Jan 26, 2025
Early retirement is a dream for many people, especially for those in high-stress positions. If you're 45 years old, have $2.5 million saved up and are not enjoying your work, it's absolutely understandable that you’d want to hand in your notice and sail off into the sunset.
It's also natural to be worried about how long your $2.5 million can last if you retire early.
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The good news is that you have more saved than most people your age, as Vanguard reports that the median defined contribution plan balance for 45 to 54-year-olds is $60,763.
However, since you're only 45 years old, you have a lot of years of life left to live and you'll want to be absolutely sure your retirement savings won't run dry, especially if you plan to spend freely while you travel.
Unfortunately, you can't necessarily be certain of that with just $2.5 million. Here’s what to consider before weighing the decision.
Retiring at 45 comes with a lot of extra expenses
The first thing to look at when deciding if you can retire at 45 is what your spending habits will look like. You'd have a lot of costs to consider while living off of your savings.
Since you'd be leaving work two decades before you qualify for Medicare, you'd have to fund private health insurance for many years.
The Kaiser Family Foundation reports that the average annual health insurance premium for single coverage was $8,951 in 2024, so this is a big expense you'll need to incur — especially as prices only tend to increase as you age.
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You also have Social Security to think about. Benefits are based on average wages in your 35 highest earning years. If you leave work at 45, you wouldn’t have a 35-year work history.
While you can get benefits after as little as 10 years, they'll be lower if you're factoring in decades of $0 wages when they’re calculated.
Plus, Social Security won't be available until at least 62, so you'll need to support yourself for years without it — and if you collect before your full retirement age, you'll permanently shrink your lifetime benefits.
Finally, consider how your money is invested. If most of it is in tax-advantaged retirement plans, like 401(k) or IRA accounts, you can't access it without a 10% penalty until age 59 and a half, so you have nearly 15 years where you'll need money from another source.
All these factors need to be addressed before you begin to consider how long your money will last.
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Strategies for moving forward
If you're still thinking about quitting work early, the next big hurdle is to figure out a safe withdrawal rate. How much can you take from your $2.5 million each year to fund your lifestyle while sticking to a realistic budget?
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The traditional 4% rule says to withdraw 4% of your balance in your first year of retirement and continue withdrawing the same amount each year while adjusting for inflation. This approach may keep you from running out of money for around 30 years.
Morningstar experts have since revised that down to 3.7%. Since retiring at 45 means you should aim to preserve your account for around 40 years at a minimum, choosing a more conservative withdrawal rate is key.
Assuming your entire $2.5 million is invested in a balanced, diversified portfolio aimed at funding retirement, a safe withdrawal rate would thus allow you to take out $92,500 per year. You'd have to pay for taxes, insurance and all costs with this money — and remember that you'll probably eventually be coping with a lower Social Security benefit to supplement it.
Now, you may decide this is enough — but you may decide it isn't. Only you can determine what your spending needs are and whether you feel confident attempting to make your money last as long as you do.
If you decide it's not enough, you can always explore downgrading to a less stressful job with more time off instead of giving up your career for good. A compromise could elevate your quality of life now, while ensuring you don't jeopardize your livelihood later.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
