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How Much Money Do You Need to Retire at 40?

Early retirement

Working life could be a little bit daunting, particularly if the job you are involved in does not necessarily reflect your passion. This explains why the majority of young people anticipate retiring at 40 and being able to enjoy the rest of their life free from work obligations. While retiring at 40 sounds appealing, it requires much devotion and discipline. Whether or not you will be able to retire at 40 will depend on many factors. The primary factor, however, will be the lifestyle you lead in your twenties and thirties. To achieve the dream of retiring at 40, make sure you are ready to sacrifice the shopping sprees and take-outs.

A movement dedicated to saving is dubbed FIRE (Financial Independence Retire Early). The movement advocates for saving and dedicated investment. With that, you can retire earlier than conventional retirement plans. According to Citizens Bank, the question you are probably asking yourself is whether it is practical to retire early and what you need to accumulate to retire early, right? In this piece, we dissect the topic of how much money you need to retire at 40.

Is it possible to retire at 40?

If you ask any financial expert, they will tell you that it is practical to retire at 40. However, this will depend on your average earnings and money discipline. It all narrows down to an exceptionally frugal lifestyle and so much toughness. Helen Morrissey is a senior retirement and pension analyst in the United Kingdom. She believes that retiring at this early age requires financial sacrifices both in your working life and retirement. This turns out to be too difficult apart from those wealthy people.

What are the challenges of retiring at 40?

Even though retiring early sounds like a dream to many people, it is doable as long as you are willing to address major financial planning challenges. The following are some of the challenges of retiring early:

Figuring out how much to save: The first challenge of retiring early is to figure out how much money you ought to save to get to the first day of your financial independence. You are probably asking yourself how much savings is enough, right? A proper guideline for most people saving for retirement is striving to replace about 80% of the pre-retirement income. According to Investopedia, this amount will allow you to lead a comfortable lifestyle upon retiring. Conventional retirement-saving benchmarks such as this one might only work for people planning to retire in their 60s. It means they are not as effective for people planning an early retirement. If you are a frugal saver, you are already used to cover for your daily expenses with a very small fraction of your salary.

The Big Issues

Social Security becomes smaller- Another challenge of retiring at 40 is that one source of your retirement income, Social Security, will be unavailable until you hit 62. This is the earliest you can enjoy the Social Security fund. Again, when the early retirees want this fund, the real benefits will reduce since they have a short work history. The average indexed monthly earnings determine the Social Security benefits. This is during the 35 years when you earned the highest taxable income. Early retirement years with limited or no payments will lower your monthly benefit.

You will need to find health insurance- unless your former employer pays for your health insurance, you will have to pay for it upon retiring. You will only be eligible for Medicare after hitting 65 years of age. Please note that the insurance premiums could be two or three times higher than what you paid in the workplace plan. Additionally, health insurance rates spike as you age. They could easily skyrocket into four figures after the age of 55. Let us look at how much you should have to retire at 40.

How Much Do You Need to Retire at 40?

Experts believe that financial independence occurs at varying speeds and greatly depends on the individual's present and future expenditure habits. According to analysts, the FIRE community calculate their "financial independence number" by multiplying annual expenses by 25. As per the IRS tables, the life expectancy of a 40-year-old is 46 years. If you plan to spend $40,000 annually for all your expenses, you will require $1.84 million before retiring. However, this never considers factors like investment asset allocation, penalties and taxes. Experts advise you to consider all these areas to enjoy better financial freedom after retiring.

Healthcare costs are other important factors, especially during the later years upon retirement. Retiring at 40 means you will have to wait 25 years before you can be eligible for Medicare. In this case, you are suitable for the same when you and your better half had paid Medicare taxes for about ten years. Even after reaching 65, Medicare never covers all health expenses. According to Annuity Expert Advice, this health insurance –plan has four different parts. It covers outpatient, hospital and prescription drug expenses. The coverage that Medicare offers will depend on the part you are enrolled in.

What is FIRE, and how does it work?

FIRE stands for Financial Independence Retire Early. It is a movement that advocates for saving and an aggressive investment. Individuals opting for the FIRE route must brace themselves for a frugal lifestyle and avoid unnecessary expenses. This means that most of their salary will be spent on retirement savings. This movement got its inspiration from "Your Money or Your Life" by Joe Dominguez and Vicki Robin.

Devotees of the FIRE lifestyle will save up to 70% of their annual salary while working. The higher your savings rate and the percentage of your salary you spare, the faster you can become work optional. After saving 25 times the annual expenses, these people retire and live from the small withdrawals of their savings. In most cases, this amounts to 3% to 4% annually.

What things should you do to retire at 40?

