Suze Orman Is Right: You Need $5 Million Or More To Retire Early

Suze Orman Is Right To Hate The Fire Movement

Suze Orman is right. In order to retire early, you need at least $5 million in investable assets. With interest rates so low, it takes a lot more capital to generate the same amount of risk-adjusted income.

Before the coronavirus pandemic, there was maximum Fear Of Missing Out (FOMO) with the Financial Independence Retire Early (FIRE) movement. It seems like lots of people want to retire early because they are seeing other people do so and living a fabulous life.

When I helped started the modern day FIRE movement in 2009, the focus was on earning as much passive income as possible to pay for our lifestyles.

Unfortunately, a lot of people are retiring early and ruining their finances and their lives because they did not accumulate enough after-tax investments to generate enough passive income to cover their expenses. People are retiring without strong fundamentals because they see so many retire so soon.

Does it really make sense to retire early only to live near abject poverty? I don't think so.

Suze Orman, a famous personal finance guru for the past several decades says she hates the FIRE movement. She says retiring early will be the biggest financial mistake of people's lives and that we should work at a job we're passionate about for as long as possible.

Further, she says that we need $5 million to retire early. Her views have ruffled a lot of feathers, but after crunching the numbers, I have to agree. $5 million sounds about right if you want to retire before the age of 60. Bad things happen in life all the time that costs money!

Here's Why You Need $5 Million To Retire Early

After maxing out your 401(k) and other pre-tax retirement contributions, it's important to generate as much after-tax investments as possible for passive income.

After-tax investments include all stocks, bonds, rental property equity, real estate crowdfunding, business equity, and private investments. You could include your primary residence equity if you plan to rent out rooms or sell the property, but a conservative person would not.

Given after-tax investment money is what is required to generate passive income and live a comfortable life in early retirement, it is therefore logical that after-tax investment money equals a multiple of pre-tax money. The greater the ratio of after-tax money to pre-tax money, the easier it will be to survive in retirement without a job.

Investment Amounts Needed To Retire Early

Have a look at my base case after-tax investment amounts chart, which will allow you to comfortably retire between 40 – 50 if you so choose with a safe withdrawal rate of between 3% – 5%. This is the base case scenario.

Remember, you need an investment portfolio outside of your 401k and IRA to produce passive income to pay for your living expenses. Your 401k and IRA can't be touched until 59.5 without penalty.

After-Tax Investment Amounts By Age To Comfortably Retire Early

Retiring at 40: Forty is the earliest I'd recommend anybody retire. You've worked at least 18 years and have given your investments a good enough amount of time to compound. Accumulating $1,000,000 in after-tax investments sounds great if you've been diligently saving and investing since you entered the workforce, but it's only going to spit out about $40,000 a year in gross income. Unsubsidized healthcare premiums alone cost roughly $20,000 a year in after-tax dollars for a family today. Good luck enjoying a comfortable life with what you have left.

Retiring At 45 Or Later Is Probably Best

Retiring at 45: If you retire at age 45 with $1,875,000 in after-tax investments, you're still only generating about $75,000 a year in gross income at a 4% rate of return. After tax, we’re only talking about $52,000. That's definitely not enough to retire comfortably if you have family and elderly parents to support. I believe the ideal age to retire to minimize regret and maximize happiness is around age 45.

Retiring at 50: With $3,000,000 in after-tax investments at age 50, you're earning $120,000 in gross income before taxes or $85,000 after-tax. Not bad! But you’ve got to live in a cheaper part of the country and stay frugal if you have kids and parents to care for. At this age, you might as well keep on working until you're 60 to eliminate the risk of financial shortfalls. Only at 59.5 can you withdraw from your pre-tax retirement accounts without a 10% penalty. By then, you're so close to receiving Social Security.

Retiring with $5,000,000: Having $5,000,000 in after-tax income generating $200,000 a year in passive income is about right if you have a family and plan to live in an urban city like SF, LA, NYC, Seattle, DC, and Boston. In fact, $200,000 a year in passive income was always my goal when I left the work place in 2012 at the age of 34. If you want to live the Fat FIRE lifestyle, then have at least $5 million in investments is necessary.

I “Retired” Too Young At Age 34

When I retired in 2012 at age 34, I had about $80,000 a year in passive income. That was enough since I only had myself to take care of.

However, we were blessed with a baby boy in 2017 and my wife retired early in 2015 at age 34 as well. Therefore, I definitely needed around $200,000 in passive income to live a comfortable lifestyle in expensive San Francisco. Then in 2019, we were blessed with a baby girl. As a result, my passive income and investable assets needed to go up further.

Here's a realistic budget for a family of three living in San Francisco. This early retirement family has $5 million in investments generating $200,000 a year in passive income. Or, the family is simply withdrawing at capital at a 4% rate.

Budget for family of three retiring early off $5 million

As you can see from the budget, $200,000 goes pretty quick. If there's an emergency, there's not a lot of cash flow left. With the 10-year bond yield at under 2%, a 4% withdrawal rate may actually be too aggressive.

Our Passive Income Goal

We’re ultimately trying to get to a steady state $300,000 in passive income a year. If he doesn’t get into a good public school due to the SF lottery system, grade school tuition will be between $25,000 – $40,000 after-tax. That's nuts!

If I was completely comfortable with having ~$5,000,000 in after-tax investments, then I'd probably relax more. I wouldn't write as much on Financial Samurai. Nor would I worry so much about our finances.

