One rule is a “percent of portfolio” withdrawal strategy. You take 4% or 5% of your portfolio every year no matter what. You don't adjust for inflation or market performance.
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
This money will need to last around 40 years to comfortably ensure that you won't outlive your savings. This means you can probably boost your total withdrawals (principal and yield) to around $20,000 per year. This will give you a pre-tax income of $35,000 per year.
The 4% rule assumes you increase your spending every year by the rate of inflation—not on how your portfolio performed—which can be a challenge for some investors. It also assumes you never have years where you spend more, or less, than the inflation increase. This isn't how most people spend in retirement.
If you run out of money in retirement, you may face financial hardship and reduced quality of life. You may need to rely on family members or government programs for financial assistance, reduce your standard of living, or make significant lifestyle changes.
Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
Based on the 80% principle, you can expect to need about $96,000 in annual income after you retire, which is $8,000 per month.
Putting off saving for retirement
The single biggest financial regret of Americans surveyed by Forbes was waiting too long to start saving for retirement. Not surprisingly, baby boomers expressed this regret at a much higher rate than younger respondents.
Housing expenses—which include mortgage, rent, property tax, insurance, maintenance and repair costs—remained the largest expense for retirees. More specifically, the average retiree household pays an average of $17,454 per year ($1,455 per month) on housing costs, representing over 35% of annual expenditures.
Retiring at 62 with little money could be workable if you plan to relocate to an area with a lower cost-of-living, and cut your expenses. It also helps if you have additional money from Social Security, a pension, or an annuity that you can count on.
You'd need to save at least $480,000 before retirement if you want $2,000 per month.
For an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04). This strategy assumes a 5% return on investments, after taxes and inflation, no additional retirement income, such as Social Security, and a lifestyle similar to the one you would be living at the time you retire.
You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.
Once you reach 59½, you can take distributions from your 401(k) plan without being subject to the 10% penalty. However, that doesn't mean there are no consequences. All withdrawals from your 401(k), even those taken after age 59½, are subject to ordinary income taxes.
The results show that many retirees wish they would have started saving sooner—and a larger amount—than they actually did. In fact, many don't think they'll have enough money to finance their full retirement.
About 23% of Americans over age 65 live in poverty, according to the Organization for Economic Co-operation and Development. That's one of the highest shares among developed nations. U.S. Census data suggests a smaller share of the elderly are poor, and that old-age poverty nationwide has been falling.
The average American spends $4,345 per month in retirement, according to the Bureau of Labor Statistics. That's $52,141 per year.
Top the amount with 401(k) savings, living on $3,000 a month after taxes is possible for a retiree. For those who only have social security benefits to rely on, there are many places where they can retire on their checks both in the USA and around the world.
As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient.
According to U.S. Census Bureau data, 50% of women and 47% of men between the ages of 55 and 66 have no retirement savings. O'Connor, who adopted and raised three children as a single mother, said she knew she would be in that group. "I have a live-for-now philosophy, I guess," O'Connor said.
For most retirees, Social Security and (to a lesser degree) pensions are the two primary sources of regular income in retirement. You usually can collect these payments early—at age 62 for Social Security and sometimes as early as age 55 with a pension.
10x your annual salary by 67
To fund an “above average” retirement lifestyle—where you spend 55% of your preretirement income—Fidelity recommends having 12 times your income saved at age 67, which is the normal Social Security retirement age.