Here’s How Much Money You Actually Need to Retire at 40

Just 11 percent of Americans will get to retire by the age of 59, only 6 percent will retire by 54, and just 2 percent will retire between 45 to 49. And a teeny, tiny 1 percent will do so between the ages of 40 to 44, according to data by The Motley Fool. It’s a small chance. But that 1 percent proves it’s not entirely impossible. Want to give it a go? Here’s what you really need to retire at 40 — and just how to make it a reality. 

Is there a one-size-fits-all number for retiring at 40?

“Retiring at a certain age isn’t a one-size-fits-all endeavor, it’s a personal journey influenced by a multitude of factors,” Courtney Burrell, a senior financial professional at Empower, a financial services company, shared with Travel + Leisure. 

According to Burell, your desired retirement lifestyle plays a “pivotal role” in how this all shakes out. 

“Someone aiming for a $50,000 annual budget in retirement will require significantly less savings compared to someone envisioning a $100,000 lifestyle,” Burrell said. But, Burrell importantly noted, sometimes, retirement isn’t about leaving the workforce altogether, but rather, figuring out a career or job path that you really want to be doing in your golden years — even if those begin at 41.

“Empower research shows that over half (58 percent) of Americans (64 percent of Baby Boomers and Gen Xers) say they may be in the job market post-retirement and are open to working indefinitely – and the reason isn’t purely monetary. The data also shows that many Americans continue working after retirement to gain a sense of personal fulfillment,” Burrell added. 

And, something we cover a lot here at T+L, Burrell noted that where you plan to retire has a major impact too.

“For example, our research shows that Las Vegas, Nevada, is one of the most affordable cities for retirees,” Burrell said. “Factors like tax friendliness, healthcare quality, home prices, and cost of living all play crucial roles in determining how much you need to save to fulfill your retirement dreams.”

How can people figure out their personal retirement number?

Figuring out your personal retirement number will, without question, require some homework. But Gloria Cisneros, a wealth manager at Lourd Murray, shared a few simple ways to figure out your number. 

First, there’s the “4 Percent Rule.” “You divide your desired annual retirement income by 4 percent. This rule says that you can withdraw 4 percent of your investment without the risk of running out of money. For example, if you have saved $1,000,000, you can draw $40,000 per year with a low risk of running out of money. Knowing this, you can work backward. For example, if your income need is $80,000 per year then you would need $2 million using this method,” Cisneros explained. 

Next is the Perpetuity Rule: “This formula calculates what amount is needed right now to have an indefinite cash flow of X amount based on a certain growth rate. The formula is ‘lump sum needed = cash flow needed / growth rate.’ For example, if you need $80,000 per year and you are assuming a growth rate of 6 percent on your investments, then you would divide $80,0000 by .06 percent and get $1,300,000.” 

But, if you’re still confused, Burell noted, you can always turn to a financial planner. “Consulting with an expert provides you with personalized guidance tailored to your unique goals and situation,” Burrell said, adding that one more piece of research that shows “seeking advice early in the retirement planning journey can be pivotal, as nearly one in five individuals wish they would have engaged with a financial professional sooner.”

So, how can people hit these numbers? 

There’s a lot you can do, but as our financial pros note, it comes down to discipline. Discipline. Discipline. 

“To set yourself up for retirement at 40, it’s crucial to start planning and saving early and to do so with discipline,” Burrell said. Burrell suggested starting by “clearly defining your retirement goals and envisioning your desired lifestyle,” utilizing online tools and seeking “guidance from a financial advisor to calculate your retirement savings goal,” along with saving as aggressively as possible, “ideally around 15 to 20 percent into tax-advantaged retirement accounts.”

Mark Henry, the founder and CEO of Alloy Wealth Management, added that it’s critical to develop a spending plan — no, not a budget, a spending plan.

“I like to use the term ‘spending plan’ rather than budget to reframe the process from restricting yourself to feeling in control of your money,” Henry told T+L. “Start by keeping track of your spending for a few months. Once you understand where your money is going, you’ll see where you might be overspending and can cut back to boost savings. Aim for a zero-sum spending plan, where every dollar earned is assigned a role, whether that is savings, bills, or wants. It’s common to save 20 percent of your income, but if early retirement is your goal, you’ll want to dramatically increase the amount you save.”

He also warns that those who want to retire early need to be extra cautious of lifestyle creep, and instead, “always increase the amount you save before increasing the budget for wants.” 

By avoiding that creep, you can also avoid racking up debt. And he has good advice for how to do just that. 

“As a general rule of thumb, if you can’t afford a purchase without a credit card, you can’t afford it, period,” he said. “Avoid putting more than you know you can pay off by the due date on a credit card. Carrying a balance can quickly lead to high-interest debt that feels overwhelming to pay off and eats away at your savings. That’s the last thing you need if you aim to retire young.” 

How can people protect their wealth for the rest of their life?

You’ve worked hard to earn all that cash to retire early. But how do you ensure you keep it well into old age? 

“Protecting your wealth for the long term requires careful planning and strategic decision-making,” Burrell said. “One key aspect is to maintain a diversified investment portfolio, spreading assets across different classes to reduce risk and enhance potential returns. Additionally, regularly reviewing your portfolio ensures it remains aligned with your financial goals and risk tolerance.”

And, once again, Burell suggested working with a financial pro who can offer “valuable guidance in navigating market fluctuations and making informed investment decisions.”

And, as Henry suggested, it may be good to find a side hustle, especially if it brings you joy, to ensure you have some incoming cash for all those years too.

“If you retire at 40, or any age younger than full retirement age, you may want to seek another job. You don’t have to go back to work full time — that defeats the purpose of retiring early — but extra income can help supplement your dream retirement even if you have enough savings to get by,” he said. “Most retirees who go back to work have to worry about tax implications for social security, but young retirees don’t have to worry about that for years to come.”

Is retiring at 40 really worth it?

That’s a question only you can answer. But as that Empowerment study suggests, almost half (48 percent) of Americans say they’d rather have a longer retirement with less money than a later retirement with more money. 

Still, Henry pointed out that “retirement, in general, requires a lot of planning, and retiring at 40 gives you at least 20 fewer years to figure it all out than more retirees, plus a handful of added obstacles. If you have thought through all of these obstacles and are confident you have enough savings and passive income to fund a life worth living without working, then retire early if you value that freedom.” 

And, as Burrell added, “there’s no cookie-cutter solution” to getting to retirement, nor is there one way to look at retirement. “It’s about understanding your unique aspirations, financial needs, and lifestyle preferences.”

Be it fully leaving the workforce, working part-time, or opening that dog-walking business you’ve always dreamed of, you’ve got to figure out what retirement looks like for you. Then, bust out your pencil and paper and do some math. Or, just call the pros above to do it for you.