Contrary to popular belief, the ideal retirement age isn’t as soon as possible. Retire too soon and you may feel empty for never living up to your true work potential. Retire too late and you might always be left wondering what could have been if you had changed course sooner.
For example, a 35-year-old couple making $400,000 might love their jobs. With two young kids under three, both parents might both want to work for 20 more years. This way, they can maximize their capital and support their kids through college. But will they regret retiring after both kids have left home? Maybe.
Then you might have a 30-year old couple making a combined $80,000. They don’t have kids and don’t want kids. Instead of needing a 4-bedroom, 3-bathroom home, they are happy living in a 1-bedroom condo for much less. All they want to do is travel and lead a simple life. In their mind, the ideal retirement age is 40.
Ideal Age To Retire For Less Regret And More Happiness
To minimize regret and maximize happiness, I believe the ideal retirement age range is between 41-45. By this age range, most will have had ~20 years to save and invest. Most will also be healthy enough to explore the world and do the things they’ve always wanted.
After retiring since 2012, I’ve also come to realize the best reason to retire early is more happiness. Your happiness curve shoots up sooner, reaches a higher peak, and stays higher for longer the sooner you retire.
See the happiness by age chart below.
My Retirement Age
I retired from banking in 2012 at age 34 and mentally unretired by 36 because it was just too boring. There were only so many gothic churches I could see and rounds of golf I could play.
Now I call myself a fake retiree because I’m busy writing on Financial Samurai, sending out weekly newsletters, and recording podcasts (Apple, Google) in between school drop offs and doctors appointments.
My online activities keep me busy for 15-20 hours a week. Then I spend another 25-30 hours a week are spent with my wife and kids as an old parent wanting to make up for lost time. Teaching my kiddos new things is now my greatest joy. It’s also a lot of fun for me to relearn all the things I had forgotten in school.
I’m currently 45 years old and have accomplished much of what I’ve wanted to accomplish. But if I were to retire all over again, one of things I would have done differently was try to work for at least three more years. In retrospect, retiring at age 34 was too early.
It would have been nice to have taken advantage of paid parental leave twice. Relocating to a new office in Asia or Europe would have provided a great thrill. Padding my 401(k) and taxable investment portfolio with three more years of profit sharing and contributions would have provided even more financial security.
Oh well! I cannot go back in time. But I can use my experience to help you make a more informed decision about the ideal retirement age. Let’s go through the reasons why the age range of 41-45 makes sense to take things down at work.
The Average Retirement Age In America
To get a retirement age baseline, as you can see in the chart below, the average retirement age is between 61-65 for 51% of Americans. 63% of Americans retire between the ages of 61-69.
In a quest to live a better-than-average life, it’s logical to conclude the ideal retirement age should at least be below 61-65, the majority age range of when Americans retire. Study after study show most Americans are “disengaged” from work. Therefore, most of us would rather retire sooner than later.
18% of Americans retire before the age of 54. Thus, the ideal retirement age should also be under age 54.
Average Retirement Age Trends
In terms of retirement age trends, women are working longer. Men are also starting to work longer again. Take a look at the chart below.
The trend to work longer for men since the early 1990s is probably due to changes in Social Security, pension eligibility, less strenuous work, longer and healthier lives, more educational requirements, and a decline of retiree health insurance.
The constant increase in retirement age for women is likely due to increasing workforce participation plus all the same reasons men face. In a land of equality, I suspect the average retirement ages will eventually converge at around age 65. We’re also living longer.
Now let’s look at factors involved in deciding the ideal retirement age. In my mind, the two biggest factors are life expectancy and overall health.
Factors Involved In The Ideal Retirement Age
Here are some factors to consider before deciding when to retire:
- Length of time spent in school
- Cost of education
- Student loans
- Multiple job changes in a career
- Graduate school
- Children
- Whether you rent or own
- The desire to spend time with aging parents
- Healthcare costs
- Passive income generation
- Net worth
- How much you enjoy your job
- Overall health
- Life expectancy
If you spend a fortune and more of your life on your education, retiring early is a more difficult decision. The same goes for the longer you spend in college post high school. One good goal to have is to work for as many years as you’ve gone to school starting in the first grade.
In order to retire comfortably, I believe one needs about 20X your average annual household income in terms of net worth. You can retire with less, but you’ll always be looking over your shoulder wondering when the boogey man will get you.
Social Security and your passive income should help minimize your drawdown of principal. One positive thing I’ve discovered since leaving work is that you will likely need less than you think in retirement. Therefore, the fear of running out of money in retirement is overblown. You can always do something to make side income.
For those of you lucky enough to have a pension, a pension certainly counts in the equation. Here’s a post I wrote about how to calculate the value of your pension. A pension is much more valuable than you probably realize.
The Ideal Age To Retire
Let us now subjectively talk about the ideal retirement age by various age ranges.
The constant battle we will all struggle with is deciding how much money is enough since there is an endless amount we can make. We’ve got to time it just right so that we get to enjoy our money for a long enough period in retirement, instead of die with too much.
Retiring Between Ages 20 – 30
Unless you’re leaving work to be an entrepreneur or a stay-at-home parent, retiring before 30 is suboptimal, even if you have the money. Your energy and enthusiasm will generally be the greatest at this age. To spend it on a beach doing nothing would be a darn shame.
Further, spending more time getting an education versus working also sounds like a waste of an education. You’re expected to live another 50-60 more years.
The ratio of learning, to work, to leisure is off. Therefore, I highly recommend not retiring before the age of 30. Retiring this young will make you feel listless. You will probably feel more loneliness as most of your friends are busy working.
