Personal Finance

If I'm Retiring 5 Years Early and Have $3M Saved Up, What Is My Safe Withdrawal Rate?

Maurie Backman

Published: February 21, 2025 11:32 am

Early retirement can mean different things. For some people, it can mean ending their careers in their late 40s or early 50s. For others, it can mean stopping to work around age 60.

A lot of people consider 65 to be a pretty traditional retirement age, since it’s when Medicare eligibility begins. So if you’re thinking of retiring five years early, it may be that you’re looking at a retirement around the time of your 60th birthday.

Retiring at that point can be advantageous, since it would mean that you’re old enough to tap your IRA or 401(k) without risking an early withdrawal penalty. And while you’re a ways off from being able to get onto Medicare, you’re not so far off. You’re also only a couple of years from being able to collect Social Security.

But even if you’re only retiring five years early, you’ll still need to make sure you’re managing your savings wisely so you don’t run out. And that means coming up with a withdrawal rate that works for you.

Don’t rely on the 4% rule

Financial experts are often quick to tout the 4% rule in the context of managing savings. The rule states that if you withdraw 4% of your savings your first year of retirement and then adjust future distributions for inflation, your nest egg should last for 30 years.

But if you’re retiring a few years early, you may need your nest egg to last more than 30 years. Of course, in the absence of a crystal ball, you can’t predict your own life expectancy. But it’s fair to assume that if you’re in good health at the time of your retirement, ending your career five years early will mean needing five extra years of savings.

To that end, you may want to consider using a 3% or 3.5% withdrawal rate for your savings, depending on how conservative you want to be. But that decision should also hinge on a few additional factors, including:

• Your anticipated yearly retirement costs
• Your retirement investment mix
• Your expected Social Security filing age

One thing you don’t want to do is assume that you won’t run out of money just because you’re starting off with $3 million in savings. Even if you were retiring “right on time” with a sum that large, the risk of depleting your nest egg still exists. So it’s important to be strategic and run through different withdrawal scenarios.

Get help from a professional

You probably worked very hard to amass a $3 million fortune in time for retirement. So the last thing you want to do is blow that money or risk having it run out on you.

That’s why it’s a good idea to work with a financial advisor. An advisor can look at your total picture and help you figure out what withdrawal rate is most suitable for your savings.

Keep in mind that the withdrawal rate you start out with does not necessarily need to be the rate you stick with over time. That rate might evolve as your needs change and as the value of your investments changes.

But that’s all the more reason to work with a financial advisor. A professional can offer personalized guidance throughout your retirement so you can navigate your senior years with confidence and enjoy them without being plagued by constant financial worries.