Two Questions For You
At least once a week, four or five times a month, since I retired in September 2009, I hear the same question, “How can I retire early?” I always respond by asking two questions.
- How old are you?
- How old do you want to be when you retire?
Just Give Me An Age
The answer to question #2 is not, “I can’t afford to retire when I want to.” Tell me an age. Let’s say you are 40 and you want to retire when you are 55. That’s 15 years. But most of the people I talk to are not 40 years old. They are usually 50 and want to retire at 55. If you are 50, can you save $1450 every two weeks to reach your goal of retirement at 55?
Can you Save $35,000 a Year?
If you are 50, you can retire at 55 if you can save enough. Most people can’t save at that rate of $1450 every two weeks. It would take saving about $35,000 a year at a rate of 20% on your investments to get the same amount of money that a 40 year old would have at 55 using only $4,000 a year in a Roth IRA.
But you can only put $4,000 into your Roth until you get to be 55 and when you can put in $5,000, but you want to retire at 55 so that shoots that plan. Also your earnings every year will be taxable, since you are saving $31,000 more each year over what you put in the Roth. So your net result will be less. To offset a 28% tax rate, you’d have to save over $40,000 a year. So the goal of retiring at 55 might be unrealistic. Or maybe not, depending on your savings rate.
Can You Live On Less? Continue reading How Can I Retire Early?