Ages 20 – 30 is not the ideal age for retirement.
Retiring Between Ages 31 – 35
Most people only start gaining confidence at work after they’ve hit 30. Before then, you’re mostly a cost center doing your best to learn everything you can about the business. Why else do you think there are no CEOs under 30, except for at startups that have failure rates of over 90%?
Your 30s is a time to leverage all the experience you’ve gained in your 20s to position yourself for greater rewards. Unless you have something very clearly in mind that you want to do in retirement, to retire before the age of 35 is to prematurely truncate your potential.
Even though I retired at 34, I believe 34 is too young. I went through seven years of post-high school education, three of which were done part-time for my MBA. As a result, I feel like I didn’t fully maximize my MBA. Further, it would have been nice to have a kid while working to take advantage of benefits.
Depending on your net worth, retiring early to live in poverty doesn’t make sense. It would be much better to find a more enjoyable job and live a more comfortable lifestyle.
Retiring Between Ages 36 – 40
After five years of seeing what you can do in your 30s, you realize more money and power gets old after a while. You’re still young enough to try something new, but you may be getting squeezed by a mortgage and kids.
Just as 30 was a big age for the motivationally inclined, 40 is equally big because this may seem like your last chance to change your destiny. You’re still young enough to make a big career change.
If you’re burning out, at least you can can conduct some quiet quitting to help you recharge and figure out something new. If you’ve always been working at 120%, taking things down to 80%-100% might feel like a vacation.
By age 40, you have the wisdom and experience to take on new challenges. Therefore, you don’t want to have any regrets by not doing a career pivot. Remember, we’re trying to find the ideal age to retire that minimizes the regret of not trying something new.
Retiring Between Ages 41 – 45 (The Best Age Range To Retire)
You’re likely in your prime earning years, making leaving your job that much harder. But after 20+ years of work, you won’t feel as much shame retiring or taking things down a notch. After all, you’ve been working longer than the time you spent in school.
You’re also starting to feel that life speed is accelerating. 50 is right around the corner! You think more about your mortality because you’re probably less in shape and more injury prone. You start experiencing these random health issues that never used to appear before.
If you are blessed with kids, they are likely still living at home with you. They are growing up fast and by the time turn 18, they will have spent ~80% of their time with you already. Therefore, you may have a growing desire to spend more time with them before they build their own lives.
Thankfully, the one benefit to being an older parent is that you might be able to spend a lot more time with your children. Older parents tend to be wealthier with potentially more time flexibility as senior employees.
If you have enough passive income, then retiring by age 45 is the ideal retirement age. You may have the perfect mix of wealth, health, experience, and confidence. Initially after you retire early, you should lower your safe withdrawal rate to help you adjust during the transition.
By age 45, you are more aware of your mortality due to health issues and more friends and acquaintances passing away. If you retire at 45 and die at 60, as many do, you will at least have 15 years to live as free as possible.
Death Rates By Age In The United States
Below is the latest death rates by age. Between 45-54, the death rate for males is 490. But between ages 54-64, the death rate more than doubles to 1,111. Then between 65-74, the death rate doubles again and so forth.
At around age 40-45, the death rate starts accelerating. Therefore, you ideally want to retire with enough money and enough health to live as long as possible. An early retirement is a hedge against an early death.
Retiring Between Ages 46 – 50
Retiring between ages 46-50 is the second-best retirement age range. The closer you are to 50, the more you may be wondering how you lasted for so long working at a job that doesn’t tickle your soul every day.
Can you truly say the work you do makes a positive impact on society? You’re starting to think much more about your legacy, your mortality, and the purpose of life.
You may also begin to wonder how your life might have been different if you had taken the leap of faith earlier. The fear of regret becomes more prominent if you haven’t taken many risks.
At 50, you personally know more people who have died. As a result, you may be agitating for change. Somewhere between ages 40 – 60 is the best time to start decumulating your wealth. If you’ve saved and invested for the past 20 – 40 years, you will likely die with too much. As a result, it’s best to run some numbers and spend more money while you’re still healthy.
Retiring Between Ages 51 – 60
Perhaps you’ve waited this long because you wanted your kids to get through college. Or maybe you just couldn’t quit the money and the prestige granted upon you after 30+ years of work. Or maybe you are lucky enough to have a nice pension waiting for you.
Whatever the case may be, you better have loved what you did or else you will feel regret having waited until 60 to retire.
After more than 30 years of saving and investing, you should feel financially secure to do whatever you want. If you’ve stayed in good shape, you may feel like now is the time to live it up.
Retiring After Age 61
Not only do you feel a sense of accomplishment for lasting this long, you also feel a great amount of nostalgia. Where did all the time go? You wonder. Hopefully you’re done or almost done paying off all your debt and any children’s education costs.
Further, there just might be a healthy pension waiting for you. At the very least, you can withdraw from your pre-tax retirement accounts penalty free if you wish. Just make sure you do so in a way to minimize taxes. God willing, there should be another 20 years of life left to enjoy. You plan to make the most of it.
Retiring after age 61 is great if you love your job. Some researchers report you will live longer if you retire later. Just make sure you’re not tricking yourself about how much you enjoy work. If you do, you will regret working so long.
The Ideal Retirement Age Range: 41 – 45
Now that we’ve subjectively discussed the ideal age ranges to retire, let’s get a little more objective. I’ve used four variables in my model to come up with the ideal retirement age.
These variables are: Income, Freedom, Potential, Return On Education
The lowest score is a 1. The highest score is a 10.
Going through the variables by age, the ideal age to retire is between 41-45 years old.
