Many Americans believe they need $1.46 million to retire, yet having $2 million at age 45 may not be enough for early retirement. The key challenge lies in the need for this money to last potentially 40 years or more. Experts recommend a conservative withdrawal rate of about 3.7%, which would only provide around $74,000 annually. With increasing longevity and inflation, planning for retirement requires careful strategy to avoid running out of money in later years, even with substantial savings.
According to Northwestern Mutual's Planning and Progress study, Americans believe they'll need $1.46 million to retire. Since that's the case, if you have $2 million at 45, you may feel pretty confident that you're ready to leave the workforce early and start enjoying a life of leisure while you're still young enough to do everything you want.
The biggest reason is that you have a really long time to rely on your investment accounts. You're probably going to want to ensure that money will last for another 40 years or longer since living until 85 isn't an unreasonable expectation and you won't want to run out of money in your mid-80s.
Experts suggest 3.7%, although you may want to be even more conservative than that since your timeline for your investments to support you is so long. Still, if you assume that the recommended 3.7% is pretty safe, your nest egg would give you around $74,000 per year to live on.
Since it's critical that your money not run out, you'll have to pick a safe withdrawal rate. This means that even with $2 million saved, retirees may not achieve their desired level of income.
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