Is Suze Orman right in saying you need at least $5 million to retire early?
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Doug Massey, Retired at 41 after working for The Man and investing
mostly in index funds.
Answered Oct 9
Maybe! But maybe not.
Whether or not you can retire depends on how much money you have saved,
but it depends just as much on your age and your yearly expenses. If you
spend $500,000 per year and you’re 40 years old, there’s no WAY it’ll work. If you spend $50,000 per year and you’re 55, then it’s almost
certain to work.
I created a rule of thumb for retirement called the F.T.I., or "F&*%
This Index" -- once it's over 1000, you can tell your boss "F&*% This"
and retire. :-)
FTI = age* networth divided by yearly expenses
If you're married, you'd want to average your age with your spouse's
age, and you'd want to subtract any known future expenditures from your
net worth (most likely example would be college educations for your
kids). Yearly expenses shouldn't include taxes or investment spending
that you do, either.
So if you are currently 50 and your yearly expenses are $50k, then
50*N.W. / $50k > 1000 when your net worth is just $1,000,000. If you're
30 and your yearly expenses are $60k, then 30*N.W./$60k > 1000 when your
net worth is $2,000,000. If you're 40 and your yearly expenses are
$120k, then you need $3,000,000.
It's just a rule of thumb; you'd want to pay closer attention to the
details when you're actually making the decision whether or not to quit
your job. It also assumes that you plan to spend your wealth down to
nothing (or close to it) by the time you die; you wouldn't be planning
to leave an estate to your heirs.
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Donald Tepper, Lots of personal experiences with finances.
Answered Oct 8
Though it depends on how early is “early.”
Sure, you can retire on less. But the lower the figure, the more
trade-offs and compromises in your current and future lifestyle you’ll
have to make.
And, of course, it also depends on how that money is invested. For
example, the numbers probably work out much better for someone with $2
million invested fairly aggressively at age 40 than for someone with $5
million invested very conservatively (in bonds and savings) at age 25.
In fact, if you’d had money invested in bonds in the past year or two, you’ve actually lost money.
On top of that, Social Security, for what it’s worth, is based on your
annual earnings over a period of time. If you retire early, your
contributions into Social Security are likely to be less, as are your
average earnings. So—to the very limited extent that Social Security
would help supplement your actual earnings—retiring early is going to
reduce those Social Security earnings.
If you retire early, you’re almost certainly going to lose your
employee-paid medical coverage (after the short coverage you can get
from COBRA). In case you hadn’t noticed, health care coverage is
horrendously expensive and getting more so. Further—not getting into any political debates here—the Affordable Care Act actually has provided reasonable health care coverage to lots of folks at somewhat reasonable
prices. (I know someone in his 20s who’d have to pay $770 a month for coverage. With the ACA, it’s a somewhat more affordable $425.) Even with
the ACA, it’s expensive. Consider paying $10,000 a year or more from
your current age to when Medicare kicks in at age 65. If by “retiring early” you’re talking about age 40, that’s 25 years of health care. At $10,000 a year, that’s $250,000. That’ll take a chunk out of your
savings, even if you’ve got $5 million. What if you only have, say, $2 million?
And a final consideration: People are living a lot longer than they used
to. A male born in 1950 lived an average of 65.6 years. In 2015, that
had grown to 76.3 years. For women, that’s grown from 71.1 to 82.2
years. That means your money has to last a lot longer than it used to.
So at one point $2 million might have done quite nicely. Add a decade or
more to the lifespan, factor in skyrocketing health care costs, and add
onto that another decade or two for retiring early and . . . yes . . .
Suze Orman is in the right ballpark with her number of $5 million.
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Ahmed N. Muneeb
Ahmed N. Muneeb, 7 Years Experience Managing Wealth
Answered Oct 10
Back in 2010, I interned at Merrill Lynch for a pretty intense Financial Advisor.
I was in my 3rd year of university, and was finishing up early and so I
really needed a valuable name on my resume. Every morning he drilled me.
Asked me nonstop questions and expected I asked the same. The questions
were about finance and investments. Although at the time it was very
annoying, I knew it was meant to be a learning opportunity.
The most given answer to a lot of my questions was, “it depends”.
You know the ol’ saying? “It is not about how much you make, but about
how much you spend”.
Well, that is part-true.
If you cannot make enough to outpace the cost of living, you need to
make more just to meet living expenses.
When we are talking about a large sum of money, then the question will
come down to a key pillar in wealth management—lifestyle & expense management.
For some people, $500K could go a long way. Why? because their lifestyle expenses are low. Is it enough to retire on? For some people, yes and
for others, no.
More likely not, but this also comes down to age and life expectancy.
