Personal Finance

We just turned 40 years old and bring in $300k per year as a household - can we even dream of retiring in 15 years?

Kristin Hitchcock

Published: December 4, 2024 2:25 pm

24/7 Wall St. Key Points

• Planning for retirement requires doing a bit of math. We’ll do just that in this article with an example couple. 
• For anyone wanting to retire early, it’s important to consider healthcare costs and how they’ll fund the time between early retirement and regular retirement. 
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

I was scrolling through the r/chubbyFIRE subreddit and came across an interesting post that brings up a lot of great points! The poster was questioning whether or not they could retire at 55 or not.  The couple, aged 40 with one child and plans for another, has a single income of $250k-$300k, $945k in current retirement and brokerage savings, and monthly expenses of $12k.

They’re in a mid-cost-of-living state with a $650k mortgage. 

Here’s a closer look at their circumstances and advice to guide them—and anyone else in a similar position—toward financial clarity.

The Financial Picture at a Glance

Here’s a look at their financial situation, which will help us answer this question:

Current Savings

• 401(k): $500k, with max annual contributions and a 3% employer match.
• Roth IRA: $145k, maxed yearly.
• Brokerage: $300k
• Traditional IRAs: 70k.

Income and Expenses

• Single income: $250k-$300k (though, it’s important to remember that this will increase with inflation)
• Spouse’s income: Likely to return to work in 5 years, earning $50k annually.
• Expenses: $12k/month, likely steady until their mortgage is paid off.

The Math on Retirement Feasibility

So, could they retire? Let’s look at the math. If you want, you can follow along and do your own retirement calculations with us!

Savings Goal

Before we can find out if they can retire, it’s important to figure out how much they need to retire. Using the 25x Rule, their annual expenses of $144k (excluding taxes) suggest they’d need approximately $3.6 million in retirement savings. Factoring in taxes, they might aim for closer to $4.5 million. 

Growth Projections

Right now, they have a balance of around $945k. They’ll likely contribute $70k more annually to their 401(k) and IRAs. We’ll also assume that their portfolio will have a 7% annual return over 15 years. 

Their portfolio could grow to approximately $4.3 million by age 55.

While this is close to their goal, it’s snug. Reducing expenses or increasing contributions could improve their outlook. I don’t like having a plan that just works. Having some wiggle room is absolutely beneficial. 

How to Improve Their Position

What can they do to improve their position? Here are my suggestions. Remember, this is just my opinion and not financial advice. 

1. Maximize Contributions

I’d recommend to continue maxing out their retirement accounts. Contribute any surplus income to the brokerage account to fund the years between 55 and 59½, when they can start pulling from their retirement accounts. 

2. Pay Down the Mortgage

Making extra principal payments could significantly reduce retirement expenses. Plus, eliminating the mortgage could free up cash flow, which would help save even more towards retirement. 

3. Evaluate Expenses

The $12k/month burn rate includes childcare, which may decrease as children grow older. However, other expenses will rise, like healthcare costs. It’s also important to account for inflation, which can quickly eat up retirement savings. 

4. Spouse’s Return to Work

The spouse’s projected $50k salary could provide additional savings or accelerate debt payments. However, it’s important to use it wisely and avoid lifestyle creep. 

5. Optimize Investments

Consider a diversified portfolio to maximize returns while managing risk. I recommend reviewing your portfolio yearly, at the very least, and adjusting as necessary.