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Dave Ramsey

Can You Retire 10 Years Early?

Can You Retire 10 Years Early?

Can You Retire 10 Years Early?

If you follow Dave’s Baby Steps, early retirement is a reachable goal—and you don’t have to have a six-figure income to make it happen.

For example, Joe is 40 years old. He’s made the same $50,000 income since he began working at age 25. Despite his average income, Joe is on track to have nearly $6.5 million by age 65!

Even based on a more conservative estimate, Joe’s diligent saving puts him on track to have $4 million by the time he retires!

How is this possible?

Joe simply took advantage of tax-advantaged retirement plans like his 401(k) and a Roth IRA as soon as he started his career. With the help of his advisor, he invested 15% of his income in good growth stock mutual funds that earned the stock market’s long-term average.

Fast forward to age 50. Joe is getting tired of his job. He hasn’t received any raises or bonuses in 25 years, so he’s thinking he might strike out on his own, take on some new projects, or maybe even use his skills to help others.

Joe decides to talk with his advisor to see what his options are.

Joe’s Early Retirement Outlook

If Joe works at his current job until he is 65, he could have $6.5 million. But what would his life look like financially if he decided to retire 10 years early?

Pretty comfortable, actually. By the time he’s 55, Joe could have $2 million for retirement. Following a 4% withdrawal plan, Joe will have an annual income of $80,000, a significant increase over his current income.

Perhaps best of all, Joe’s retirement nest egg will keep growing. Except for his annual income withdrawal, he’ll leave his entire nest egg invested. By the time he’s 65, his income will increase to more than $100,000 to keep up with inflation, and his retirement funds stand at $4.8 million—$1.7 million less than he would have if he’d continued working until age 65.

Even with a more conservative growth rate, Joe could retire at age 55 with $1.5 million and an income of $60,000. By the time he’s 65, he’d have an income of $80,000 and a $2.9 million nest egg.

Joe has to make a choice: Is it worth more than $1 million to him to retire 10 years early?

That’s a question only Joe can answer, but the point is that he has the option. And that is what retirement should be about: financial security that gives you choices. If Joe loved his job and wanted to continue working another 10, 15 or 20 years, he can because he wants to, not because he has to.

But if, as we mentioned, Joe has bigger plans for the second part of his life, he can pursue them and feel financially secure to make that big move. For 70 million Americans who say they hate their jobs, that option may be worth $1 million.

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