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It doesn’t matter if you’re 25, 44 or 65; retirement has a way of sneaking up on you.
If you want to retire before the traditional age of 65 to 70, you need to pay close attention to your finances and consider what you’ll need when your work income stops. But for those looking to retire at age 50, the savings and investment goals are clear critical to maintain your lifestyle.
You can’t rely on Social Security for more than a decade if you retire at age 50. So you need enough money to do it completely on your own until then. Here’s a closer look at how much you need to retire at age 50 to help you make the best financial preparations.
How to Retire at 50 (TL;DR)
- If your goal is early retirement around age 50, you’ll need to prepare carefully with significant savings and investments to cover your cost of living.
- There are different ways to estimate how much you’ll need to retire around 50, including the 10x rule, the 25 rule, and the 4% rule.
- You can use several types of retirement accounts to save. Still, no matter what you choose, careful planning with retirement calculators and an accurate understanding of your expenses will ensure a comfortable retirement.
How much money do I need to retire at age 50?
How much you need to retire at age 50 is unique—it depends on your lifestyle and typical expenses. If you live in a low-cost area and plan to enjoy hobbies like bridge and gardening, your needs will probably be much lower than someone who lives in the heart of New York City or Los Angeles and wants to travel frequently
Experts suggest several methods for estimating your financial needs in retirement, including what you’ll need to retire at age 50. Before getting into these details, consider your budget to understand what you will typically spend per month in retirement. You won’t be commuting, but you could see higher costs for hobbies and just about everything else due to inflation and additional health care needs.
They are tried and tested formulas. However, remember that all the methods discussed here are an estimate. Conservative investors may want to save more than retirement calculators and rules suggest.
Read more >>> How much do you need to retire?
The rule of 25
The 25 rule states that you should save 25 times your annual financial needs during retirement. If you know your monthly budget when you stop working, you can multiply it by 12 to get an annual estimate and multiply it by 25 to reach your “Rule of 25” savings goal.
If you retire at age 50, your retirement investment strategy should include many assets. However, if you keep cash in savings, this approach could leave you broke in early retirement, especially if you live to age 90 or older.
According to the Rule of 25, if you want to receive $50,000 in annual income after retirement, you’ll need to save $1.25 million by age 50 ($50,000 x 25 = $1.25 million).
And how do you know that your $1.25 million won’t blow over? The 25x rule has been reliable for retirement savers another called rule the 4% rule, which we will talk about next.
Read more >>> The 25x rule for early retirement
The 4% rule.
The 4% rule states that you should be able to withdraw 4% per year from a retirement account and never run out of money. This math checks if your investments always grow an average of 4% or more per year. However, you could run out if you invest badly or draw too fast.
Many people find this to be one of the most useful rules for early retirement. As long as 4% of your retirement account balance is enough to live on each year, you should be all set, according to this rule.
Some more aggressive investors suggest you can withdraw 5% annually. But the more you draw, the riskier your long-term investment strategy becomes.
Invest for retirement >>> Which retirement account is best? A comparison of plans
Pros and cons of early retirement
pros
- Schedule control: You have complete control over what you do and when you retire.
- Financial independence: Once you have enough to retire, you don’t depend on anyone else for money.
- Side Income Opportunities: You may finally have time to work on a hobby or small business idea you’ve always dreamed of trying.
against
- Risk of running out of funds: When money stops coming in, the transition from growing your account balances to withdrawing from them can be difficult. If you spend too fast, you can run out of money.
- Less structure: Some early retirees find early retirement fun for a few weeks or months and then begin to feel that their lives are not as meaningful or useful.
- Fixed income: Most people have to live on a strict monthly budget during retirement. This can be annoying for someone used to taking home a regular paycheck.
How to save enough to retire at 50
Whether you want to retire at 50 or any other age, the steps for saving and investing are very similar. Here’s a road map of what you need to know to know how much you need to retire at age 50.
Determine your retirement expenses and time frame
Start by estimating your costs and how long you will be retired. You can use your current monthly budget as a starting point and adjust it to your planned retirement needs. Remember, for retired Americans, health care can be a six-figure expense. Don’t underestimate your growing medical bills as you age.
You may want to downsize your home or pay off your mortgage, which can lead to monthly savings. Maybe you want to travel and play golf or take art classes, which add to your expenses. Once you have a good estimate, you can use your reasonable monthly and yearly figures as a reference for your future financial needs.
Then try to figure out how long you will live. Although no one likes the thought of dying, it will happen to all of us eventually. You can use a life expectancy calculator to get an idea of how long you can expect to live.
Use a retirement calculator
Retirement calculators guide you through the process of estimating the minimum balance in your target retirement account to retire within the parameters you set. Most allow you to enter your current savings, income, savings rate, expected rate of return, expected inflation rate, typical monthly spending, and expected age of retirement and death.
Consider your savings and investment options
Don’t just put your cash in a high-yield retirement savings account. While a savings account is great for your emergency fund, most people are better off with a tax-advantaged retirement account that offers the ability to invest and save taxes.
Individual Retirement Accounts (IRAs) and Roth IRAs are self-directed retirement accounts in most cases. You can save up to an annual limit.
Some early retirees use a Roth conversion ladder to minimize the taxes you pay on your retirement income. It works by converting a traditional IRA into a Roth IRA over a period of years to eventually have all of your retirement savings in the Roth account. This can be beneficial because withdrawals from a Roth IRA are tax-free during retirement.
As long as you have a regular job, be sure to take advantage of employer-sponsored retirement plans. Accounts like 401(k), 403(b) and 457 allow you to invest with pre-tax income and defer your taxes until your income is lower in retirement. Plus, many offer a combination of employers to encourage retirement savings, which is like free money.
Final thoughts
Retiring early is a major accomplishment. Many people nearing their expected retirement age don’t have enough to retire in their 50s or 70s, let alone 50. However, early retirement could be within reach if you carefully manage your expenses and investments.
Prepare for retirement:
