Will Your $1.5 Million Nest Egg Last If You Retire Early At 62?

If you’ve managed to save up $1.5 million for retirement, you’re already ahead of the game. Hitting the million-dollar mark is a goal many strive for, but the big question is: Is it enough to retire comfortably at 62? Transitioning from earning regular paychecks to living off your savings is a major shift, and it’s essential to understand whether your nest egg is sufficient to support your post-retirement life.

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Understanding Retirement Expenditure

According to a 2022 survey by the Employee Benefit Research Institute, about half of retirees spend less than $2,000 each month. The Bureau of Labor Statistics reports that people age 65 and older had an average annual expenditure of $52,141 in 2021. Retirees identified housing as their largest monthly expense, followed by food. However, 27% of retirees indicated that their spending exceeds what they can afford. Additionally, inflation was cited by nine out of 10 retirees as the primary reason for reducing their spending.

Monthly Budgeting And The 80% Rule

Most retirement experts suggest the 80% rule: Expect to use 80% of your preretirement income to cover expenses in retirement. For instance, if your annual income is $80,000, you should plan for at least $64,000 per year in retirement. This accounts for changes in lifestyle, such as reduced transportation costs and increased healthcare expenses​​.

Monthly Income From $1.5 Million Retirement Fund

If you retire at 62 with $1.5 million saved, applying the 4% rule suggests an annual withdrawal of $60,000 or about $5,000 per month. This rule assumes an annual withdrawal rate of 4%, adjusted for inflation, to sustain your savings for 30 years or more. However, individual circumstances, market volatility and other income sources like Social Security should also be considered.

You can start collecting Social Security benefits as early as age 62, although the benefit amount will be reduced compared to waiting until full retirement age. In 2023, the average monthly Social Security benefit for retired workers was $1,874. It’s important to note that the exact amount can vary based on an individual’s earnings history and the age at which they start receiving benefits.

Combining the income from a retirement fund with Social Security benefits can provide a clearer picture of total retirement income. For instance, if you receive the average Social Security benefit of $1,874 per month starting at age 62, this would add approximately $22,488 annually to your income. Together with $60,000 from the retirement fund, the total annual income would be around $82,488 before taxes.

Investment Strategies for Retirement Savings

Investing a portion of your retirement savings in a diversified portfolio can help your funds grow and provide income. Consider a mix of stocks, bonds and other investments that align with your risk tolerance and retirement timeline. Regularly reviewing and adjusting your investment strategy is essential to respond to market changes and personal needs.   

Reducing Expenses And Augmenting Income

To maximize your retirement savings, consider reducing expenses or augmenting your income. Downsizing your home, relocating to a more affordable area or taking a part-time job can help stretch your funds. 

Focusing on preventive healthcare and managing healthcare costs effectively is also crucial.

Working With A Financial Adviser

Consulting a financial adviser can provide personalized advice tailored to your specific financial situation, goals and risk tolerance. They can help you develop a comprehensive retirement plan, explore investment options and navigate the complexities of retirement finances.

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*Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications, including Zacks, The Nest and eHow. She is not a licensed financial adviser and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes that the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.