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Early Retirement: You Might Not Need as Much as You Think

How much do you really need to enjoy early retirement?

The answer is probably lower than you've been told. Though the average American is woefully underprepared for retirement, there's a sizable chunk that could retire from their jobs today and never look back.

Could you be one of them?

A bare minimum
Wes Moss, Chief Investment Strategist for Capital Investment Advisors and host of the Money Matters radio show recently conducted a survey on how much money happy retirees had in their accounts. He shares his findings in his book, You Can Retire Sooner Than You Think. With some people wondering if even $1 million isn't enough for retirement, what Moss found was a pleasant surprise.

Source: Wes Moss

Once most retirees hit the $500,000 mark, increases in happiness plateaued. That's a much lower mark that you hear talked about today. Moss says that you should consider this a "bare minimum"  for retirement happiness.

So how many people does that mean could retire before Social Security's full benefits age of 66?

It's hard to say for sure, but the Insured Retirement Institute's (IRI) annual survey of the Boomer Generation offers a glimpse. According to IRI, 80% of Boomers have saved for retirement. Of that chunk, here's how much they have saved.

Source: Insured Retirement Institute 

As you can see, about half of these Boomers have over $250,000 saved. It's impossible to know how many of those folks have at least a half-million, but the figure is encouraging nonetheless. The youngest Boomers are turning 50 right now, so there's still time for serious savings and growth within these accounts as well.

If you count yourself among these strident savers, you've passed the first step toward early retirement.

Early Retirement on just $20,000?
Don't start jumping up and down quite yet. If you do the math, Moss's $500,000 number equates to about $20,000 per year in retirement.

That's because most financial planners say that you can safely withdraw 4% of your nest egg to make it last indefinitely. With savings of $500,000, that means pulling out $20,000 per year. For a lot of people, that simply doesn't seem like enough, which is probably why Moss calls it a "bare minimum".

Here are some of the key forms of income that can help supplement that number, which are often overlooked when planning for retirement:

  • Social Security: You can start taking Social Security at age 62. To find out how much you could get, visit the organization's website. The average American earning $50,000 per year can expect an additional $12,600 from Social Security if they retire at age 62, and up to $25,000 if they retire at age 70.
  • Defined benefit plans: Though pensions are largely unavailable to today's younger workers, there are still a number of Boomers that have some defined benefit plan to fall back on. According to the Bureau of Labor Statistics, in 2011, 18% of private sector workers had access to pensions, while 78% of state and local government workers had such coverage.

Redefining what "early retirement" means
But you don't have to rely solely on a pension or Social Security to help you bridge the gap between $20,000 and what you'll need in retirement. There are other solutions, but they require you to tinker with your definition of "early retirement." 

For instance, instead of meaning, "a total stoppage of all paid labor," early retirement could mean dropping out of the 9 to 5 rat race, giving up the commute, and focusing on how you can get paid for working on your passions. 

Have a passion for woodworking? You could easily turn it into a low-stress revenue stream in early retirement. Photo: Bertrand, via Wikimedia Commons

Even if you can't get paid for your passions, part-time work can actually be a very healthy decision for early retirees. One of the biggest surprises retirees have is their sadness over the loss of social connections with work friends. Part-time work affords you the opportunity to stay active, healthy, and connected.

For those that have no pension and years to go until you can collect Social Security, it won't actually take that much to bridge your funding gap. If you and your wife can each find part-time jobs that pay $15,000 per year, you'd be bringing in $30,000. When you include the $20,000 withdrawal from your nest egg, your total comes to $50,000 per year. That's about the level of spending where Moss found happiness levels began to plateau.

In a practical sense, that means finding a job that pays $15 per hour that you work at for just 20 hours per week.

And the options don't stop there. There's always the possibility of buying a rental property to provide a solid stream of revenue. And if escaping the workforce is really important to you, it could be worth evaluating whether or not you and your spouse could go through a serious spending down-shift. If you've paid off your house in-full, living on $20,000 per year might be a lot easier  than you think.

