To most of us who have to go to work every day, retirement sounds wonderful. Getting out of the rat race early sounds like an even better idea. Instead of working until we’re in our 60s, retiring a decade earlier would give us that much more time to enjoy the good life. The question is: To retire at age 56 – 10 years sooner than full Social Security retirement age for those born between 1943 and 1954 – how much money will it take?

How Much Income?

Let’s do some informal, back-of the-napkin calculations to get a ballpark idea of how much income is required to make the dream come true. There are two quick and easy answers to that question – or more precisely, two ways to answer that question.

You can get the first answer by writing down the amount of money you spent last year. If you spent $35,000 to maintain your lifestyle, then you need $35,000 a year starting at age 56. If you spent $100,000 or $200,000 or $250,000 or some other amount last year, then that is the number you will need.

These quick and dirty estimates are simply based on the idea that the lifestyle you want next year is the same lifestyle that you enjoyed last year, and that you have adequate savings or other income sources to pay your bills once you reach full retirement age at 66. They don't take into account things that might affect your expenses in a major way, either pleasant (a trip around the world) or unpleasant (a serious illness). They also ignore the detrimental effects of inflation. For additional insight on that, check out Inflation: What is Inflation?

How Much Savings?

If you retire, the earned income stream is shut off. So, how much in savings do you need the pay the bills? All other things being equal, you’ll need to have about 10 times the amount of your expenses saved up, to generate sufficient income on which to live, until you can start collecting Social Security benefits at age 66. 


Income Requirement=


Income Requirement=


Year 1

$350,000 savings

$1,000,000 savings

Year 2

$315,000 savings

$900,000 savings

Year 3

$280,000 savings

$800,000 savings

Year 4

$245,000 savings

$700,000 savings

Year 5

$210,000 savings

$600,000 savings

Year 6

$175,000 savings

$500,000 savings

Year 7

$140,000 savings

$400,000 savings

Year 8

$105,000 savings

$300,000 savings

Year 9

$70,000 savings

$200,000 savings

Year 10

$35,000 savings

$100,000 savings

The Government's Role

What if you look at those numbers and think to yourself that you don’t have nearly enough money to maintain your lifestyle for a decade and still pay your bills – but you still want to retire at 56? This brings us to the second answer.

Again, we’ll start with the simplest of assumptions: at age 66, Social Security will be your only source of income at retirement; that you started work at age 20; and that you qualify for the maximum possible Social Security benefits. In this scenario, the maximum that a retiree in 2017 could collect is $2,687 per month. That comes to $32,244 per year.

So, to get you through, we'll assume that's your minimum: an annual income of $32,244. By that math, you would need $322,440 total to pay your bills for a decade until the first benefit check arrives. 

Of course, you can elect to start collecting Social Security benefits a bit earlier, at age 62. That will lower the size of the payments, however; see the Early Bird Doesn't Get The Social Security Worm.

The Bottom Line

Naturally, these assumptions do not reflect the realities of a complex world. While the simple math is easy to calculate, it does not take into account the variables of investment returns, the rising cost of living, unexpected expenses, potential healthcare costs and a host of other factors and potential changes in personal spending habits and lifestyle.

Whichever of these two methods you choose, the bottom line is, you'll need a tidy sum in savings, to tide you along until Social Security kicks in. Ask yourself: Can you cut any of your current expenses? Will you have a pension check waiting for you 10 years from now? Do you stand to inherit a large amount of money? Does your spouse have income that can help fund your plan? Do you even qualify for the maximum Social Security payment? Can you live on the amount of Social Security you do qualify for?

The answers to these questions are different for everyone. Retirement planning is a highly personal process. Only you know all the specific details of your personal financial situation, and only you know what sacrifices you are wilingl to make to realize that dream of kissing the working-stiff life goodbye.

See also The Pros And (Mostly) Cons Of Early Retirement.


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