | $385,000.00 |
| Year 4 | $385,000.00 | $431,000.35 | $12,930.01 | $388,930.36 | $330,000.00 |
| Year 5 | $330,000.00 | $388,930.36 | $11,667.91 | $345,598.27 | $275,000.00 |
| Year 6 | $275,000.00 | $345,598.27 | $10,367.95 | $300,966.22 | $220,000.00 |
| Year 7 | $220,000.00 | $300,966.22 | $9,028.99 | $254,995.21 | $165,000.00 |
| Year 8 | $165,000.00 | $254,995.21 | $7,649.86 | $207,645.06 | $110,000.00 |
| Year 9 | $110,000.00 | $207,645.06 | $6,229.35 | $158,874.41 | $55,000.00 |
| Year 10 | $55,000.00 | $158,874.41 | $4,766.23 | $108,640.65 | $0.00 |
The Government's Role
What if you look at those numbers and think to yourself that you don't have nearly enough money to maintain your current lifestyle for a decade and still pay your bills, but you still want to retire at 57? This brings us to a second back-of-the-napkin calculation of how much you need to get by in early retirement.
Again, start with the simplest of assumptions: At age 67, what would you earn if Social Security were your only source of income at retirement? You started work at age 20. You earned enough to qualify for the maximum possible Social Security benefits. In this scenario, the maximum that a retiree age 67 in 2023 could collect is $3,808 per month, or $45,696 per year. In 2024, it is $3,911, or $46,932 per year.
So, let's assume that's your minimum:an annual income of $46,932. By that math, you would need $469,320 total to pay your bills for a decade until the first benefit check arrives.
Of course, you can elect to start collecting Social Security benefits a bit earlier, at age 62. That will significantly lower the size of the payments for the rest of your life, however.
What Is the Average 401(k) Balance for People Age 65?
The average account balance for Vanguard participants aged 65 and up was $232,710 in 2022. The median balance for the age group was $70,620.
The average account balance for all Vanguard participants was $112,572 in 2022. That's a 20% decrease over the previous year and is attributed mainly to declines in the stock and bond markets.
The median account balance in 2022 was $27,376.
Is It Worth Retiring Early?
Whether or not it is worth retiring early will be different for every individual and depend on a variety of factors, such as how much money a person has saved for retirement and what kind of life they want to live in retirement. Benefits of retiring early include the ability to travel without time restrictions, the ability to start one's own business, better health at a younger age to enjoy retirement, and more time to spend with loved ones.
How Much Money Do I Need to Retire?
The amount of money you need to retire will depend on your finances, the lifestyle you lead and want to lead in retirement, and the types of expenses you have. Generally speaking, experts advise having 80% to 90% of your annual pre-retirement income saved for each year of early retirement.
The Bottom Line
These assumptions do not reflect the realities of a complex world. While the math is easy to calculate, it does not take into account the variables of investment returns, the rising cost of living, unexpected expenses, potential healthcare costs, and a host of other factors—as well as potential changes in personal spending habits and lifestyle.
Whichever of these two methods you choose, the bottom line is you'll need a hefty sum in savings to tide you over until Social Security kicks in.
Ask yourself: Can you cut any of your current expenses? Will you have a pension check waiting for you 10 or so years into early retirement? How much have you saved in your 401(k), IRA, or other savings and investment accounts? Do you stand to inherit some money? If you own your home, how much equity do you have in it? Are you hoping to leave some money to your children or grandchildren? Does your spouse have an income that can help fund your plan? Do you qualify for the maximum Social Security payment? Can you live on the amount of Social Security you qualify for?
The answers to these questions are different for everyone. Retirement planning is a highly personal process. Only you know the specific details of your personal financial situation. Only you know what sacrifices you are willing to make to realize that dream of kissing the working-stiff life goodbye years before you reach normal retirement age.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Social Security Administration. "Starting Your Retirement Benefits Early."
Social Security Administration. "Cost-of-Living Adjustment (COLA) Information."
Fidelity. "How Much Do I Need to Retire?"
Social Security Administration. "Workers With Maximum-Table Earnings."
Vanguard. "How America Saves 2023," Pages 10, 53.
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