But let's step back and take a reality check: saving $500,000 isn't easy--but it also isn't impossible. Half of Boomers are at least within spitting distance of the figure. There's no reason for outdated concepts of what "early retirement" means to hold you back from changing your life in ways that are going to make you happier. In the end, that's all that should really matter.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Read/Post Comments (7) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2014, at 10:12 PM, jlh939 wrote:

    It would be nice to see articles like this mention alternative withdrawal rates for SINKs (Single Income, No Kids) or those who plan to spend all their savings for other reasons. Try looking beyond the suggested 4% rate (along with the assumption most retirees want their savings to last indefinitely). This makes it easier to see why so many Boomers and GenX investors retire early (and successfully) on more than $20,000 per year.

  • Report this Comment On August 30, 2014, at 10:19 PM, keithk wrote:

    If I retire before I'm eligible for medicare, I have to pay for health insurance. A pretty steep expense that seems to have been ignored.

  • Report this Comment On August 30, 2014, at 10:33 PM, TMFCheesehead wrote:


    As someone who pays for health insurance out of pocket, I can tell you that paying for a high deductible plan and using a health savings account (HSA) can make it more affordable than you might think.

    Brian Stoffel

  • Report this Comment On September 02, 2014, at 2:31 PM, Mathman6577 wrote:

    I just retired at age 55. What you need for early retirement is to develop a "system" or a "process" to spend less than you earn, no matter what you earn.

  • Report this Comment On September 03, 2014, at 9:25 AM, carnuts55 wrote:

    I've read several articles just like this one. I retired last year at 58 with a modest pension and took over management of my retirement plan and my wife's. My wife will retire in 2016 at 57. That alone will save us 1.5-2% from a advisors fee. I've never read this but have always assumed that one reason advisors are fixed on 4% is because they are taking there 2% off the top so you only have 4% left based on 6% return on your portfolio. That is why the Motley Fool exist's, to help people like me keep more of my money and with good investing plans make more than the average 5%.

  • Report this Comment On September 04, 2014, at 10:45 AM, Mathman6577 wrote:

    I agree with @carnuts. Most people can manage their own money and save lots of money over the long term..... 1% or 2% a year over 30 years is a lot of money wasted. Good spending habits influence your success a lot more than your investment returns ever will.

  • Report this Comment On October 30, 2014, at 11:11 PM, Celery198736 wrote:

    Most of us need to save more, much more for retirement. Including myself. (although I’m still 20+ years away)

    Here is what I’m doing:

    1. I now put away the maximum amount in my 401K (5% for me) that my employer will pay into the plan as a match. It is free money and dumb not to do it. It was basically a raise I gave myself.

    2. After calculating my expenses, I found that driving was my biggest expense. I fixed that by buying a fuel efficient car thats durable (Honda Civic), finding an affordable insurance policy for it ($25/month from 4AutoInsuranceQuote, yay!), and using apps like Gasbudy/Waze to save money at the tank. I cut my transportation costs in half!

    3.I cut way back on eating out. I am having a year of putting away money hard, and food was a huge portion of my budget. I save about an extra $100 a week now, and eat healthier and better. Ditto for others if you spend a lot of money in bars.

    4. I need life insurance to protect my 2 daughters, but I ditched a $275 a month whole life policy for a term policy and now I only spend $25 a month. I save the difference to my Roth IRA. If you are unfamiliar with this and want to learn more watch shows or read articles from Suzey Orman or Dave Ramsey sometime. They are huge proponents.

    There really were no two ways about it. If I plan on having a full savings account (getting there) and a comfortable retirement (I will) I have to make good decisions with my money.

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Brian Stoffel

Brian Stoffel has been a Fool since 2008, and a financial journalist for the Motley Fool since 2010. He tends to follow the investment strategies of Fool-founder David Gardner, looking for the most innovative companies driving positive change for the future.

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