The truth is, retiring at 45 is only a realistic goal if you have a solid early retirement plan and are committed to following through on it.
Of course, depending on how much you can realistically save, you need to be prepared to simplify your lifestyle.
How much money do I need to retire at 45?
If you plan to retire at 45, you’ll need to plan and save for a retirement that could last 40 years or even longer.Many financial advisors suggest multiplying the annual retirement income you would like to receive by how many years you have until you reach the age of 85. In this case, it is 40 and doing the math will provide you with a ballpark figure you should aim for.
For example, let’s say you would like to plan for an annual retirement income of $4,166.67 a month, the equivalent of $50,000 a year. Multiply $50,000 by 40, and you find that you should aim to save around $2 million.
It’s important to remember that you should aim for a higher monthly/annual income. Factors such as inflation and the difference in the cost of living between states play a big role in this.
You should also consider the average monthly expenses of retired Americans when creating an early retirement plan. The table below shows the average expenses of necessary items in 2023 for people aged 65 and older according to the U.S. Bureau of Labor Statistics:
| Expense | Average Amount Spent in 2023 |
|---|---|
| Housing | $21,445 |
| Utilities, fuel, public services | $4,307 |
| Healthcare | $8,027 |
| Transportation | $9,033 |
| Food at home | $4,973 |
| Dining out | $2,741 |
| Personal insurance and pensions | $3,277 |
| Entertainment | $2,898 |
| Clothing services | $1,287 |
| Reading materials | $164 |
What are the average retirement savings at 45?
According to the Federal Reserve, the average retirement savings of people aged 35 to 44 and 45 to 54 were $141,520 and $313,220, respectively, in 2022. Vanguard’s 2023 How America Saves report showed that average account balances ranged between $91,281 and $168,646 for people in these age ranges.
Both figures are considerably lower than the $1.8 million Americans say they need to retire, according to a Charles Schwab survey, or the $2 million mentioned earlier to produce an annual income of $50,000.
Saving for retirement at 45: how do I do it?
Knowing how to start saving for retirement at 45 and how to do it effectively is essential if you are determined to retire early. Take a look at a few tips on how to retire at 45 as easily as possible:
- Determine what retirement means to you: Spend some time thinking about what you want your retirement to be, whether it’s trying new hobbies, starting a small business, studying, or traveling. When you have a vision for your retirement and a sense of how much your envisaged lifestyle will cost, you can start creating an early retirement plan.
- Reassess your lifestyle: Typical plans that rely heavily on 401(k)s, IRAs and other retirement savings and investment vehicles won’t work for saving to retire at 45 due to tax implications and various regulations. Unless you have a multimillion-dollar annual income, you’ll probably need to make changes to your lifestyle and your spending, saving, and investing habits. Review your budget, pay attention to non-essential spending, consider giving up a few luxuries, such as eating out, and try to get rid of any non-mortgage debt as soon as possible.
- Boost your income: Saving aggressively is usually part of preparing for early retirement, so look for ways to boost your income so that you can save more money every month. Try asking for a raise or a promotion at work or starting a part-time job, side hustle, or small business. Use your extra income to increase your retirement savings and to invest strategically.
- Manage tax liability: Manage your tax liability by rebalancing periodically as part of investing for retiring early. Some advisors recommend selling assets that have declined in value to offset capital gains tax on well-performing investments. You can calculate your estimated capital gains tax here. You can also use tax-advantaged accounts such as IRAs, traditional 401(k) plans, and health savings accounts as part of your early retirement plan.
Get expert retirement advice
Retiring at 45 isn’t an unattainable goal, although for many Americans, preparing to do this would require planning, research, hard work, and aggressive, strategic saving and investing.
If you want to learn more about retirement and how to retire at 45, let Unbiased match you with a financial advisor who can share expert financial advice.