As discussed above, the FIRE movement aims at helping people retire with enough money that makes them comfortable at a young age when they can still enjoy it. While it has its constraints, retiring a 40 is not bad. However, it requires so much sacrifice and focus. We will look at some of the important things you need to do to retire comfortably at 40.

1. Set out a timeline and target for your savings

The first and the most important thing that will see you retiring at 40 is setting a target and a saving timeline. According to The Balance Money, to retire early, you must hammer out the total percentage you will save every month from your income. This will be determined by the amount you wish to take to retirement. Knowing your numbers is so important for early retirees. It would help if you targeted to save up to 25 times your yearly expenses. Before retirement, this money should be invested in different bond and stock markets index funds.

2. Brace yourself for a Spartan lifestyle

If you are serious and committed to retiring at 40, your youthfulness will be filled with material deprivations. It, therefore, means that you will not enjoy your 30s and 20s as your peers since you will be aggressively saving money. This should, however, never worry you as you will be able to enjoy all these things later in life upon retiring.

There are so many ways to survive during that frugal lifestyle. If possible, remain in your parent's house to save on rent, utility bills and other expenses. It would be best if you also minimized going on vacations, as these are things that can drain you financially. Experts also advice skipping expensive brunches and unnecessary purchases. This helps you to remain focused on your saving goals. Lastly, avoid pricey data plans, paid apps and streaming services. Unnecessary subscriptions will get you easily swayed.

3. Develop multiple streams of income

A good way to save more is by spending less. Another way to go about it is to earn more money. Your salary will remain constant unless your employer decides to renegotiate your salary. While this is very rare, it is always good to have a side gig. You need to discover a side hustle and try as much as possible to monetize your skills. The best side hustles will generate passive income with too much involvement in labor for pay.

There are many ways to earn passive income as you continue your daily job. For instance, you can rent your vehicle through online sites such as Turo. Apart from that, you can monetize a property through Airbnb. Another way to earn passive income is to lease your storage space through apps like Neighbor to lease your basement or garage.

4. Save, Save, Save

Fanatical saving is the way to go if you want to retire early. According to experts, most Americans do not save enough for their retirement. They probably are yet to understand how these savings will come in handy in the future. The generations before us enjoyed Social Security and Pensions which helped them live comfortably in retirement. These days, pensions are quite hard to come through for the current workforce. On the other hand, Social Security seems inadequate to cover livable wages.

To save enough and live comfortably in retirement, you should start saving as early as possible. It would help if you were determined to save without anticipating a hypothetical future. Assume that you will not get a better-paying job or a time when life becomes affordable. You should also treat your savings as bills that need to be paid on a matter of urgency. It is also good to develop the habit of saving steadily and consistently on a frequent schedule.

5. Avoid and eliminate debt

The worst enemy of saving is massive debt. If you are committed to retiring at 40, you must ensure you are free from paying loans and interest. Debts will drain you not only financially but also emotionally. If you have debts, you must devise ways of clearing them as soon as possible. That allows you to focus on accumulating your retirement savings. According to Jupiter, there are many ways to battle it out in case you are stuck in debt. Using the snowball method, you can handle your smallest debt first as you move to repay the next smallest debt. Alternatively, the avalanche method will help you clear off the debt with the highest interest rate as you move to the next one with a high-interest rate. You can also consolidate your debts into a single debt with a low-interest rate.


At a young age, retirement seems like something that should not worry you. In most countries, the retirement age is between 60 and 65 years. This means that you will be working all your life and wake up one day to 'your services are no longer needed by your employer. After that, you will live on the money you saved during your working years. While this sound easy, you will be surprised to learn that you are left with very little room to live your life. People have different aspirations in life, including going on vacations, reading books and other things but time is always not enough due to tight work schedules. This is where the idea of early retirement comes in.

To retire early, you must first change your perspective. It is good to always believe that retiring does not necessarily mean the end of your career. Instead, it should mark the beginning of your life. In that regard, you should not wait to retire when you are very old. Retire when you can afford it. People looking to retire a 40 should have the one goal of having financial independence. This is a stage of life where you have no debts and accumulate enough savings to help you lead a comfortable lifestyle. With financial freedom, you can easily get the job you have always loved or even refrain from working. As we have discussed, the most popular concept for achieving this goal is Financial Independence Retire Early (FIRE).

Allen Lee

Written by Allen Lee

Allen Lee is a Toronto-based freelance writer who studied business in school but has since turned to other pursuits. He spends more time than is perhaps wise with his eyes fixed on a screen either reading history books, keeping up with international news, or playing the latest releases on the Steam platform, which serve as the subject matter for much of his writing output. Currently, Lee is practicing the smidgen of Chinese that he picked up while visiting the Chinese mainland in hopes of someday being able to read certain historical texts in their original language.

Read more posts by Allen Lee

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