If you love your job, then the ideal age range to retire is between 46-60 years old. If you hate your job, then your ideal age to retire is between 36 – 40, if you can. In each case, just make sure to have at least 20X of your annual income saved up before you leave work.
41-45 years old is the optimum retirement age range because you’ve put in your dues and still have enough energy to do something new. At the very least, you’ve minimized regret by no longer having to wonder what if.
Go through a regret minimization exercise every year to help you identify what matters most to you. Be intentional with your time.
Reviewing The Variables For The Ideal Retirement Age
Income: You will have hopefully experienced several good years of making record high income. Therefore, you will have a good idea of whether a high income makes you happier or not.
Freedom: Your freedom level at home depends on your family situation. At work, you should have more autonomy given your experience. If you do end up retiring between 41-45, you may have the best combination of capital and energy to maximize your freedom.
Potential: With ~20 years of experience, reasonably good health, financial security, and still a decent amount of energy, you have maximum potential to do many things. The more experience you have, the more people will respect you too. Further, if retirement doesn’t work out, you’re still young enough to easily get a job again.
Return On Education: Unless you finished getting your PhD in your 30s, you’ve spent enough time getting a return on your education. If you did go to college into your 30s, then the ideal retirement age is probably between 51-60. Again, a good goal is to work longer than you’ve spent in school since the first grade.
The later you retire, the more risk you take on of not doing everything you wanted to do before you die. Retiring by 45 gives you a reasonable good hedge against an early death.
The Best Retirement Age Can Change
When I was 30 in 2007, my goal was to retire in 2017 at the age of 40. I figured, after spending my 20s learning, I should spend my entire 30s earning, saving, and investing. Just 10 more years of work and I’d be set fo life!
I was regularly working 60+ hours a week and disliked it. If I worked until 40, I reasoned that 18 years of work after college was equivalent to 27+ years of work at a 40-hour a week job.
However, I couldn’t last until 40 because I was burned out. As a result, I retired at age 34 in 2012 with about $80,000 a year in passive income. Because I retired so young, I ended up missing out on millions of dollars of upside because a bull market ensued after.
I wish I had enjoyed my job more so I could have worked longer. Or, I wish I could have taken a 3-month sabbatical, recharged, and transferred to a new office in a different part of the country. Or, I wished I could have landed a tech startup job in 2012 and rode the boom.
After all, nobody retires early from a job they love.
Got Lucky Finding A Passion
Thankfully, I had found something more interesting to do. If it wasn’t for Financial Samurai, I probably would have gutted it out until at least 40. Then I would have taken at least a 6-month sabbatical to reassess my life.
I worked in a satellite office that already had two Managing Directors. The only way I’d have been able to get promoted was to move to Hong Kong or New York City. Such a move didn’t make sense due to the large drop in quality of life compared to San Francisco. Therefore, staying in the same role for at least six more years would have left me bored and a little bitter.
Instead, I left at 34 and focused my energy to grow my own site. It is the creation of something from nothing that will give you the most satisfaction. Here’s a post on how to be more creative.
Finally, the severance package was also a key catalyst to leave. Because my severance package provided for about five years of living expenses, it made me feel more comfortable leaving six years earlier than I had originally planned.
Ideally, I should have worked for two more years to get the perfect match. Two more years of savings plus five years of severance would bring me to the ideal retirement age range of 41-45 from a financial standpoint.
If you are unwilling to wait until 41-45 to retire, then please at least negotiate a severance. There is little downside.
What If You Don’t Have Enough Money By The Ideal Retirement Age?
Retiring early may be more difficult because of a bear market. Then again, generating more passive income is easier in a bear market since rates have gone up.
Further, retiring during a bear market is better because your finances will have been battle tested. Conversely, retiring at the tail end of a bull market may be one of the worst times to retire. In a bull market, we tend to lose our discipline an inappropriately extrapolate our extraordinary gains far too out in the future. Beware.
But what if you don’t have enough capital at the ideal retirement age? Do you keep on working until you can accumulate enough capital? Or do you retire anyway because you want to minimize the regret of not pursuing your dreams?
Because time is finite and money is infinite, I think it’s better to retire by a certain age rather than after obtaining a certain amount of capital. To hedge against a disappointing life, take more chances. You can always earn supplemental retirement income. If things don’t work out, you can get a job again.
Staying Busy In Retirement
Instead of doing nothing in retirement, you might find yourself as busy as ever. You will naturally spend more time doing what you enjoy and surgically cut out the things you don’t.
When you’re retired, you’re like a kid in a candy store with an unlimited budget. The only restraint is your energy and time.
Life doesn’t end once you retire. It simply morphs. You can do a lot of fun and productive things after you leave work.
Here are some things I’ve done post-retirement:
- Traveled to 30+ new countries in Europe and Asia with my wife. Angkor Wat, Cambodia was truly amazing.
- Gotten my USTA tennis ranking up from 4.5 to 5.0. This would have not been possible without all the newly found time to practice.
- Consulted for several financial technology startups ranging from seed stage to series C. Got a surprising financial windfall from one.
- Became a high school tennis coach and won two Northern California Sectional titles.
- Grew passive income high enough to provide for a family of four.
- Became a father to two children.
- Wrote an instant Wall Street Journal bestseller, Buy This, Not That: How To Spend Your Way To Wealth And Freedom.
Don’t think about retirement in the traditional sense. Think about retirement as a new adventure once working for money and status is over.
To minimize regret and maximize happiness, work on doing things you want to do every day. It is much more likely you will regret forsaking time for money than forsaking money for time.
