With careful planning, $2.5 million can fund a comfortable retirement starting at age 60. But as with any major life transition, retirees must weigh a complex set of variables from taxes to healthcare to ensure their nest egg lasts decades. Though everyone’s situation differs, this level of savings can provide most the flexibility to retire if desired, especially if paired with even modest Social Security income starting a few years later.
Do you have questions about retirement planning? Speak with a financial advisor today.
The Fundamentals of Retirement Planning
Deciding if you have enough saved to retire hinges on estimating future costs and income streams over an expected lifetime. At its simplest, this involves projecting how much income you’ll have from various sources and preparing post-retirement budgets for expenses.
To make an optimal decision, especially if you’re considering retiring earlier than typical, you also have to account for age-related factors. These include healthcare expenses before Medicare eligibility at age 65 and penalties for most retirement account withdrawals before age 59.5.
Social Security timing strategies are also important. These are based on personal circ*mstances and call for balancing tradeoffs between maximizing monthly benefit amounts and starting benefits earlier. Required minimum distribution (RMD) rules that go into effect after age 73 represent another significant consideration.
Identifying an appropriate withdrawal rate that maintains principal is also key. This will vary depending on your portfolio strategy, asset allocation and investment performance. However, it’s often suggested to use a rate between 4% and 6%, depending on where you look.
Examples of Retiring at 60 with $2.5 Million
Rather than trying to figure out your personal retirement income and expenses in detail, you can use income replacement. For a 60-year-old earning $100,000 annually, the target budget number for income could be, say, $70,000 per year. This is using a 70% income replacement guideline.
The 4% withdrawal rate is another guideline that assumes withdrawing that percentage of a portfolio annually, adjusted for inflation, will allow a nest egg to last as long as a typical retirement. Withdrawing 4% annually from a $2.5 million portfolio would generate $100,000 in retirement income. This covers the $70,000 income replacement target, with a nice cushion of $30,000 per year.
For most people, savings represent only one source of potential income in retirement. Additionally, this individual could start taking Social Security benefits as early as age 62. Alternatively, they could wait to claim their benefits until reaching full retirement age at 67, or even longer at 70. This would qualify them for higher monthly benefit amounts, with the tradeoff of starting them later.
Taxes represent another key component of this decision. While completely avoiding taxes is not possible, there are moves you can make to manage or minimize taxes. For instance, converting some pre-tax savings to a Roth IRA early enough before retirement would avoid tax bills later at the cost of paying more taxes now. An advisor can run projections to inform conversion pacing and amounts.
Additional variables that could impact a retirement decision include healthcare costs, investment performance and inflation. While these variables can’t be forecast with certainty, making educated guesses about their future values can help you plan effectively.
Making the Call
Ultimately, $2.5 million can reasonably support retiring at 60 if assumptions around withdrawal rates, taxes, healthcare costs and other factors hold up. Being flexible about expenses and having some income options as a potential backup provide wiggle room in case things don’t work out exactly as expected. Working with a financial advisor to stress test plan viability across various market and lifespan scenarios is prudent to ensure savings stand the test of time.
Despite your best efforts at planning, some uncertainties and risks remain when deciding if and when to retire. Extended periods of high inflation could erode purchasing power more quickly, or health issues could also drive expenses higher, especially in early retirement before Medicare eligibility at 65. To counter fiscal risks, retirees should build in some margin like having income streams beyond portfolio withdrawals.
Bottom Line
While $2.5 million doesn’t guarantee a secure retirement at 60, it does provide more options than some retirees might have. Weighing complex projections around taxes, healthcare costs, withdrawal rates and Social Security tradeoffs can inform next moves. As no plan survives first contact with reality perfectly, working with an advisor and retaining some flexibility helps retirees call audibles while protecting savings.
Retirement Planning Tips
- A financial advisor can help stress test your retirement plan across lifespan, market and tax scenarios to assess feasibility. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- While you can’t know exactly what will happen in retirement, SmartAsset’s retirement calculator can help you produce a reasonable estimate of who well prepared you are.
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FAQs
Ultimately, $2.5 million can reasonably support retiring at 60 if assumptions around withdrawal rates, taxes, healthcare costs and other factors hold up. Being flexible about expenses and having some income options as a potential backup provide wiggle room in case things don't work out exactly as expected.
How long would 2.5 million last? ›
A nest egg of $2.5 million could generate $100,000 in income per year if you tap your accounts at the widely cited 4% sustainable rate of withdrawal. This rule forecasts that withdrawing that percentage from your accounts each year will allow a nest egg to last at least 30 years.
