How does age 55 sound for an early retirement age? Yes, there are people out there who have retired by 45<\/a>, 35, and younger, but you do need some time to amass that big nest egg.<\/p>\n\n\n\n A 55-year old can expect to live an average of 26 (male) to 29 (female) more years, according to the Social Security Administration\u2019s actuarial tables<\/a>. But you\u2019re above average, right? I\u2019d say you could easily have 3 to 4 decades to enjoy that money.<\/p>\n\n\n\n Can everyone come up with $5 Million in retirement savings by age 55? No, not everyone.<\/p>\n\n\n\n Can anyone? Possibly. Can you? Absolutely.<\/p>\n\n\n\n The fact that you\u2019re here reading this is a good start. Plus \u2014 remember \u2014 you are above average.<\/p>\n\n\n\n With $5 Million in retirement savings, you can expect to spend in the range of $150,000 to $200,000 a year using a 3% to 4% safe withdrawal rate (SWR) with a very low likelihood of ever running out of money.<\/p>\n\n\n\n In fact, it\u2019s likely that you\u2019ll have significantly more than $5 Million after a few decades of retirement if you withdraw 4% or less of your money early on and adjust that spend upwards with inflation as time goes on. The median outcome based on historical returns would be to have $13 to $14 Million after using a 4% SWR plan for 30 years when starting with five million dollars according to Michael Kitces<\/a>\u2018 analysis.<\/p>\n\n\n\n Remember, also, that by the time you retire, you can (and should) be done paying for things like a mortgage<\/a>, student loan debt<\/a>, your kids\u2019 college costs (which can be prepaid \/ pre-saved<\/a>) and costs related to your job like commuting and work clothing. $150,000 to $200,000 a year can afford a pretty comfortable lifestyle, especially when you account for so many big ticket items dropping off your list.<\/p>\n\n\n\n If your goals and expenditures are bigger and you\u2019ve got\u00a0the $10 Million Dream<\/a>, I\u2019ve got a post for that, too.<\/p>\n\n\n\n Let\u2019s say you finish high school at 18 and graduate from college at 22 with a degree that will help you land a good job. In college, you met someone who followed a similar path.<\/p>\n\n\n\n The two of you understand what compound interest can do for your finances, so you start setting aside money as soon as you get your first real<\/a> paycheck. Living like a student until you\u2019ve saved enough for a ring, a down payment on a house, etc\u2026, you and your partner prioritize paying yourselves first.<\/p>\n\n\n\n How much would you have to set aside per month to have $5 Million in retirement savings by age 55? For simplicity\u2019s sake, let\u2019s assume a constant and steady amount saved with steady returns, as well.<\/p>\n\n\n\n A few other assumptions: investment returns are a reasonable 6%, with low-cost index funds, investment fees average 0.1%, and overall tax drag<\/a> on the portfolio is 0.25% since some of the investments will likely be held outside of tax-advantaged retirement accounts.<\/p>\n\n\n\n With two people earning and saving, the monthly savings required for them to reach $5 Million by age 55 when starting from age 22 is all of $2,200 per month per person.<\/p>\n\n\n\n That\u2019s $26,400 per year apiece. It could simply mean maxing out a 401(k) and getting a company match and\/or profit sharing. Do that for 33 years, earn about 6% on your investments, and, as a couple, you could be sitting on a $5 Million nest egg<\/a> at age 55.<\/p>\n\n\n\n Now, it\u2019s true that after 33 years, $5 million won\u2019t have the same purchasing power as it did early on. You can account for that a couple of different ways.<\/p>\n\n\n\n If you assume that the couples\u2019 annual investment amount will increase at the rate of inflation, then they\u2019ll end up with more than $5 Million in nominal dollars, but the final sum should have the purchasing power similar to what $5 milllion would have bought them at the beginning.<\/p>\n\n\n\n Another way to account for inflation while assuming constant dollar values invested is to assume the investment returns are real returns (inflation-adjusted) rather than nominal (non-adjusted) returns. If so, you ought to lower the expected investment returns<\/a> by 2% to 3% to account for long-term inflation. You would then need to save a bit more.<\/p>\n\n\n\n For example, if we assume 4% real returns instead of 6% nominal (keeping the same investment fees<\/a> and tax drag), this couple would need to save about 50% more or $3,300 each per month (for a total of $6,600 monthly combined) to reach the equivalent of $5 Million in today\u2019s dollars by age 55.<\/p>\n\n\n\n You can play with the numbers yourself or\u00a0download this and a whole bunch of other financial calculators<\/strong><\/a>\u00a0to use on your own computer and modify as you wish.<\/p>\n\n\n\n While it\u2019s true that slow and steady wins the race, it\u2019s also true that there are many thousands of people each earning millions of dollars<\/a> every year.<\/p>\n\n\n\n If you happen to be exceptionally skilled at something, particularly something athletic or artistic, you may be able to follow that passion to a big payday.<\/p>\n\n\n\n Through some combination of skill, luck, hard work, and perhaps connections, you might join the ranks of the highly paid actors, actresses, singers, performers, athletes, Youtubers, etc\u2026 Even the top 10 video gamers average 8-figures apiece<\/a> in annual earnings.