How Much Do I Need to Retire at 55?

Written by Banks Editorial Team
6 min. read
Written by Banks Editorial Team
6 min. read

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An early retirement lets you enjoy more of what life has to offer, especially if you don’t like your current job. Even if you are happy at work, you should still plan for a quick retirement since this preparation will give you more choices in the future. Paving the way for an early retirement allows you to exercise that choice or continue to fortify your finances if you work after your 55th birthday. Most people think they will retire at 65 years or older, if at all, but we will run through the numbers of what it would take to retire at 55. This exercise will reveal what’s possible for you and how to position yourself for earlier retirement.

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Calculating How Much You Need to Retire

Your income and expenses help you see the sustainability of your current finances. A wide gap gives you more breathing room and the ability to invest in your retirement portfolio. On the other hand, a minimal gap between your income and expenses in the present can create difficulties in the future when you try to retire. Addressing any financial issues now by minimizing costs and looking for better income opportunities will put you in a better position when you retire.

Anticipating how your spending habits will change and remain the same is vital to calculating how much you need to retire. Experts recommend anticipating that you have to live on 70%-80% of your annual household income during retirement. For example, if you make $5,000 per month right now, anticipate needing $3,500-$4,000 per month during retirement. You can withdraw from your portfolio each month to cover the difference or replace your income with cash flow. Both approaches can require you to save ten times your annual income, but some experts believe it’s sufficient to have seven times your annual income saved up. Social security benefits will help during retirement, but building your portfolio will leave you more prepared and increase your retirement income.

Typical Retirement Budget

Your lifestyle plays a decisive role in your retirement spending and how much you will have to save before making the transition. You will have discretionary spending to keep in mind, especially if you want to travel during retirement. However, these expenses apply to everyone and act as a baseline budget.

Housing

You will need a place to live during your retirement years, but you will have more flexibility. Some retirees relocate to more affordable locations and also downsize. Of course, it makes more sense to have more living space when raising a family, but if you’re retired, you can likely manage well with less space and greater retirement savings. If you have built equity in your home and want to stay, you can apply for a reverse mortgage when you turn 62. Depending on your preference, you will receive monthly payments based on your home equity or a lump sum. Reverse mortgages can make it easier to live in your current home and pay when you sell or your heirs receive the property. Housing is the most significant expense for many aspiring retirees, and reducing this number in any way will make your retirement easier. 

Transportation

Transportation costs vary by individual. You may have car payments or take public transportation. You must also consider the monthly gas bill if you drive a car. The average cost for transportation is $819 per month, but your amount can vary. You will likely pay less than the average transportation costs since you no longer have to commute to work.

Food

Grocery bills vary for each person, but according to the USDA, the average American adult spends between $229 and $419 each month on food. Of course, eating organic and selecting more expensive food items will raise your bill, and that’s not a problem. However, you should review your grocery bills and calculate how much you spend each month. Some frugal consumers can survive on a grocery bill below $229, while others may get close to $1,000 per month in total groceries. Knowing your lifestyle is vital to accurately estimate how much money you will need in retirement.

Healthcare

Retirement will add an extra expense into your life if your employer previously covered healthcare. The average individual plan costs $456 per month, while the average family health insurance plan is $1,152 per month. You can lower your healthcare bill by opting for a lower copay. You’ll pay more out of pocket for a bronze plan if you need help, but it’s the cheapest plan available if you can stay healthy on your own. 

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So How Much Do You Need to Retire at Age 55?

Most experts recommend saving up to 7-10 times your income before retiring. Under this model, if you earn $60,000 per year, you should have $420,000-$600,000 saved up before you consider retiring. Lowering your expenses will help you get more mileage on your money. High inflation makes it more challenging to stretch your money, and you should opt to get closer to the 10-year income mark if you want to retire at 55. You should also factor in your estimated retirement expenses before deciding to retire.

Some people don’t fully retire even when they leave their main job for good. You can embrace part-time work or a side hustle to continue earning money without committing to a full-time schedule. This route gives you more flexibility and allows you to exit the full-time scene sooner.

