Can I Retire at 57 With $2 Million?
The average retirement age in the United States is 62, but many people are choosing to retire early in their 50s. If you aspire to retire at 57, it is crucial to save adequately and plan for a potentially longer retirement.
A financial advisor can help you understand how to retire at 57 with $2 millionin savings. This article will also focus on financial planning to retire at 57so you can enjoy early retirement.
Table of Contents
Can you retire at 57 with $2 million?
Yes, you can retire at 57 with $2 million.
However, you need to plan properly to ensure you do not deplete your nest egg prematurely. One of the first things to consider when planning for early retirement is how long your savings need to last. Thanks to modern healthcare facilities, people are living well into their 80s, and many even reach their 90s. That is 30 to 40 years of expenses to cover in retirement. Your $2 million retirement nest egg needs to stretch across these years. This can only be done with careful budgeting and smart investing.
What percentage of retirees have $2 million dollars?
According to the Federal Reserve Survey of Consumer Finances, only 3.2% of retirees possess more than $1 million in their retirement accounts. In fact, only about 1 in 10 retirees have even $1 million. Over 90% of retirees manage to live comfortably on significantly less than $2 million by adjusting their lifestyles and relying on Social Security, pensions, and other investments. If the majority can retire with far less than $2 million, it is likely safe to assume that this amount could be sufficient for you as well. However, ultimately, whether $2 million will meet your needs depends on your retirement spending habits. You must carefully consider your expenses and plan well to ensure a secure retirement, regardless of your savings balance.
If you are retiring at the age of 57, you will need to know how much you spend annually. Let’s say your annual expenses are $100,000. Some experts suggest that retirees can expect to spend 80% to 90% of their pre-retirement income, but that is not a one-size-fits-all rule. Ultimately, your lifestyle in retirement will heavily influence your spending. If $100,000 is your annual expense, then at 57, you will need that amount every year until your Social Security kicks in, which is generally around age 62 to 70. As per the prevailing rules, you cannot claim your full benefits until age 67. In fact, many financial experts recommend waiting until 70 to start claiming Social Security because you will receive higher monthly benefits. If you multiply $100,000 by the 10 to 13 years before you receive Social Security benefits, that is $1 million to $1.3 million of your retirement savings gone before you get your Social Security check. If you retire at 57, there will be many years in between where you will need to rely solely on your savings. Even if you start taking Social Security as early as age 62, you will reduce your benefits permanently. So, this decision will need careful consideration.
Let’s assume you are withdrawing $100,000 annually from your $2 million. Here’s a breakdown of how your $2 million might look over time if you start with $100,000 withdrawals each year:
Starting Balance: $2,000,000
- Year 1: $1,900,000
- Year 2: $1,800,000
- Year 3: $1,700,000
- Year 4: $1,600,000
- Year 5: $1,500,000
- Year 6: $1,400,000
- Year 7: $1,300,000
- Year 8: $1,200,000
- Year 9: $1,100,000
- Year 10: $1,000,000
After ten years, you still have $1,000,000 left, which is a solid cushion when you start receiving Social Security benefits.
Inflation is an essential factor to consider when determining how long $2 million will last in retirement.Let’s assume inflation averages around 3% per year. So, you need to earn at least a 3% interest rate on your investments to offset some of the inflation costs over time. For example, if your $2 million grows at 3% annually, your savings balance would increase by roughly $60,000 in the first year. This can help you maintain your lifestyle without depleting your retirement nest egg too quickly. It is essential to keep your investments growing throughout retirement. For this, you must ensure that a portion of your portfolio is invested in inflation-beating instruments like stocks, even as you get older.
Healthcare is also one of the biggest unknowns in retirement planning. Medicare helps cover many costs, but it only starts at age 65. If you are retiring at 57, you will need to bridge the gap with private health insurance for several years. On average, in 2024, a 65-year-old retiree could potentially face healthcare expenses totaling an estimated $165,000. And those costs could be even higher if you retire early and need to purchase private insurance. Make sure to factor these expenses into your budget.
According to the Bureau of Labor Statistics, the average 65-year-old spends about $52,000 annually in retirement. However, your expenses could easily be higher if you want to maintain a more active lifestyle. It is crucial to have a realistic understanding of your retirement spending. Retirement expenses vary depending on your lifestyle, location, age, interests, etc. For some, the spending may drop in retirement, while for others, it can stay the same or even increase due to travel and healthcare costs. Many retirees assume they will spend less in retirement because they do not have to commute to work. While this might be true for some, it is not always the case. As mentioned above, experts suggest you will need around 80% to 90% of your pre-retirement income to maintain your lifestyle. But that rule does not fit everyone. Your expenses could be higher if you plan to travel a lot, support your children or grandchildren, etc. On the other hand, if you live a simpler life, they might be lower. Knowing your numbers is essential to managing your money. Let’s say you plan to spend around $80,000 a year in retirement. This translates to about $6,666 per month. For many retirees, this is a reasonable figure that allows for a comfortable lifestyle.
