Personal Finance

I want to retire at 50 with $5 million — is this sufficient for a balanced retirement portfolio?

Rich Duprey

Published: January 17, 2025 5:23 pm

A balanced retirement portfolio is essential for securing your financial future. By spreading investments across various asset classes, you mitigate risks associated with market volatility. This approach not only protects your savings but also ensures they grow sufficiently to cover your needs over an extended retirement period.

Diversification is key. It means you’re not overly reliant on one type of investment. Whether it’s stocks for growth, bonds for stability, or real estate for income, a balanced portfolio can adapt to economic changes, providing peace of mind and a steady income stream when you’re no longer working.

The situation

That’s what a Redditor on the r/fatFIRE subreddit is looking for. He’s 35-year-old with a $5 million to $5.5 million net worth, including a paid-off home, investments, and well-funded 529 college saving plans. Because he is seeking a fat FIRE retirement, he’s looking for advice on ensuring he has a balanced portfolio as he seeks early retirement by 50 with a $250,000 annual spend.

Remember these key planning considerations

Now I’m not a financial planner, so these are only my opinions, but considering the Redditor is just 35, he has achieved impressive results. He has paid off a $2 million home, owns $500,000 in commercial properties, possesses $1.2 million in brokerage accounts, and $1.8 million in retirement accounts, half of which are in Roth IRAs. He has also set aside $150,000 for each of his kids’ education in 529 plans.

While he has achieved diversity in assets, and his real estate gives him stability along with  some income, houses and properties aren’t as easy to turn into cash if you need money quickly. His investments in brokerage and retirement accounts, on the other hand look good, especially with the tax advantages from Roth IRAs.

But retiring at 50 means he needs to manage his money carefully. While annual spending of $250,000 is doable with his savings, he will need to consider inflation, healthcare costs before he becomes eligible for Medicare, and whether the markets will treat him as well at the beginning of your retirement. If the market dips right when you start withdrawing money, that could hurt his plan.

Because the Redditor’s salary has varied from $200,000 to $600,000, it suggests he might not fully stop working, which isn’t a bad thing. It can help bridge any gaps in your retirement funds and keep you engaged. However, if you plan to change careers for better work-life balance, ensure that a new job doesn’t lead to spending more than you plan.

Other points to think about

There are a few things the Redditor might not have thought about:

• Healthcare expenses. Before you turn 65, you’ll need to cover these costs out of pocket or with insurance, which can be expensive.
• Inflation’s toll. Over time, everything gets more expensive, so your money won’t go as far, and right now inflation is rising again.
• Tax implications. With a substantial amount in traditional 401(k) plans and IRAs, think about how withdrawals will impact your tax situation in retirement. Roth conversions, on of the best tools available to individuals, might be beneficial if tax rates are expected to rise.
• Longevity risk. Given increased life expectancies, ensure your funds can last potentially 40 years or more Do so by adopting a withdrawal strategy that accounts for this.
• Social Security timing: If Social Security is going to be a part of your retirement income, delaying benefits past your full retirement age could significantly increase your monthly payouts.
• Psychological transition. The transition from a high-income, high-stress job to retirement or less demanding work can be challenging. It is important to consider how you’ll spend your time, making it essential to find new sources of satisfaction.
• Estate planning. Consider how you want to manage your assets if something happens to you or your spouse.

Key takeaway

All in all, the Redditor finds himself in a strong position for early retirement. Still, it is essential  to talk to a financial advisor to fine-tune your plan. They can help make sure you’re not just saving enough, but also saved smartly for all the life scenarios that might come your way.