Can I retire at 55? (How much money you need to retire)

Can I retire at 55?

You can legally retire at 55 if you have enough saved for retirement. Keep in mind, there is a 10% early withdrawal penalty for 401k withdrawals before 65 and IRA withdrawals before 59.5. Reduced social security benefits are not available until you reach 62 years old.

Imagine, being able to retire early at 55 years old! You’ve worked your entire life and now you’re calling it quits.

Retiring at 55 is possible.

Luckily for you, I’m going to show you how to retire at 55. I’ll show you things to consider for withdrawal strategy, social security, and how to catch up. Hopefully, with the right strategy, you’ll be retired in no time!

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Can I legally retire at 55?

You may legally retire at 55, because retirement is a number not an age. Keep in mind, retirement accounts may have penalties for early withdrawals. You may not receive full social security benefits unless you’ve worked for 35 years.

Retirement just means that you’re able to support yourself financially without a job. Retirement age is often used for collecting social security benefits. Technically, you can retire at 30 or 40 years old if you have enough set aside.

What you need to consider is how much money you have saved and where the money is parked. 

You can withdraw your money at any time from a taxable brokerage account. However, a 10% withdrawal penalty is applied to 401k withdrawals before age 65 and IRA withdrawals before age 59.5.

Social security defines retirement ages between 66 and 67. Eligibility for benefits starts at age 62, but you could be penalized up to 30% for early withdrawals.

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Can you get social security if you retire at age 55?

You can still get reduced social security if you retire at age 55. Social security requires you to work a minimum of 10 years and be 62 years old to be eligible to receive benefits. Your benefits will be reduced because social security is determined based on the highest earning 35 years of your career.

How many years do you have to work to get maximum social security?

Maximum social security benefits are available to those who’ve worked at least 35 years, earned 40 social security credits, and are at the IRS defined retirement age. Social security benefits are determined based on your highest 35 earning years.

The IRS currently defines retirement age between 66 and 67 years old, depending on when you were born. Anyone born after 1960 will need to be 67 years old to receive maximum benefit.

However, you are technically allowed to start receiving reduced benefits at age 62. For example, if you took benefits at 62, but your retirement age is 67, you would receive 30% less in benefits.

Your benefits are calculated based on the highest earning 35 years of your career. Some retirees choose to work longer if they had a low-paying career in their early years to maximize benefits. 

The IRS uses zero to calculate your benefits for all years under 35 that you weren’t working. For example, you only worked 30 years so five years would assume zero income.

In order to be eligible for social security, you must have worked at least 10 years. Each year, you are eligible to earn 4 social security credits. You need a minimum of 40 credits to be eligible for social security.

How much money do you need to retire at 55?

To retire at 55, you should have 25 to 30 times your annual expenses saved for retirement. A withdrawal rate of 4% is standard, depending on your asset allocation. An early retiree should live on their taxable accounts before withdrawing from retirement accounts.

Most retirees should aim to have between 25 and 30 times your annual expenses saved for retirement. Therefore, you should have around $1,000,000 to $1,200,000 for a salary of $40k per year.

Having 25 to 30 times expenses allows you to safely withdraw around 4% adjusted for inflation each year. The stock market typically increases 7-10% each year. Therefore, your portfolio should still increase over time.

Alternatively, you can use an investment withdrawal calculator if you don’t want to be as conservative. An investment withdrawal calculator can help you make your own withdrawal strategy. You would want to use a calculator if you’re in a higher conservative asset mix, like 60/40 stocks/bonds.

You will also want to live on your taxable brokerage account first. Taxable brokerage accounts don’t have penalties for early withdrawal. Therefore, you can withdraw from your taxable accounts first while your retirement accounts grow.

For example, you might have $500k in a taxable brokerage account and $500k in your 401k. Let’s assume you have a conservative rate of return at 5%, and you’re withdrawing $40k per year.

At 55, you start withdrawing $40k per year from a taxable account. At 65, your taxable account is now worth $286k. However, your 401k has grown (5% ROI) and is now worth $823k. Your total account balance is now $1,109,000.

How can I retire at 55 with no money?

You can retire at 55 with no money by creating or investing in income producing assets, lowering your cost of living, or choosing to work longer. Some retirees will continue to work part-time in retirement to cover expenses.

Nobody wants to reach 55 and realize they have no money for retirement. The best thing you can do is start planning your path to retirement now.

You might consider income producing assets. These could be covered call ETFs, rental properties, or building your own side hustle. These assets will continue to pay you for being an owner.

For example, the average 60 year old has $200k saved for retirement. It’s not much, but invested into a covered call ETF paying 10% would generate $20k per year.

You can try lowering your cost of living. The less money you need in retirement, the easier it is to hit retirement. Some individuals move in with their kids, move to low cost of living countries, or live in an RV.

Some retirees use a reverse mortgage, where the bank pays you for the equity in your home. Technically, the bank is buying the home from you so be cautious.

Most commonly, individuals will perform low-stress work in retirement. You might become a Walmart greeter. Part-time work allows you to get money to support your time in retirement.

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Summary: Can I retire at 55?

Yes, you can retire at 55 with the right strategy and enough retirement savings. Retirement is a savings number, not an age. However, you may run into penalties if your retirement savings are in 401k or IRAs.

Retirement age is typically used for social security purposes. The IRS defines retirement age as between 66 and 67, depending on when you were born. You can start collecting reduced social security benefits at 62.

In order to be eligible for social security, you must have worked for at least 10 years and be 62 years old. You won’t get full social security benefits until your retirement age and have worked 35 years.

Retirees should aim to have 25 to 30 times their annual expenses saved for retirement. Depending on your asset mix, you may be able to withdraw 4% of your initial portfolio principle in retirement. Withdraw from your taxable brokerage accounts before dipping into your retirement accounts.

You will have to devise a retirement plan for retiring at 55 without money. Aim to reduce your cost of living, working longer, or buy income producing assets.