One question I asked myself often before opening this blog and looking deeper into the ways to retire early, was “how much money do I need to retire”.
The answer of course depends on everyone’s goals and expenses, I also have my own, pretty precise target now. The rule of thumbs is known as the rule of 4% (you can withdraw up to 4% of your correctly invested assets every year without – historically – risking to deplete your assets) and means you need about 25 times the amount you plan to spend every year.
But even with that rule, people are often looking for a hard, cold, number: How much do people need to retire today?
The average answer has been given to me through a poll on the Mr Money Mustache forums. you can find the poll here.
So, how much do I need to retire?
In that poll, people were asked how much money they owned at their time of(early) retirement. A large majority of the respondents, 73%, had less than 1.5 million dollars when they decided to pull the plug. 40% had less than a million when they retired early.
Keep in mind that we are talking of people who decided to retire, so they estimated they had enough money to stop working early. Bottom line is, a million dollars seems to be enough for a huge proportion of people to retire.
With the 4% rule, this means these households live on about $40’000 a year, a decent amount of money, but not an enormous one.
So, where’s the catch? Well, honestly, there is none, but keep in mind the following:
The poll specifically asks to not include home value: if you’re still paying your mortgage, you’ll probably need more
The poll was conducted on a forum dedicated to frugal lifestyles. You’ll need to embrace this lifestyle to retire early under $1’000’000. Remember, this is frugal as in “be reasonable with your purchases”, absolutely not impossible. $40’000 a year is after all, a fair amount of money.
The poll has a fairly low amount of answers (161 at the time of this writing). It is still a significant amount of people in the absolute scheme of things: how many people do you know who retired before 50?
I’m getting closer every day to my own goal, and am still on track to retire before 40. How about you?