Common Retirement Strategies

Every retirement strategy revolves around stretching your money. Splurging at the start of your retirement can force you back to work because of financial issues. There is nothing wrong with working at a job you enjoy, but doing so because of money issues is not optimal. These retirement strategies will help you get the best out of your retirement funds. 

The 4% Rule

The 4% rule dictates that you should only spend 4% of your retirement portfolio each year. If you want to spend $30,000 per year, you should have a $750,000 portfolio. You can spend $30,000/yr for 25 years before spending the proceeds. Market conditions, cash flow, and investment performance will impact if you get additional years out of your retirement funds or have fewer remaining years.

Saving by a Percentage of Your Salary

You need money sitting in your retirement account to implement the 4% rule. Some experts recommend saving a percentage of your current annual salary and putting it into your retirement portfolio. Salary can also dictate how much money you should have in your retirement account. You should anticipate spending 70%-80% of your current wage each year during retirement. Although some retirees can live on less, you should still wait until you reach this milestone. Medical costs and other surprise expenses can strain your social security income and the proceeds in your emergency fund. 

Allocating Multiples of Your Annual Income

This approach considers your age and annual income. Younger people can get away with saving a lower percentage of every paycheck because time is on their side. They have more time to accumulate funds and let compound growth do its magic. Older investors should allocate a higher percentage of each paycheck into their portfolios to catch up. Fidelity has spearheaded this approach and recommends saving 15% of your gross salary at 25 and having a retirement fund that matches 50% of your salary when you are in your 30s. The broker recommends investors have a portfolio the size of eight times their annual salary at 67, the time that many people retire. You can get more aggressive with your savings goals if you have available funds and reduce expenses.

Tips To Help You Retire at Age 55

Retiring at 55 is an ambitious goal, but it’s possible with the proper planning and approach. You can use these strategies to retire sooner and have more money in the bank.

Know Your Net Worth

Knowing your net worth doesn’t increase your bank account’s balance, but this number reveals where you currently stand. Calculating the gap between your net income and retirement goal can inspire you to set more aggressive savings goals and pursue new opportunities.

Determine Your Goals

Your net worth can inspire several goals, but you can create different objectives. Many people set goals around retirement portfolio sizes, and you can establish mini milestones over 3-5 year timeframes to stay motivated. However, you can also set cash flow goals for your portfolio. Some investors prefer to buy dividend stocks, rental properties, and other assets that provide cash flow. These investors hope to generate enough annual cash flow that they never have to sell shares or properties.

Start Early

The earlier you start, the easier it is to save for retirement. While it’s a good idea to begin in your 20s, not everyone starts young. The next best time to invest and capitalize on employer contributions is right now. Every dollar you invest now will have plenty of time to compound. Investors who retire sooner than average get their money to work for them early and often. They invest in various assets such as stocks, mutual funds, and crypto. Investors can afford more patience early in their financial journeys and usually shift to less risky investments as they age.

Get a Financial Advisor

A financial advisor can help you manage your money and navigate current events and expenditures. A certified financial planner can provide best practices and help you avoid mistakes. While you don’t have to hire a financial expert to ensure a smooth retirement, having the right support team can increase your chances of a successful transition. 

Diversify Your Investment Streams

A retirement with numerous assets provides more opportunities while lowering your risk. This dynamic helps investors achieve gradual returns that don’t crash when they need funds. You can invest with several brokers, but Titan is a premier choice that lets you choose actively managed accounts and buy your own investments. Titan’s professional team can manage your portfolio, and they also have options for crypto investing. Actively managed Titan portfolios have a $100 minimum and $5/mo monthly management fees.

You can visit Titan’s website or download their mobile app to open a retirement account. Titan has various choices, such as a Roth IRA and a traditional IRA retirement plan. Titan will work hard to grow your funds while you focus on increasing your monthly investments into your retirement. Titan can help you retire sooner without you spending too much time looking at your portfolio, following market news, or tracking minute price movements.

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