Life expectancy can also affect the longevity of your retirement savings. In 2024, the average life expectancy in the U.S. is estimated to be 79.25 years, but many retirees live into their 80s or even 90s. In fact, there is a 40% chance that at least one member of a 60-year-old couple today will live to age 95. If you retire at 57, your savings might need to last for 30 or even 40 years. That is a long time, so it is crucial to plan for longevity.
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Below are some ways to ensure your $2 million lasts you a lifetime:
1. Aim for a 4% withdrawal rate
With a $2 million portfolio, withdrawing 4% annually would give you $80,000 per year. This amount, when combined with other income sources like Social Security, could be enough to cover your living expenses. However, you do not have to stick to the 4% withdrawal for each year. You can flexibly change the withdrawal rate based on your evolving needs and how the market performs. Some years, you may have a lot of expenses due to health concerns, travel, etc. During these years, you may withdraw more than 4%. However, when things seem manageable in the following years, it may help to tighten the purse strings.
2. Plan your Social Security withdrawals smartly
The earliest you can claim your Social Security benefits is at the age of 62, but doing so will reduce your benefits considerably. If you wait until your full retirement age, you will get 100% of your benefit. And if you can hold off until 70, you will receive about 8% more per year. If you retire at 57, you will need to rely on your savings for several years before you can start collecting Social Security. Waiting until 70 can increase your monthly benefit, which is great if you are concerned about outliving your savings. But this strategy only works if you have enough other income to cover your expenses in the meantime.
3. Factor in taxes
Understanding how your accounts are taxed will help you manage your withdrawals and minimize the tax bite. If you have a traditional Individual Retirement Account (IRA) or a 401(k), you have contributed to those accounts with pre-tax dollars. So, you will owe taxes when you withdraw the money. On the other hand, if you have a Roth IRA, you have already paid taxes on those contributions, so your withdrawals in retirement are tax-free. You can opt for Roth accounts if you plan to retire at 57. With tax-free withdrawals, you can live a more comfortable retirement. You can consider rolling over funds before you retire to avoid any major tax drag in retirement.
Additionally, you will owe capital gains taxes if you sell investments like stocks or bonds to generate an income before Social Security starts. Even interest earned in a high-yield savings account is taxable. You must understand how these taxes impact your withdrawals and structure your income sources accordingly. Since tax planning can be a nuanced process, hiring a financial advisor can be helpful.
4. Plan for healthcare costs
As you age, your healthcare needs and the associated costs are likely to increase. While Medicare will help once you turn 65, if you retire at 57, you will need to pay for your expenses out of pocket or buy insurance. Moreover, since long-term care is not typically covered by Medicare, you would need to factor in long-term care insurance for the later years.
According to the Employee Benefit Research Institute, a 65-year-old couple retiring today will need about $318,000 to cover healthcare expenses throughout retirement. If you have any ongoing health issues, get diagnosed with an unexpected critical illness, or require long-term care, this figure could be even higher. It is a good idea to allocate at least 15% of your annual budget for healthcare expenses. You can also use dedicated savings accounts like the Health Savings Account (HSA) to prepare for future expenses.
5. Do not forget about inflation
To combat inflation, your retirement portfolio should include investments that have the potential to grow and override the rate of inflation. Keeping a portion of your savings in stocks or other assets that offer higher returns is important. While it is important to be conservative in retirement, as you age, staying too conservative can actually harm your long-term financial security. Ideally, a diversified mix of equity and debt can be ideal even in retirement.
6. Consider annuities for guaranteed income
You can purchase an annuity with a lump sum, say $1 million, and receive guaranteed monthly payments for the rest of your life. This can provide you with peace of mind, as annuities offer a reliable, steady income stream, regardless of market fluctuations.
A smart strategy might be to allocate half of your retirement savings to an annuity to ensure consistent income for essential expenses. The other half of your savings can be kept in more liquid assets or invested in inflation-beating instruments like stocks, real estate, or bonds. This can offer you financial security for emergencies and flexibility for long-term growth opportunities.
7. Keep some lower-risk, high-yield options
Finally, you can also consider low-risk options, such as high-yield savings accounts, fixed-income securities, and dividend-paying stocks for generating income. Many high-yield savings accounts currently offer interest rates of 4% or more, which is a safe way to grow your money against inflation while having easy access to it in the case of emergencies.
To conclude
Retiring at 57 with $2 million is an achievable goal, but it requires meticulous planning and prudent decision-making to ensure financial stability throughout your retirement years. From managing withdrawal rates and factoring in taxes to planning for healthcare and combating inflation, every step is crucial. A well-balanced approach that combines strategic investments, careful budgeting, and smart use of Social Security benefits can help preserve your savings while supporting your desired lifestyle.
To navigate these complexities, seeking guidance from a financial advisor can provide valuable insights tailored to your unique needs. Retirement is not just about financial preparedness but also about enjoying the freedom and peace of mind it brings. With proper planning, you can make your early retirement both comfortable and fulfilling.
Use the free advisor match tool to get matched with experienced financial advisors who can help create a personalized retirement plan based on your future goals. Answer a few simple questions based on your financial needs and get matched with 2 to 3 financial advisors who are best suited to help you.
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