Once you reach your 40s, you will start to feel the importance of making every moment count. Even with a family to support, money depreciates in value while time appreciates in value. Find the point where the lines intersect and you will find your ideal retirement age.
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Retire Earlier With Real Estate
The ideal retirement age requires building enough passive income streams. In my opinion, real estate is one of the best ways to generate passive income. Real estate is a tangible asset that is less volatile, provides utility, and generates income.
By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate around $200,000 a year in retirement income.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. I believe in the long-term demographic migration trend towards lower-cost areas of the country.
My favorite private real estate investing platform is Fundrise. Fundrise has been around since 2012 and has provided a great way for investors to diversify into real estate and earn passive income.
The Ideal Retirement Age To Minimize Regret and Maximize Happiness is a Financial Samurai original post. FS is one of the largest independently-owned personal finance sites online. All posts are written based off firsthand experience. Join 55,000+ others and sign up for my free weekly newsletter.
Everyone is different, thank goodness! Some spend and experience when they are young, working later in life. Some save when young and experience later in life. Some choose to have many children, cherishing all and working long to support them. Some choose to have no children and live to serve their own desires alone. Some don’t save at all and live off of the rest of us…these I tend to loathe. Point is that you can’t distill all of this down to a score…IMHO.
But, a thought provoking post! Cheers!
Congrats on the nice number.
You’ll have to quantify “not a big spender”. It’s all about understanding your expenses now and the future. Many folks retire with much less.
If “not a big spender” requires 600K a year, then you are not going to make it. If it only requires 100K a year it should not be a problem.
How much does your house cost to keep? Taxes, insurance, maintenance…
Do you have kid(s) to send to college? You going to send them to public, private college. Will they get scholarships? Where do you want to travel to, how often do you want to eat out and at what level?
I have no dependents.
Taxes, insurance and maintenance on my paid off house is about $20k a year.
Probably spend about $150-175k a year total.
I am healthy.
It is the unknown that makes it hard to know what is a safe number to feel secure in retiring.
I am 51 and have about 6 million saved in investment accounts, a mix of taxable and nontaxable investment accounts. I paid off my 3 million dollar house. I have no debt. I want to retire and worry I do not have enough. I am not a big spender. Thoughts?
If your expenses are 150K-175K per year and you have 6M invested, then your drawdown only needs to be 2.5%-3% per year to cover your expenses. Assuming your investments average at least 3% growth and another 2% in dividends, then your principal amount theoretically never changes as you cover your expenses in portfolio appreciation and the inflation in dividends. Getting a total average annual return of at least 5% on your assets seems reasonable, particularly over longer periods of time so I’d say you are just fine to retire anytime you want.
Based on all the factors you laid out, I’m going with around the mid-Forties as the sweet spot.
However, I think this can completely change over time as your life evolved. I craved early retirement in my late 20’s, but started to really enjoy my work and found a good balance in life, and so now at forty am not in a huge hurry to retire at all.
Ask me again 5 years from now though whether I still feel the same…
Wow, Sam, you’ve accomplished so much five years post-retirement. I retired when I was 42 and have only traveled to about three countries in five years. You’re right about being retired from 9-5 work but not retired with all the work that you’ve done and still doing. That’s exactly how I feel. I’m just getting started with running a blog and hope to be able to accomplish at least 40% of what you’ve done with yours. Let me congratulate you for all your accomplishments.
Again, great topic and spot on with the ranges. I’d love to get your opinion on the comment about the retirement amount in cash or cash equivalents. We tend to be heavy in RE. I’ve read your post https://www.financialsamurai.com/real-estate-will-always-desirable-stocks/ and agree with a lot of it. Not that one asset class is any “better” than another, but more about what you are more comfortable with. We’ve been doing RE for many years now and it is just our comfort investment.
Anyway, if our rentals are yielding similar to long term market rates, on average over the long term after expenses, how would you count those properties towards the 20X multiple? I typically use the total equity as part of our NW calculation.
I think our long term plan will be to consolidate all our props into a few large, multi-unit properties and “retire” on the income. We are light on equities, but that’s by choice.
And to tie it all back to the topic, I am shooting for 45-50, with the idea of going into academia for retirement. What the hell is all this education for if I don’t give some of it back?
You are usually spot on with what you write, so I thought I’d get your opinion on this.
Thanks for keeping us focused! – FS
What about using 72t to access your pre-tax funds penalty free? Think you had an article on that a while ago.
Sure.
See: The Rule of 72(t) To Withdraw Money Penalty Free
But it’s best not to draw from these pre-tax accounts. Treat them as bonus money that you don’t count on and you don’t need.
I don’t think that I will ever truly retire at any age, because I want to feel like I am contributing to something outside of myself. If money were no object I would go back to school to make me better in my current field and to learn more and be better able to apply it to the issues of humanity.
My only real goal is to be able to provide a good balance for it all. To be able to leave at noon each day would be ideal. You really only work so many hours a day anyway, before your ability to focus and your productivity drops off.
Sam, if to retire comfortably you believe one needs at minimum 20X their annual expenses in liquid POST-TAX net worth (so no PRE-TAX retirement accounts like 401k), aren’t you then saying pretty much no one will have enough money to retire much before 59.5yo?
By your own math in articles like “The Average Net Worth for the Above Average Person” https://www.financialsamurai.com/the-average-net-worth-for-the-above-average-person/, in your POST-TAX savings guide, the high end estimate maxes out at $400k at 60yo. If that person had (in your example here) 100k in annual expenses, that person would only have 4X expenses at 60yo and at no younger age in the POST-TAX savings guide would the person have a higher ratio than that of savings to expenses. Additionally, in your Average Net Worth of the Above Average person chart, for the 60yo with a ~2.2M total net worth, that person has 72% of their net worth in PRE-TAX savings and 28% in POST-TAX savings.
