I’ve been working for 31 years and my net worth is now $10 million – can my spouse and afford to spend $300k per year?

After working for 31 years, a Redditor has managed to amass a net worth of over $10 million, including his primary residence and 50% ownership in a second home. Although he lives in California, which has high taxes, and he pays a .5% management fee for his portfolio, he still has a pretty generous net worth that’s many times greater than the median balance of $88,488 among those 65 and over.

With so much money invested, the poster is wondering if he can comfortably spend around $300K to $400K per year and still leave an inheritance behind for his kids. Here’s what he needs to know. 

Choosing a safe withdrawal rate as a retiree

With a net worth of over $10 million, the original poster (OP)  theoretically doesn’t need to be too worried about running out of money during his later years — even though he is retiring in his 50s. While his savings will need to cover medical insurance until he reaches 65 and qualifies for Medicare and it’s going to need to support him for longer because of his early exit, he has enough money that these issues may not be major obstacles for early retirement.

What the OP does need to do, however, is decide on a safe withdrawal rate. He could talk to a financial advisor to create a personalized plan. Or he could opt to follow the standard rule of thumb, which used to say you could withdraw 4% from your nest egg in the first year of retirement and then adjust upward for inflation, but which has now been revised to suggest starting at 3.7%.

Since some of his money is tied up in his home but he doesn’t say how much, let’s assume he has $8 million actually invested. By following the 3.7% rule, he could produce around $296k or right around the $300K he’s looking for. If his home is worth a little less and he has $9 million invested, he’d be in slightly more comfortable territory at $333k. In either scenario, though, a $10 million net worth with some of that money in illiquid assets isn’t really going to support $400K in annual spending — especially in a high-tax state like CA and especially if he’s retiring young and also hopes to leave an inheritance for his kids. 

Now, if he adds his Social Security into the mix when he becomes eligible to claim at 62, this will get him closer — but he can’t count on these benefits coming for years. Plus, if he wants to max them out, he’d need to wait until 70 to get his first check, which is around two decades away.

So, while the OP does have enough invested to fund an early retirement, it is not enough to cover very extravagant spending. Trying to produce $400K in income with a retirement account is a big feat to accomplish. 

Early retirement and huge spending may not mix

For those who dream of retiring early, the opportunity to leave your job at a young age is likely going to require some sacrifice along the line. This could mean spending less so you can save really aggressively or it could mean that you can’t spend quite as much as you’d like in retirement.

The OP is lucky here in that he can most likely come close to hitting his lower-end spending target. However, since he has many decades during which his retirement savings must support him, he should seriously consider talking with a financial advisor to get a personalized assessment of his retirement readiness and to figure out a plan for exactly how much spending he can do while ensuring a secure future.