But, once our son was born in 2017, I became motivated like Popeye after eating some spinach. I went on a mission to earn some supplemental income. I didn't want to leave our life up to a lottery.

Finally, one of our largest and most necessary costs is our monthly health insurance premiums at $2,350. Spending over $26,000 a year in health insurance premiums alone is something every early retiree with a family needs to strongly bake into their numbers.

Related posts: If I Could Retire All Over Again, These Are The Things I'd Do Differently

Latest Passive Income Streams For Retirement

Below is a snapshot of my passive income streams. Private real estate funds is my favorite passive income stream as we come out of the pandemic. I'm focused on investing in the heartland of America where valuations are cheaper and net rental yields are higher. Further, inflation is a nice tailwind for inflation.

Financial Samurai passive income investments 2023

This detailed passive income portfolio has taken about 20 years to build and is worth well over $5 million. Yet, it's still not considered enough due to healthcare costs. I've also got ever rising tuition, and elderly parents I need to take care of soon.

Very Few Retire Early

Only 18% of Americans retire before the age of 61. Therefore, it's normal to feel bothered by Suze Orman's statement and my realistic after-tax calculations.

Even if you don't achieve my figures, at least with focus, and proper financial planning, you will come closer than those who don't even bother. Retiring younger while living longer does not make good financial sense.

Age of retirement in America - Suze Orman is right

Key Points To Remember For Early Retirement

1) Passive income is everything if you truly want to live a carefree retirement lifestyle. Shoot to have as much in after-tax investments as you do in pre-tax investments by age 30.

2) Earning supplemental income in early retirement is beneficial. Every $10,000 in supplemental income you make equals $250,000 in capital at a 4% withdrawal rate.

3) Don't underestimate the cost of healthcare and accidents. The average company pays $20,000 a year in healthcare costs for their employee. If you retire early, you will bear these costs as we do with our $1,700/month bill. Bad things do happen all the time folks! Think about sickness, aging parents, accidents, infertility treatments, and more.

4) The longer you work, the less you need. Your net worth starts to skyrocket the older you get due to the power of compounding. However, ironically need less money the later you retire. People suffer from the “one more year syndrome” all the time due to this fact. However, we're living longer so either working longer or having more money is a must.

5) A safe withdrawal rate is between 3% – 5%. The risk-free rate of return (10-year US treasury bond) is now roughly 3%. Therefore, you can withdraw 3% from your after-tax investment accounts every year and never touch principal. Keep the maximum withdrawal rate at 5% if you don't plan on making any supplemental income in retirement. By the time you turn 60, your pre-tax retirement accounts will provide you an extra financial boost if necessary.

6) Don't confuse brains with a bull market. One of the most dangerous things you can do is extrapolate the gains you've made in the last 10 years with the next 10 years. Your risk-tolerance, income payouts, and investment returns will all change once the market turns down. A lot of FIRE people got slaughtered during the March 2020 downturn and panicked.

Retire Early With A Severance Package

For those curious, at 34, I left with a 4X multiple. This equated to about $2,000,000 in after-tax investments producing about $80,000 in passive income. Yes, it was a little scary to leave so young.

But with a severance package and only myself to provide for at the time, I wasn't overly worried in 2012. The goal after leaving work was to build Financial Samurai and accumulate enough in my after-tax investments to generate a $200,000 passive income stream to provide for my potential family. I achieved my goal in 2017.

If I hadn't received a severance package, I most likely would have worked for three more years. During this time, I would have saved at least 50% of my income to boost my after-tax investment accounts to 5X. Thankfully, it's been a raging bull market since I left, so my multiple has continued to expand.

Leaving a steady paycheck is not easy, especially if you've had one for decades. But if you hit these target multiples, early retirement is much easier to experience.

The folks selling you the dream of early retirement are either trying to justify their early retirement move or trying to actively earn money online by selling you the dream. If you truly were comfortably in early retirement, you wouldn't have to incessantly tell everybody how wonderful it is.

Finally, make sure you're diligently tracking your finances on your road to early retirement. It's vital to make sure your investments are properly allocated based on your risk tolerance. When you've no longer got a safety net, it's up to you to create your own!

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Consider Real Estate Investing

My favorite type of passive income investment for 2024 and beyond is real estate crowdfunding. The value of real estate and rental income have gone way up because interest rates have come way down.

It takes a lot more capital to generate the same amount of risk-adjusted income. Further, we’re all spending a lot more time at home due to the pandemic.

My favorite two real estate crowdfunding platforms are:

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields. They also have potentially higher growth due to job growth and demographic trends.

I’ve personally invested $953,000 in real estate crowdfunding since 2016 to diversify my investments. It’s nice to earn income 100% passively as I spend more time taking care of my children. 

Both platforms are free to sign up and explore.

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About the Author: 

Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing. He spent the next 13 years after college working in finance. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered.

In 2012, Sam was able to retire at the age of 34 largely due to his investments. They now generate roughly $300,000+ a year in passive income. He spends time playing tennis and hanging out with family. He is passionate about writing online to help others achieve financial freedom. was started in 2009. It is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, and CNBC.

Sure Orman Is Right: You Need At Least $5 Million To Retire Early is a Financial Samurai original post. Sign up for my free weekly newsletter here and join 60,000 others getting richer by the day.