I get your point of focusing on POST-TAX savings to retire early, but I think 20X POST-TAX savings (and disregarding PRE-TAX savings) is 1) unachievable for most people and 2) overemphasizes the value POST-TAX savings at the expense of PRE-TAX savings.
Great article! I’ve seen you reference 20x annual expenses in other articles as well, but curious how came up with that? (Would represent a relatively high 5% withdrawal rate unless i’m misunderstanding some of the assumptions).
I’m 43 and recently switched careers and cities in an attempt to find a more sustainable/enjoyable path. While things are somewhat better, I’m realizing that there’s still a lot of corporate BS to deal with. Plus, frankly, I just don’t like dealing with (most) people.
Luckily, I definitely meet the 20x rule (even more depending on what/how I count it) and have really been considering truly retiring. In my case, I think i’d spend my time being a dad, doing household chores, etc. I have absolutely 0 desire (or even idea) for starting a business, though, so am a bit hesitant to pull the trigger (i’d want to have 99% confidence that I could support myself and my family for the rest of my life on passive income alone).
I emphasize 20X annual gross income, w/ 20X annual expenses at the minimum.
A 5% withdrawal rate is high, but it’s really only a 2.2% withdrawal rate if you invest your entire liquid assets in a 10-year government bond that provides a risk-free 2.8% rate of return.
Practically everyone I know who left the workforce early has found something else to do that brings in some change.
Interesting – thanks for the clarification. Wouldn’t inflation eat into that too though (roughly ~2-3% a year)? Other articles I’ve read on safe withdrawal rates seem to factor in annual inflation adjustments (so, you’d want your portfolio to average maybe 6% so that you can average a 3% real return).
I guess 20x gross income could likely end closer to 25x-30x post-work expenses when you factor in a) no need to save anymore b) likely a lower tax bracket c) no payroll taxes. Or, if you think it’s highly likely that you’ll end up finding a way to earn some money in retirement.
In doing some research on withdrawal rates, I found this article. Seems well-researched and kind of interesting. They came up with 2.8% as a conservative withdraw rate for a 45 year old (assuming annual adjustments for inflation) on a 604/40 portfolio with 95% confidence.
https://www.americanfunds.com/ria/insights/can-i-retire-at-40.html
Sorry – for all the questions. I vacillate between giddiness (at the thought of retiring this year) and despair (thought of 10 more years to get to 35x annual expenses plus trying to convince my wife that this isn’t nuts).
I just submitted my retirement notice, age 49. Could have retired many years ago based on 25x expenses, etc. For example, at age 41 net worth was around $5mm. 8 years later it’s over $20mm due to $15mm in gross earnings over that timeframe. Sure glad I didn’t. Now it feels like ‘enough is enough’. Less job satisfaction is definitely another reason. Let’s see how I do in the next chapter…
What stopped you from shooting for $50 million?
Your blog convinced me there is no incremental happiness to be gained… in a $800k/year vs $2mm/year withdrawal rate. Unless you were just being facetious
Gotcha. I def wasn’t being facetious. I have a close friend worth $350 million, and he wants to grind it out to see if he can get to $1 billion. I keep telling him to stop and smell the roses more, but he refuses.
El – thanks for sharing. Genuine question: I can see how 5mm vs 20mm is a huge difference and worth 8 more years, but was there any earlier point that you think might have been just as good or possibly better? For example, would 45 with $12.5 million of NW have been as good as 49 with $20 million? I ask cause I’m in a similar situation. Thanks
It really had to due with the professional opportunity. Big job, $2mm+ /year for last four years, living in a great global city, etc. Too good to walk away from. Now for personal reasons elderly parents, kids in college, etc it feels like the right time.
It would great to hear more about how people achieve 20x expenses at such a young age especially with children. My wife and I have an annual income ~$300K+ in our early 30’s with networth of <$1M. We save aggressively but live in a high cost area.
The idea of an ideal retirement age is nice but if it is not achievable without significant career success/extreme frugal living is it really achievable?
Sam, I love this site. My goal, someday is to write this well.
Okay, that aside, I’m targetting 45 as an outside date to make a decision, with three options:
1. Leave before that to start a business
2. Take on a position as a President of a Company
3. FI and pivot at that date
Regardless, after 45, I don’t plan to ever report to anyone within the Company I’m in.
I’m six years away and fingers are crossed that things keep working out and we hit our numbers.
Though, like you say, given my background, and my wife, we actually should be able to hit our spending number quite easily, if needed, so there isn’t much that should hold us back from that target date.
Regardless, I will never stop working in my life, I will simply choose, when, what, and how I work.
The questions I have about this post relate to definitions. “Retire” traditionally has meant stop working or pursuing an income. In the context of this post, retire seems to mean leaving a w-2 or guaranteed income. Is that fair?
I still work 40+ hours a week, but I left a w-2 job for my own business in 2007. Maybe i’ve been “retired” for over 10 years and didn’t know it. :)
Don’t think you are retired.
Wikipedia
“Retirement is the withdrawal from one’s position or occupation or from one’s active working life.[1] A person may also semi-retire by reducing work hours.”
One can retire 3 to 10 years after becoming a millionaire. That’s the approximate amount of time that it takes to become a multi-millionaire. That’s the basic time horizon that’s in my head.
