Personal Finance

We're in Our Mid-40s With $4 Million Saved for Retirement. Can We Stop Working?

Maurie Backman

Published: November 26, 2024 8:29 am

We’re in Our Mid-40s With $4 Million Saved for Retirement. Can We Stop Working?

Key Insights from 24/7 Wall St.

• A $4 million nest egg can last a long time, but it may not be enough to support an early retirement.
• Consider the added expense of healthcare that comes with an early retirement.
• Look at shifting to work you’ll enjoy rather than exiting the workforce two decades before you’re eligible for Medicare and Social Security.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

The average 65-year-old retiree has about $600,000 saved for their senior years, according to a 2022 Federal Reserve analysis of retirement account balances. So if you’re a couple in your 40s with $4 million saved already, you’re clearly in a pretty good place.

But if the reason for that giant-sized nest egg is that you’ve spent the past 20 years or so plugging away at stressful jobs, you may be eager to call it quits rather than fall deeper into a state of complete burnout. And you may have just enough money to pull that off. But there are consequences of retiring in your 40s you should know about.

Will your money really last?

The 4% rule is a popular retirement savings withdrawal strategy. It has you taking out 4% of your money your first year of retirement and then adjusting future years’ withdrawals for inflation.

At 4% a year, a $4 million nest egg gives you an annual retirement salary of $160,000, which is far from shabby. But there’s something else you should know about the 4% rule — it’s that it’s designed to make your savings last 30 years.

If you’re retiring in your 40s, that only carries you through to your 70s. And you may end up living until your 90s, or even longer.

That makes a 4% withdrawal rate risky. If you were to cut that in half and go with 2%, you’re looking at an income of $80,000 per year.

That may be doable if you’re able to keep your expenses to a minimum. Whether you want is to another story.

If you’re in your 40s, you’re likely to have the energy to be out and about. You may not be satisfied with a modest lifestyle that has you mostly staying local, which is all you might be able to afford on $80,000 a year — especially if your home isn’t yet paid off.

Healthcare is a big wild card factor

Another issue with retiring in your 40s? Even if you have a nice amount of money saved, you may have to spend a large chunk of it on healthcare.

You won’t be eligible for Medicare until age 65. That could mean having to pay for health insurance for a couple of decades and facing hefty premiums and deductibles along the way. And if you’re forced to spend a large chunk of your income on healthcare, it may not make for the most rewarding lifestyle.

Consider a compromise

Technically, you can pull off a retirement in your 40s on $4 million. Whether you should is a different story.

If you’re looking to retire in your 40s because you’re tired of working, a good compromise could be to change your line of work. Instead of continuing in a stressful role, find a job that’s less demanding. Or, pursue something creative you’re passionate about.

Even if your salary is cut in half, it’ll give you something to do with your time and, ideally, provide continued access to employer subsidized healthcare for a period of time. And the more you earn, the less you’ll have to tap your $4 million in savings.

Another option is to start your own business and see where that takes you. It won’t necessarily solve the problem of healthcare, as you’ll have to cover that cost yourself. But it could help you bring in an income so you’re not tapping your savings just yet.

Remember, Social Security eligibility first begins at age 62. And at that age, you’re not even looking at your complete monthly benefit. It’s a good idea to earn some amount of income between your 40s and 60s to bridge that gap and avoid spending down your savings prematurely.