Why Ten Million Dollars Will Not Buy the Early Retirement You Think It Will

Is a ten million dollar net worth really the right number for retirement? A recent post in the Fat FIRE subreddit stirred up a lot of discussion. The Redditor referenced a Financial Samurai article that argues ten million dollars is the ideal target for a comfortable retirement.

Many people would say that ten million dollars is more than enough, but it is worth taking a closer look at whether someone can retire and live well with a smaller amount. I will share my own perspective, and it is always wise to speak with a financial advisor if you have the opportunity.

Location and Lifestyle Matter

Money gives you more mileage depending on where you live, and your location can shape your thoughts on how much money you need to retire. Sam Dogen, the man behind Financial Samurai, lives in San Francisco. That’s one of the most expensive cities in the world, so it makes sense that Dogen has a higher net worth goal than most people. 

Someone who is living in a LCOL rural area doesn’t need $10 million to retire. It’s possible to retire on $1 million or $2 million if you live in the right area and are old enough. Operating on a shoestring budget will also reduce how much you need to retire, but it’s better to set ambitious goals that inspire more action.

Continuing to Work After a $10 Million Net Worth

While a $10 million net worth can result in most people retiring, some people continue to work after reaching this figure. It’s important to consider how much you enjoy your work. If you don’t enjoy work, you may want to pursue a career or business that you enjoy when you have enough financial flexibility to leave your full-time job. Some people pursue those types of opportunities while they are employed.

The Redditor has a net worth of $12 million. That includes $10 million in stocks and ETFs, along with $2 million in home equity. However, the individual has not retired yet due to a low-stress job that provides a steady income. 

How Much Do You Need at Retirement?

A good way to determine how much you need to retire is to calculate your monthly expenses and use the 4% withdrawal rule. This rule states that you should have a sufficient net worth where a 4% withdrawal from your portfolio covers your annual expenses.

Here’s how it works in practice. Assume someone spends $10k/mo and wants to know how much they need to retire. $10k/mo in expenses translates into $120k/yr. If you use the 4% withdrawal rule, you will need a $3 million portfolio to retire. 

Retirees who want to be more defensive may want to make an annual 3% withdrawal. In that case, the investor needs a $4 million portfolio to withdraw $120,000 per year using the 3% rule. It demonstrates that not everyone needs $10 million to retire, and $5 million may be extra for some people as well.

Older people can retire with lower net worths since they don’t need their money to last as long. Some high-net-worth individuals aim to retire in their 30s and 40s. That goal requires a much larger net worth since the money has to last longer, and it’s likely that products and services continue to get more expensive.

While the majority of people can retire comfortably with $10 million, it’s important to know personal factors like your expenses and location to gauge how much you really need.