How does a pension figure into the 20x annual expenses rule-of-thumb? Let’s say my annual expenses are $100k, but I only have $1M saved up. However, let’s say if I retire I could immediately start drawing a pension of $40k/year. Using a 4% withdrawal rule, it would seem a $40k pension is the equivalent of another $1M, or maybe better since it’s not subject to market vagaries. My numbers are similar to the above example, and I’m wondering if I should take the plunge. I’m 55 going on 56 so I’ve already missed my chance to retire at the ideal age!
I don’t think there is some broadly applicable “ideal” retirement age. It depends on your personality and how much you enjoy the game.
I’m an old soul. If money were not the limiting factor, I would have happily left all forms of gainful employment behind back when I hit 30. For me, that was the age when the rewards from working hard started diminishing. Instead, getting ahead began to require ever increasing amounts of luck (right place, right time), politics (firmly apply lips to boss’s butt), and self-destructive sacrifice (pack it all up and start over in a new city — again….).
On the other hand, we recently got some new department heads. By my guess, they are in their late 50s and are loving the game. The stuff I can’t stand dealing with, they revel in. They’ll probably never retire – maybe only when their wives finally force them to move some place warmer.
This is my limited view from corporate life. I would expect people working in nonprofits, or who are self employed, or whatever, to have totally different outlooks on the ideal retirement age.
The variables you mentioned in your post are all so important. Think you probably covered them all. As most commenters have stated, retirement is personal and different for everyone.
As an older reader who has 3 adult children, let me touch on their personal stories. Child #1 graduated at 22, from Yale. Cost us $200,000. No graduate school,very bright, and upon graduation was earning 6 figures at an investment bank. Now is early 30s and earning a huge income, has millions, owns a vacation home, loves his job, not married, and not even nearing “burnout”. Don’t see him retiring “early”.
Child #2, attended college, no graduate school (his education was less, about $150,000 plus private school for 8 years, at $100,000). Late 20s,works in entertainment field, loves what he does, would WORK FOR FREE, and I don’t think he will ever voluntarily retire. Not married, don’t think he ever will. His job is his life.
Child #3, the expensive one. Graduated from Ivy College, ($240,000), worked in commercial banking for 2 years, hated every minute, decided he wanted to be a physician, was able to do a complete career switch in 2 years, just accepted to a great medical school. He is now mid-20s. Will be 30 when he graduates, and probably 34ish when done with a residency (depending on what field he chooses). No way he is retiring anytime before he hits 60. My husband wants to pay for this, so now, at the age of 61, he is going to spend $80,000 a year for next 4 years to pay for school/living costs.
Luckily we can afford to cash flow the tuition, will just be a lot less going into savings, and my husband is planning on retiring in 2 years. He has a full pension waiting him at 63, so he wants to stay until then. Plus he actually enjoys his work.
So yeah, depending on how many years of education you put into a career, salary, life choices, satisfaction, health, etc. retirement looks different for each person. I also think there is something about not “working” that makes you seem irrelevant to a lot of society.
As you age, your perspective changes, wait.
Thanks for sharing. And congratulations for the kids making it out.
I was actually going to give your recommendation at the end of your comment to your kids! When they hit 40, I’d love to know how their view of work has changed at all.
In our 20s and early 30s, it’s full of excitement. And then after a while, the desire for money wanes and the desire for freedom rises. I don’t know many people who continue to be interested in what they Do after 20 years.
Would love to hear your kid’s thoughts directly.
Well I can say my husband still enjoys medicine after 30 years- didn’t begin his real doctor life until she 31. Now at almost 61 still leaves at 6:00 am and does some night and weekends every month. He has outside interests but still likes what he’s doing. But yeah , he may be unusual.
That’s great! To ophthalmologist I’ve seen are in their 70s. And so is our pediatrician.
How about you? What do you do or how has your career changed over the years?
I have a law degree but only worked for a few years in the field until my first child came along. Had 3 kids over 8 years and with s husband who was never around I stayed home. Over the years I have taught religious school and done a lot of volunteering. But I regret not staying in work force- by the time I would have felt comfortable leaving my youngest I was already 41- so just remained “mom”.
Gotcha. Do you regret more not staying in the work force or regret getting a law degree?
I have friends who tell me they regret getting an MBA because they ended up being a stay at home parent three years later etc.
After getting my MBA in 2006, I only leveraged it in the workplace until 2012, so that was somewhat of a regret. I don’t think I needed the degree to get paid and promoted. That said, I feel proud to have gotten a graduate degree, and it helped me think about how to best run a business.
Regret both; getting the law degree and leaving the work force.
Great post. It’s really impressive to see how many people thinks that retired people don’t do anything. Most of the people I know are busier after retirement than before. You are a great example of that! It’s just a way of spending time in the best possible way.
Personally, I think that between 45 and 50 is the best age to retire for most people. I would like to retire a bit earlier (around 40), but probably won’t be able too (time will tell).
Sam,
How do you count pensions into the retirement equation or do you recommend 20X regardless of how much pension you earned.
Check this post out: https://www.financialsamurai.com/how-do-i-calculate-the-value-of-my-pension/
In fact, search any topic in my search box and I think you’ll find an answer.
Or use Google and then type “Financial Samurai “after the search term.
Value of a pension is amazing. Don’t know underestimate it!
I went quite a bit younger than most people (31-35).
If we assume the limiting factor is money, and you have the money, then I think that’s a good time.
You have more drive and energy when you’re younger. That’s energy that can be turned to things far more beneficial to humanity than working for someone else’s company. With financial freedom handled, you could help the homeless, teach/mentor children, or start a business with more on the bottom line than simply dollars.