The same holds true for this “retire by $5 Million Orman rule”. It all comes down to the type of lifestyle you are living. With the 4%
withdrawal rate (rule of thumb of lifestyle expenses), the annual income
is $200K. This is much higher than the average US salary.
Is it enough? Mathematically, not adjusting for inflation, at that
withdrawal rate, it could last 25 years before it hits $0. Seems great,
unless you manage to outlive those years.
Mark Helfman, wrote a book about a country that runs on cryptocurrency. Answered Oct 9
How early? Before you’re eligible for social security and medicare?
$5 million is an arbitrary number. It doesn’t consider your income,
health, likelihood somebody will pay you for your work after you retire, children/elder situation, and cost of living in your part of the world.
Maybe $2 million is enough for you. Maybe $10 million. Maybe $50,000.
Frankly, $5 million sounds low to me, for living in the USA. In
countries with good public health services, maybe that’ll get you by. In
the USA, it costs a lot of money to care for elderly people. Between
your own health care spending and the money you spend on your parents,
$5 million seems reasonable once you’re on medicare and social security,
but how will you afford your health care if you don’t have an income or
work for a company that offers a really good health care plan? How will
you support your parents if you don’t have an income? Take a look at potential costs:
I would suggest if you’re confident that you can cover those costs
without working, $5 million is enough. Otherwise, keep working and
buying a variety of low-risk and high-risk investments so you can
continue growing your wealth.
PS I’m a selfish millennial who’s ruining everything and destroying the country, but I do care about the welfare of people who are older than
me. I’m concerned that the cost of retirement will eventually get so
large that only the most fortunate or lucky will ever be able to enjoy
the fruits of their life’s labor.
Dion Shaw, Not rich, but not poor
Answered Oct 12
The answer really depends on a variety of factors. Doug Massey is spot
on with the formula he uses.
However, the lifestyle and normal expenses make the difference. What is
your retirement plan? Traveling or - since you are younger - partying in
Vegas with your other retired friends?
Age makes a big difference. The earlier you retire, the longer you’ll
need money coming in. Future income and circumstances are much harder to predict, 30, 40 and 50 years out.
Do you have a spouse and children? They need to be supported in some
cases and that eats a chunk of your income. And inheritance? Will you
leave money to the spouse and children?
Driving Ferraris and living in new homes in upscale communities are
There is no black and white answer to this. Suze Orman does not know
you, where you live or your circumstances. She is selling her opinion
and making money from her words and suggestions. She is a TV name and
will sometimes throw out numbers to draw viewers.
That doesn’t mean she is right or wrong. You’ll have to examine your own situation to make that determination.
Elise Pilkington, former Retired After 36 Yrs in the Financial Services ind Answered Oct 8
Wow. This is such a broad statement it’s almost impossible to answer.
There are so many factors that go into answering the “how much is
How early are we talking? Age 40 or age 60?
Do you have children? How old are they? Do you have elderly parents who
need your support?
What kind of lifestyle are you expecting? What debts do you have? Do you
have to have the best and newest everything, or are you more of a mend
your clothes and grow your own food kind of person?
What other income sources do you have? Do you have the ability/desire to
work part-time if you need to?
This is why there are professionals who help people plan and finance
their retirement. There are a lot of factors that go into it. I will say
that there are plenty of people who retire early without $5 million.
There may be other trade-offs involved but it’s certainly possible.
Craig Lawrence, self-taught personal financeacist
Answered Oct 8
Everyone is different. But, the rule of thumb I’ve been taught is that
you need 25X your annual expenses (including taxes) saved up to retire.
That allows you to withdraw 4% of your total savings per year, which if
the principle is invested properly, should last you as long as you could possibly live, and likely leave a nice nest egg to your heirs.
So, $5M allows you to pull $200K a year. If you need $200K per year in retirement, than you should save up $5M. But, if you only need $100K per
year in retirement, than you only need to save up $2.5M.
I imagine the average US household doesn’t need $200K a year given the average US household income is around $60K per year. That would require
$1.5M in savings to retire.
Adam Fayed, Financial Freedom and Passive Income Blogger - adamfayed.com Answered Oct 9
Depends on your lifestyle. Based on the 4% rule, $5M would give you
$250,000 of income per year.
But you can retire on much much less if you emigrate or live a more
frugal lifestyle, and the reading/literature is quite clear on that -
Best investment books for beginners
Answered Oct 8
Please don't get your investment advice from salesman/TV-Radio pundits
Suzie Orman/Dave Ramsey types are great at motivation and selling things
Investing is an individual endeavor,cookie cutter advice will most
likely never be best advice
No you don't need 5 million to retire early or even a million in many cases