We’re Mid-50’s with $2 Million in our 401(k) and a $120k Pension Per Year: Are We Good to Retire?

When some people talk about early retirement, they mean ending their careers in their 30s or 40s. I tend to think that’s a dangerous thing. That isn’t to say that it can’t be done, but rather, that it’s risky given the amount of time your savings would need to last in that scenario.

Retiring in your mid-50s, on the other hand, isn’t necessarily as risky. Yes, you’re still a ways off from being able to collect Social Security and get health coverage through Medicare. But at the same time, you’re talking about stretching your savings for an extra decade — not two or three.

And so when I saw this Reddit post, my first thought was, “Sure, this person could probably retire now and be perfectly fine.”

The poster has a $2 million 401(k), not to mention another $2.5 million in a brokerage account. But what really makes me confident in their ability to retire early is the fact that they have a pension coming their way — and a generous one at that.

A pension changes the picture

Without a pension, I’d say that this poster could potentially retire, but that there’s still a fair degree of risk. A $4.5 million portfolio is certainly not shabby. But for a mid-50s retirement, we’re potentially talking about maxing out at 3% withdrawals each year. That’s about $135,000 in annual income.

Now for a lot of people, that’s plenty of money — especially in retirement. But the thing is, people who amass millions of dollars by their mid-50s tend to also earn a lot of money. So my concern is that $135,000 a year would actually be a notable pay cut for someone in that scenario.

But what makes me more comfortable with the idea of the poster above retiring in their mid-50s is their $120,000-a-year pension. That pension, which they’re entitled to beginning in 2026, is also eligible for cost-of-living adjustments that could grow it to $170,000 per year.

That changes things in a very meaningful way — namely, because the pension alone is a lot of money to live on, making this poster even less reliant on their savings. And with that pension, even if they were to withdraw half of $135,000 a year from their nest egg, they’d still have an annual income of close to $200,000 to start with.

Of course, these days, pensions are a rarity, especially in the private sector. So the closest thing a lot of people have to a pension is Social Security. But even retirees who are eligible for Social Security’s maximum monthly benefit don’t get anywhere close to $120,000 a year.

It’s best to seek outside guidance

All told, I’d say that this poster is in a perfectly find position to retire. It’s true that they may have to spend a lot of money on health coverage until Medicare kicks in. But based on the numbers above, it seems like it’s an expense they can afford.

That said, because early retirement is a big decision, I’d recommend that this poster, and anyone else in a similar situation, reach out to a financial advisor. An advisor can review their investments and goals and help them make an informed decision. And if they decide to move forward with early retirement, an advisor can help them manage their money so it hopefully lasts as long as they need it to.