I didn’t pick the younger ages because I think you need some baseline wisdom to do those things. That much time and force directed toward a problem has to be handled in the right way. Those problems need life experience as opposed to a job that generally just requires showing up and completing simple duties. They’re much more complex and no one will stop you when you’re doing everything wrong.
Cool. What are some of the things you have done since retiring?
I retired/career breaked at 45 and couldn’t be happier. It seems to be about the right age. You are right that it is possible that in another couple of years once the kids are a bit older i might want to go back to the work place and or acquire some extra skills and education.
I wish there was a similar age breakdown for women because the timeline is certainly different for women with shorter biological clock + the gap in time off caring for children and potential loss of income. Would your wife be interested in writing a similar timeline break down but for women instead?
Probably not. She’s too busy being a mother :-)
We have been on the same page since we were college students. She left work by the age of 35 just like I did.
I vote for 41-45. I think most people start earning competitive wages in their late 20s or early 30s, and if they save and invest aggressively for a decade or so, with some luck they should be able to retire or become financial independent. Healthcare is a big question mark though. So is the topic of how many times average expenses you need to save. You say 20, but many say 30 or even 40 times. If you were retiring very very early (say 30-35) you could say perhaps 50 as you don’t even know how many kids you will have, how your health will turn out, etc. As for me, I am 40. My expenses in NYC are about 200-250k a year (without private school for my kids!). Based on your criteria I could ‘retire’ but that is scary for me. Of course, I wouldn’t retire in NYC, I would move to somewhere I can lower my costs and have a good quality of life with good weather and schools. Even then, I can’t think of many places you can live an upper middle class lifestyle for less than 150k including housing costs, or 100k if your housing is fully paid and RE taxes are minimal.
Yes, 20 times annual expenses is the minimum. I hope readers see the word “minimum.”
I personally think using 20 times your annual gross income is more appropriate.
I think about your step in for a bit. Are you really afraid to leave work having a net worth of $5 million? Run the numbers and see how long you will last given your net worth can easily generate hundred $50,000 a year in risk-free income.
I can understand the 20 times annual gross for a conservative estimate for the average American family.
Most of the FIRE community are, humorously, “below” average. That is, they spend much less than they make to have high enough savings rates to retire early.
My personal example, before leaving mega corp and top floor corner office (lots of buildings and lots of corners on each building) but still director-ish level. Salary plus bonus was 300K, adding another 100K in stock and passive income of at the time over 200K. If we simply consider gross income at a 20x multiple, 600Kx20, $12M. OK, so lets back off on the passive `cause that’s what I’ll live off of and call it $400K at 20x is still $8M.
We have no real debt (well investment properties only at 200K), no car payments, no house payments, no boat payments, no credit card payments, no student loans… and we live well on $50K in a non coastal city (NC). Having 20x 50K or $1M, I agree is risky. A happy medium based on expenses not gross income seems more realistic. Someone who spends more than their gross income, will have the opposite problem. This is why, I prefer expense based calculations.
You are right to consider age in the discussion, the older ya are the less you need. Most multiples don’t consider Social Security kicking in at 60 something. Consider that if you’re 60 and need 50K and know that you will receive 30K at 67 from your previous contributions to SS, do you really need to generate 50K for 30+ years? It’s a charged subject about SS being there or not. In this case is $1M too much? If you are 60, hate your job but think that you’ll need $1M and you’re only at $700K, is it worth it? 7 years pulling out 50K or less then down to 20K withdrawal? Take it early and not pull as much out of savings early but have more to replace later?
Perhaps the analogous question is, why not treat SS like a pension you are eligible for at 62 and the longer you hold out the larger it becomes? What is your rule for pensions? Multiply and use as savings, reduce from the needed income, ignore, other?
fireCalc shows us at fatFIRE possibly moFIRE (rentals other passive income), so, I’m not rationalizing my case for getting out, just that for super savers, 20x gross seems kinda fat.
Yes I don’t think gross income multiples make sense in all situations. Our average income is probably $1M in the past few years, which means we should have $20M saved up? Given my current expenses, taxes, I can save 250k a year. At that rate it would take me a long time to save $20M. And $20M compared to 250k or so in expenses is too much, and even more stark if our expenses are lowered to 150k or even 100k. Personally, like many people on here, I’d rather not rely on any income outside of passive income in retirement. I have no desire to do any other sort of work in my retirement. The good news is I like my work currently and it’s low stress with great hours and plenty of family time. I think $8M-$10M would be very comfortable at 45 with a nice cushion, anything more I’m not sure what purpose that money would survive.
One reason to get to $20M is bc you can pass on $22M tax free now as a couple to your lucky kids.
Sam,
Perfect timing with this post. I been thinking and planning our retirement since age 30. I wiill be 54 this year. This year I attended funerals of 3 co-workers! They were aged 46, 65 and 50.
Totally agree with you that retiring 41-45 is the best age. I wanted to retire at age 43 but did not know how to generate passive income or even factor in healthcare cost back then. I just didn’t think about medical coverage when I was young and healthy. Medical for a couple is 20-22K. That is what my 2 uncles will pay this year.
We started making 19K each in the late 80’s as computer programmers. With small 1.5-3% raises and few promotions I broke 100K in our late 30’s. It took us many years to save money. It was when we learned about future layoffs that motivated us to generate passive income. Thank goodness that a good family friend introduced us to NY muni bonds in 2010 and we reached base line FI at age 49/50 in 2014 by using our life savings to buy individual muni bonds.
