I’m 36 with $435,000 and want to retire early — ‘the earlier the better’ — but without a frugal lifestyle

by user

I’m a 36-year-old with a job paying around $115,000 a year. I’ve done pretty well with my 401(k) and have $435,000 in it. I manage and rebalance it myself and even managed to gain around 6% in 2022 despite the bear market. 

My goal is to retire early. The earlier the better but I don’t exactly want to have a frugal lifestyle. I want to travel the world and I want to do it while I still have time on the clock and can enjoy it. I’m shooting for 50 years old, which will obviously be difficult, but I can settle for 55. 

I’m currently putting 12% towards my 401(k) while the market is down but will likely put it back to 10% after. My employer matches 50 cents to the dollar (up to 10%), plus an extra 3% if I put at least 8% towards it. It amounts to an 80% match if I’m putting 10%, if my math is correct. My portfolio is more aggressive but I plan to slowly rebalance it to safer assets.

Do you think my goal is unreasonable or attainable with the info provided?

See: I’ll be 60, have $95,000 in cash and no debts — I think I can retire, but financial seminars ‘say otherwise’

Dear reader, 

Retiring at an early age is a lofty goal, and it takes a lot of preparation, so it’s great that you’re getting a start on those plans now.

To retire early requires a lot of money, and a few back-up plans. To be fair, any age for retirement requires some back-up plans, as the unexpected can always happen and take a large chunk of your assets, but when you’re choosing to leave the workforce well before the traditional age, you need even extra layers of protection on your side. 

Let’s start with how much money you actually need. There is no one right answer, but in this situation, more is better. For now, don’t feel as if there’s even a possibility of saving “too” much money for retirement because if you’re choosing to stop working at 50 (or around then) so you can travel the world, you’ll need to save as much as you can.

Check out MarketWatch’s column “Retirement Hacks” for actionable pieces of advice for your own retirement savings journey 

There’s this movement called FIRE, which stands for “financial independence, retire early.” People who pursue FIRE try to retire even earlier than you are, in their 40s or their 30s, but everyone approaches it differently. Some go the “fat FIRE” route, where they save as much as they physically can before retiring, and then there are those who may identify more closely with “lean FIRE,” where they save but live frugally. Early retirees may also strive for a multiple of their current salary, such as 25 times what they’re currently earning. 

You can try working backwards to decide how much money you would need per year, such as $40,000 a year, $75,000 a year or more. Depending on that figure, how much would you feel comfortable saving? The 4% rule has been largely contested in recent years, as some experts say it’s too high of a percentage, but let’s use it for simplicity’s sake. If you were to stop saving right now and relied only on that $435,000 you have, you’d get a little more than $17,000 per year. Comparatively, if you saved $2 million, you could withdraw $80,000 every year, using the 4% rule. Based on that, what do you think you need to achieve your goals? 

When you’re thinking about that number, plan for those trips around the world, but take into account every other possible expense you could face in your 50s, 60s, 70s and beyond, too. 

One of the largest will be healthcare, since you don’t qualify for Medicare until age 65. If you leave your job and can’t jump on someone else’s insurance plan, like a spouse, that can be costly. You could find an option through the Affordable Care Act, which breaks down its options in tiers (Bronze, Silver, Gold and Platinum). The average monthly cost for an individual’s health insurance was $456 in 2020, though of course that price tag depends on the type of plan, according to eHealth.

Also see: Retiring early this year? Look through Affordable Care Act plans now

Then consider every other possibility. Rent or a mortgage, utilities, an auto payment, gas for the car, groceries, dining out, any hobbies, all of your travel, gifts you may buy others, pet care, and the unexpected. Like you, not everyone wants to live a frugal lifestyle, so don’t be too conservative with your estimates and factor in inflation to those calculations. 

While you’re punching in those numbers, carve out some savings solely for an emergency account so that if something unfortunate happens, your retirement assets can continue to grow in those accounts. 

Also, diversify where your retirement assets live — not only for tax purposes, such as having traditional and Roth options, but also in the type of account, since employer-sponsored plans and IRAs usually have a requirement that the account holder be 59 ½ years old when withdrawing. There are exceptions, such as Roth IRAs allowing for the investor’s contributions to be distributed penalty-free at any age, and a separation of service allowance for the worker’s most current 401(k) plans if they’re at least 55 years old. 

Don’t miss: ‘Is my financial planner crazy?’ We’re 55 and 60, five years from retirement and were told we should invest more aggressively

Just make sure you know the rules well in advance of when you intend to retire so that you don’t get there and find that your money is locked up behind penalties. Look into brokerage accounts, which are taxable, but at least accessible prior to age 59 ½ years old without any restrictions.

It’s great that you keep on top of your portfolio and even rebalance it, but you might want to reach out to a qualified financial professional, if even only once for a check-up, to make sure you’re all in order to reach your goals of an early retirement. Not everyone wants or needs to work with a financial planner, but doing so even once could make a great difference. They might catch a hole you had in your planning, or could suggest investment and savings strategies to maximize your nest egg. It’s worth considering. 

And when you’re doing this number-crunching, think about every possible source of income you’ll have in retirement, and come up with a plan for if you had to return to the workforce. You may get Social Security, but it might not be as much as you expect if you’re not working throughout your 50s (Social Security benefits are based on multiple factors, including the 35 highest earning years you’ve had). Would you consider going back to work, if even only part-time? You could do your future self a huge favor if you keep your skills sharp and stay connected with your professional network. You really never know.

I can’t say for sure if your plans are attainable, but I can tell you to keep doing what you’re doing. Saving that much money, planning early and taking advantage of your employer match are absolutely key steps in the right direction. 

Readers: Do you have suggestions for this reader? Add them in the comments below.

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

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