At what age can I retire with 2 million dollars? ›
If you have multiple income streams, a detailed spending plan and keep extra expenses to a minimum, you can retire at 55 on $2 million. However, because each retiree's circ*mstances are unique, it's essential to define your income and expenses, then run the numbers to ensure retiring at 55 is realistic.
How much money do you need to retire comfortably at 60? ›
Someone between the ages of 51 and 55 should have 5.3 times their current salary saved for retirement. Someone between the ages of 56 and 60 should have 6.9 times their current salary saved for retirement. Someone between the ages of 61 and 64 should have 8.5 times their current salary saved for retirement.
Can I retire at 60 with 200000? ›
Yes, you can retire at 60 with 200k but you need to consider life expectancy and what type of lifestyle 200k will get you.
What is a good monthly retirement income? ›
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
How much monthly income will $2 million generate? ›
Across those years, $2 million could equate to approximately $68,966 annually or $5,747 monthly. This should serve you incredibly well and make you feel comfortable and cushioned, especially if you have relatively low expenses as a retiree and a normal lifestyle.
Can you retire $2.5 million comfortably? ›
Ultimately, $2.5 million can reasonably support retiring at 60 if assumptions around withdrawal rates, taxes, healthcare costs and other factors hold up. Being flexible about expenses and having some income options as a potential backup provide wiggle room in case things don't work out exactly as expected.
Can I live off the interest of 2 million dollars? ›
Can you live off of $2 million in assets? The answer is yes, if you manage your investment portfolio smartly. One common option is to invest $2 million in an index fund. But you will still need to make absolutely sure that you have a rainy day fund since the market can be reliable over decades but fickle over years.
What percentage of retirees have $3 million dollars? ›
Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.
Here's how much the average American has in their retirement savings by age
| Age Range | Average Retirement Savings |
|---|
| 45-54 | $313,220 |
| 55-64 | $537,560 |
| 65-74 | $609,230 |
| 75 or older | $462,410 |
2 more rowsMay 5, 2024
However, on the plus side 60-year-olds can withdraw from retirement accounts without penalty. Early retirees may also benefit from lower healthcare costs, improved ability to work part-time and a longer and more enjoyable retirement.
What is the average retirement account balance at 60? ›
Average 401(k) balance for 60s – $555,621; median – $209,382
By your early 60s, you should have a better idea of what retirement could look like for you and what it really means for you to be “retired.”
Is $2 million enough for a couple to retire at 60? ›
Retiring with $2 million at age 60 is feasible, but it largely depends on your lifestyle and financial planning. It's crucial to evaluate the lifestyle you aspire to maintain during retirement and estimate the associated costs to determine if $2 million is adequate for your needs.
Can I retire at 60 with no money? ›
Retiring with little to no money saved is not impossible, but it can present some challenges to your financial plan. Depending on where you're starting from, you may need to delay Social Security benefits, work longer, or drastically reduce expenses to retire with no money saved.
Can you retire at 62 with 250k? ›
While you'll need a detailed plan and sufficient Social Security income, it's possible to leave the workforce with this modest amount. Here are the factors to consider. A financial advisor can help you create a financial plan for your retirement needs and goals. Get matched with a financial advisor today.
How long can you survive on $3 million dollars? ›
Spending Needs and Savings Longevity:
For a $3 million retirement fund, anticipate a monthly income of $6,250 over 40 years, barring investment growth or loss. Factors such as lifestyle choices, inflation, and healthcare costs will influence how long your savings last.
How much is 2.5 million light years away? ›
we can multiply the value by the conversion factor. This gives us:2.5 million light-years x 9.5 trillion kilometers/light-year = 23.75 × 10¹² kilometers= 23,750,000,000,000 kilometersTherefore, the nearest galaxy to our home galaxy is approximately 23.75 × 10¹² kilometers away from us.
How long will $250,000 last in retirement? ›
That's over $7,200 of annual income you would receive in Social Security benefits instead of taking it from your retirement account. SmartAsset: How long will $250,000 last in retirement? No one knows how long their retirement will last. But it's generally safe to assume you'll be retired for at least 20 years.
How long can you live off 1.5 million? ›
The 4% rule suggests that a $1.5 million portfolio will provide for at least 30 years approximately $60,000 a year before taxes for you to live on in retirement. If you take more than this from your nest egg, it may run short; if you take less or your investments earn more, it may provide somewhat more income.