We will be 53/54 this year and our passive income from tax free munis and wife’s pension covers 2x expenses. I just have 17 more months to double my pension to 70K and to get 8K (not taxable) for healthcare at age 55. These are my golden handcuffs. At age 55 when I collect my pension, our passive incomes will cover 2.6x expenses. When we collect our 401K and social security at age 62, our after taxed (Blockbuster FI) passive income should cover 3.8x expenses.
Why do we need/want so much money? During retirement, our expenses will rise. We want to travel more and renting a nice place in Hawaii will cost a min of 5K a month. I want enough money so that I will never worry about inflation. I never want to work again. I have no writing skills and I don’t want to start my own website nor a side hustle.
I know I can walk out now and be financially OK but since I am just 17 months away from 55 why walk away from all that free money? We got investable assets including 401Ks 58x expenses after taxes. Since healthcare is very important to me, I want to reach 55 to get 8K for company retiree medical. If I leave before 55 then I get nothing for medical. I work 5-10 hours a week from home and I keep a low profile at work. Sometimes it can be stressful being on my own when there are problems. I have been in the same company for 31 years and I hate my job but the money is good. My boss likes me and gave me a better raise and bonus this year. He and mgmt are afraid of me leaving since I am the only one that supports the IT systems. They want me to stay another 5-8 years. No way!
Adam
Waiting another 17 more months is a no-brainer to double your pension. After that, I would definitely leave since you have been planning for retirement since age 30!
“Work sucks I know”
-Blink 182
I think you are spot on with your age ranges. I think “retiring” how you did it is the way to go. You can retire from the “job” but still focus on what you enjoy doing. It feels good to earn and be a part of something.
I think that working brings people an important aspect of life. Those who ONLY focus on earning I do think are making a mistake. There is oh so much more to this wonderful world then money.
I hope to never retire, and be fortunate enough to work on projects I care about my whole life.
51-55 here. I guess I’m the sicko that enjoys my job. I want to leave by 55 only to allow me time to tax optimize my tax advantaged cash flows.
Sam,
How would you adjust your multiplier for passive income?
-Mike
I keep it the same. Because the passive income you generate is largely from your after-tax investment accounts that you have accumulated.
And the most wonderful thing is that once you generate a large enough not, you can just live off the passive income and never have to touch principal.
I am in my early 30s with essentially $2M saved, which is roughly equivalent to 20X my annual expenses. Additionally, my wife plans on working for quite some time and she makes a modest $65K annually. Despite having 20X in savings and her income I could never think about retiring at this point. We are about to be parents for the first time and have no idea what our expenses will look like years from now. We don’t own a home and have no idea what large expenses are associated with having a child.I guess I still don’t know what type of life I want. I could presumably kick it in now and live a very modest lifestyle, but I can’t imagine an environment where that would happen. My guess… I will continue to grind it out for another decadeish and reevaluate.
Cool. I believe your life will change once you become a parent and once you turn 40. You start trying to decide between making more money or spending more time with your kid. The more money you have, the less valuable it is to spend time making money.
At the same time, you want to see what you can do and make the most of your education and potential. That’s why am 10 years, you might be singing a different tune as you’ll Be in the window of 41 to 45 years old.
Our expense before child and after child increase to become 2X, then 3X. It ballooned from $4K/month, to $8K, then $12K per month, and we only have 1 child and he goes to public schools!
The main increases are as follows: $20K per year from tutoring, $20K/yr travel: before you have child you can travel in low seasons and paid 50% less, after child you travel in high seasons and pay 2-3x more. Finally it’s the food/restaurants: before child you can cook easily and even restaurant meals left-overs become the next meal, but not after you have a teenager who eats like a horse. Also you need 2 cars now even with a stay home wife, etc… Of course you can drop the tutoring, music lessons, etc.. but that’s what every other kids do in bay area.
These expenses will go away once our kid graduated from college, but the 2x, 3x expense increase is real.
Eric,
You can spend as much as you want on your kids. You are choosing to tutor rather than do it yourself. You are choosing to travel to expensive places. You are choosing to eat out.
Both my boys were district and state level musicians, one on alto sax which is arguably the hardest instrument to get into these bands. Private lessons were $2k a year. Travel soccer was $1K a year.
Who cares what the Jones are doing? You shouldn’t if you want to FIRE.
Be weird be different be financially free. I can assure you, the Jones across the street are not, that is, unless you live across the street from me!
I love your blog. On this one I have a couple of questions as I am trying to plan for early retirement (although not as early as you suggest is optimal). When you say 20x your annual expenditures are you counting taxes or just spending pattern? My pre-tax need is much different than my post tax need. Although I recognize that taxes will be different once I’m retired, selling stocks to use for cash will bring with it capital gains taxes. That brings me to my next question – 20 times your liquid assets – does that include the savings in your retirement plans (401ks/IRA/Roth)? I don’t know whether to really consider those liquid although it is cash and stocks because you can’t access it until a certain age without penalty. I’m just trying to figure out whether you would recommend that I amass 20x my spending in non-retirement liquid assets or whether I can count those assets. The answer would make a big difference in timing for me. I would love to retire early but I have no plans to decrease my spending. I would love to travel and attend concerts and go wine tasting (and buying) – all things that will continue to drain the pocketbook. Not all of us have great passive income streams like you do. What would you suggest?
Good questions, which I will clarify in the post. I’m talking about 20 times the money you actually spend after taxes. But this is the minimum, the absolute minimum where I feel that people can take the leap of faith. And that amount does not include pretax retirement accounts. Only accounts which you can readily access without penalty.
But if you’re 50 years old, and you only have 9 1/2 years until you can access your 401(k) penalty free, you have to just calculate the gap just in case.