We’re in our mid-50s and are considering early retirement – do we have enough saved to keep spending over $300k per year?

A Reddit user is considering retirement but recently posted to ask others if they thought he had the necessary funds. The poster has between $14 and $15 million in assets, including $3 million in real estate, $8 million in brokerage accounts, and $3.5 million in retirement accounts and he is in his mid-50s. While this may seem like plenty of money, he also said that he spends $350k per year and that his income is between $600k and $700k so it’s hard to give up so much income. 

So, the big question is, can his savings sustain such a large amount of annual spending, and should he say goodbye to his job for good or keep working and saving for a while — at least until his kids are out of college and he no longer has $160K in tuition bills to worry about. 

Will a $14 million nest egg sustain $350k in annual spending?

While a $15 million nest egg is a hefty sum, the reality is that the poster may not be that well-positioned to be able to afford to continue living a lavish lifestyle even with so much money invested. 

The new recommendation from experts is to keep withdrawals from your retirement plan to around 3.7% of the account balance to avoid running short of money. This formula is supposed to ensure your money lasts for 30 years, though, and if the Redditor retires in his mid-50s, he may want to be a little more conservative to make sure he doesn’t outlive his funds. Depending on the types of accounts he has, he also may not be able to withdraw funds from his retirement accounts without penalty until 59 1/2. So, with $8 million in his brokerage accounts, following the 3.7% rule could produce around $296K in annual income.

Unfortunately, that’s below his spending needs. And he’ll also have taxes to take into account. Plus, if he retires before Medicare age, he’ll likely need private health insurance for his family. This could come with hefty additional premiums that add to his spending if his employer is currently subsidizing the bills — especially if he also continues to insure his kids who are in college for a while. 

Now, if the poster waited until 59 1/2, he could access another $3.5 million in funds in his retirement accounts. He’d also reduce the number of years of private insurance he must pay for and may be able to get his kids through college and eliminate $160K of annual expenses that would otherwise have to come out of his savings. 

Big spending makes early retirement trickier 

• Spending needs, including additional costs that come with retirement.
• How the money is structured and how accessible it is.

Looking at this big picture revealed in this case that leaving work so young may not necessarily be sustainable. Now, the Redditor may decide he’s OK with draining his taxable brokerage account early since he’ll have more money once the retirement funds become accessible — but talking with a financial advisor first will be important to understand the long-term implications of that choice. 

For those who really want to retire early, avoiding huge spending commitments can help to avoid this type of situation. However, working a few extra years to continue to enjoy a lavish life may be a tradeoff that some find worthwhile. That’s a personal choice each person has to make for themselves.