<\/p>\n\n\n\n How likely is it that you\u2019re going to earn 7 or 8 figures a year doing something you love? Pretty darned slim, so be sure to have a Plan B<\/a>. Nevertheless, plenty of real people end up in this category, and it seems like we all know someone who knows someone who \u201cmade it big\u201d in their respective field.<\/p>\n\n\n\n You don\u2019t necessarily have to have amazing skills or be connected like a Kennedy to strike it rich, either. Invent and patent the right product<\/a> and you could end up having more passive income than you know what to do with.<\/p>\n\n\n\n In any of these scenarios, you don\u2019t need to play with\u00a0compound interest calculators<\/a>\u00a0to get to $5 Million. You just have to understand that fortune and fame can be ephemeral, and set aside a good chunk of your income while the getting is good.<\/p>\n\n\n\n This is the doctor\u2019s path. It could also be the path of the lawyer, dentist, nurse anesthetist, etc\u2026<\/p>\n\n\n\n It\u2019s the path I took, and although I retired from medicine a bit shy of a $5 Million net worth, I was well on my way to that number at age 43<\/a>, and investment returns alone should get us well beyond that mark by 55.<\/p>\n\n\n\n For this example, we\u2019ll assume a single income, a net worth of -$300,000 (that\u2019s a negative $300k) but with annual earnings in the multiple six-figures.<\/p>\n\n\n\n In this case, we need to accumulate the $5 Million plus enough to pay off the $300,000 in student loan debt<\/a>. Assuming you refinance to a low interest rate<\/a> and pay it off within 10 years, you shouldn\u2019t have to add more than $500,000 to account for the debt and interest payments.<\/p>\n\n\n\n Using the same assumptions for investment fees and tax drag<\/a> with 6% investment returns as we did above, it looks like you\u2019ll need to set aside $8,400 per month, or right around $100,000 a year, to retire that debt while retiring with $5 Million at age 55 with a 25-year working career.<\/p>\n\n\n\n It\u2019s not easy to save $100,000 a year, particularly on one income. In a two-income household, it could certainly be easier to do. Geographic arbitrage<\/a> can be really helpful when you\u2019ve got a lofty goal like this. The ability to live and work in an area that costs less and pays more is somewhat unique to medicine. Take advantage if you can!<\/p>\n\n\n\n Other than that, it\u2019s all about maximizing the distance between how much you earn and how much you spend.\u00a0Earn more<\/a>,\u00a0spend less<\/a>, and if you can meet the\u00a0live on half challenge<\/a>, more power to you.<\/p>\n\n\n\n Good news.<\/strong> You won the lottery! If the payout was at least $10 Million before taxes, you can now retire with $5 Million or more.<\/p>\n\n\n\n Bad news.<\/strong> Your rich uncle has passed away and will no longer be hosting you and your extended family at his beachfront compound. However, you have inherited a sum that will allow you to build a compound of your own, if that is your wish.<\/p>\n\n\n\n These are not the most common paths, and they\u2019re not avenues to be pursued, but new multimillionaires are minted via lottery jackpots and inheritance on a daily basis.<\/p>\n\n\n\n I noticed a new home going up on a nearby lake, and it looked to be enormous. Who was building it? One of the athletes or entertainers we talked about earlier? In The Millionaire Next Door<\/a>, we learned that doctors, in particular, tend to spend a lot and look rich, but many of the best accumulators of wealth are actually self-employed small business owners.<\/p>\n\n\n\n When you own and operate a small business, increasing your revenue as time goes on not only brings more money in for you to spend and save each year, but it also increases the value of your business.<\/p>\n\n\n\n Whether your business is in pipefitting, data entry, brewing beer<\/a>, or garbage collecting, the longer you stay in business and the bigger your client list or customer base grows, the more likely you are to be in possession of a multimillion-dollar business.<\/p>\n\n\n\n When the time is right for you to move on, there may very well be an opportunity for your business and\/or its assets to be acquired by a larger company or competitor in the space, or to be sold to an individual ready and willing to step into your shoes.<\/p>\n\n\n\n Entrepreneurship doesn\u2019t always pan out as planned, and most successful business owners fail<\/a>before they succeed, but the entrepreneurial path definitely deserves a spot on this list. It\u2019s probably the third most common path to a cushy retirement among this list of five.<\/p>\n\n\n\n5 Ways to Retire With $5 Million by Age 55<\/h2>\n\n\n\n
#1 Slow and Steady Wins the Race<\/h2>\n\n\n\n
![\"5](\"https:\/\/www.physicianonfire.com\/wp-content\/uploads\/2020\/07\/5MillionDollars_1.webp\" "\\"5")
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<\/a><\/figure><\/div>\n\n\n\n#2 Develop a Remarkable Talent or Product<\/h2>\n\n\n\n
#3 A Negative Net Worth at 30 (With Great Earning Potential)<\/h2>\n\n\n\n
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<\/a><\/figure><\/div>\n\n\n\n#4 Good News \/ Bad News<\/h2>\n\n\n\n
#5 Build Up a Business and Cash In<\/h2>\n\n\n\n
Nope. A guy who owned a local septic and drainfield business who recently cashed out.<\/p>\n\n\n\nForging Your Own Path to $5 Million<\/h2>\n\n\n\n