If You’ve Banked $3 Million By 40, Is It Possible to Retire?

If you have $3 million, you undoubtedly have a lot of money — and more than most people ever will. However, before you jump into retiring and living off the cash, you need to do some math first. You don’t want to retire, spend your money, and end up broke after decades of being out of the workforce. And you don’t want to spend your retirement struggling to cover the basics.

So, is $3 million enough to retire on at the age of 40? Here’s how you can decide. 

Can you retire with $3 million?

To decide if you can retire with $3 million or not you, you need to understand the amount of income that $3 million would produce at a safe withdrawal rate and decide if that’s a reasonable amount for you to live on. 

First and foremost, the question is whether your $3 million in net worth is in investments that you can live off. If you have a lot of the money tied up in a house, for example, then you aren’t going to be able to fund your retirement early unless you want to sell and access that equity. Likewise, if most or all of the money is in a 401(k) or IRA that you can’t easily get money out of penalty-free until age 59 1/2, then you may have wait until you reach the age when you can access the funds or until you have saved money in a taxable brokerage account to live off until you get to that point.

However, assuming you have the full $3 million spread across brokerage accounts and retirement plans and the money is invested, then you just have to decide on a safe withdrawal rate to see how much income it can provide you with now and in the future.

While experts used to recommend the 4% rule, which allowed you to take 4% from your account, this has been revised to the 3.7% rule — and that’s to give you the best chance of your money lasting for a minimum of 30 years. If you want to make sure you don’t drain your accounts too fast, you’ll probably want to stick with following the 3.7% rule or perhaps being even a little bit more conservative.

If you do follow the 3.7% rule with $3 million invested, that would give you $111,000 to live on.

The question you have to answer is whether that’s enough — especially given that you have to take taxes and healthcare into account. If you don’t have an employer to offer health insurance, you’ll get stuck paying for expensive individual coverage.

Whether $111K is enough or not is going to depend on how expensive your area is, how much you like to spend, how many people you have to support, and how expensive you expect your health insurance costs will be.

Talk to a financial advisor before retiring early

When you see a large investment account balance, it’s tempting to think you can just retire and live comfortably for life. It’s not necessarily true, though, since you have to be careful in how much you withdraw so your money lasts.

A financial advisor can help you determine how much income your investments will produce, how to keep the assets safe by investing appropriately, and whether you have carefully considered all of the costs you are likely to incur in retirement so you can make an informed choice. 

Deciding to retire is a major life milestone, so don’t rush into it without getting the advice you need to ensure you are not left with regret. 

The post If You’ve Banked $3 Million By 40, Is It Possible to Retire? appeared first on 24/7 Wall St..