If your net worth tops $7 million should you retire at 40? That’s a question a Redditor recently posed, as he is considering walking away from his job to be home with his kids and take part in his hobbies. The poster said he feels like he’d have plenty to do in retirement but that he is a worrier by nature and is concerned about potential what-ifs or fears he may be shortchanging his kids by not saving more for their inheritance, weddings, and colleges.
So, should he walk away or would he be better off sticking it out a few more years at his job to build up his savings further and avoid drawing his nest egg down?
Is retiring at 40 a good idea?
Retiring at 40 inherently carries some risks, since you have a lot of life left and you must be able to support yourself for decades to come. When you have kids to pay for, that adds even more uncertainty — especially with the rising cost of college tuition.
Still, there comes a point when you have enough financial security due to savings that walking away can make good sense if that’s something you think would make you happy. In this case, it seems pretty clear that the Reddit poster has reached that point.
His spending averages $100K, but he figured that with having to buy his own health insurance and added costs he’ll likely incur as his kids get older, he’d end up with annual expenditures in around the $130K to $140K range. The good news is that his $5.3 million in a brokerage account has a 5% average growth rate so if he stuck with a safe withdrawal rate of around 3.7%, he wouldn’t touch the principal and would have $196,100 in annual income — which is more than he needs.
He also has a generous cash cushion so he can withstand market downturns, and he has another $2 million in retirement accounts that he could leave alone to grow as he lives off his brokerage account until he can start accessing the retirement funds penalty-free at 59 1/2.
As for saving for his kids, he should be able to do that too with some of the income his investments are producing since he has a surplus. And, his kids should still get a nicer inheritance than most as he should have a large account balance to pass on if he’s able to keep his withdrawals below the rate of growth.
Don’t let financial fears stop you from living your dream
The Reddit user here has clearly worked hard to build up a big nest egg and he’s in a great position to live off his savings, so the only thing holding him back is his financial fears. While it’s good to be prudent before jumping into early retirement, running the numbers should put your mind at ease when you’ve done everything right.
Ultimately, though, the poster’s best course of action may be to talk to a financial advisor to get personalized advice. The advisor can make sure he’s not missing anything in terms of planning for early retirement and can give him the confidence he needs to trust that he’s done everything right and can leave his job to enjoy the fruits of his labor.
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