How much money you need to retire at every age and comfortably live on investment income

Early retirement is having a major moment.

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Early retirement is having a major moment.
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Caiaimage/Sam Edwards/Getty Images

  • To retire early and live comfortably on investment income from a taxable investment account, you need millions.
  • We consulted Brian Fry, a certified financial planner and the founder of Safe Landing Financial, to run a simulation that estimates the lump sum an investor would need the day they retire to live on a target annual income of $100,000 a year or $65,000 a year, after investment income taxes.
  • Although many early retirees continue to earn money after leaving their 9-to-5, these figures represent the minimum investment balance you would need to leave work and never turn back.
  • Visit Business Insider’s homepage for more stories.

Early retirement is having a major moment. Whether you’re 25 or 55, there’s a heightened allure to turning in your time card and exiting the corporate world for good.

But how much money does it really take to leave your 9-to-5 and never look back? It depends on several factors, including your lifestyle and how your money is invested, but generally you’ll need millions.

To figure out how much money someone would need to have invested when they retire in order to live comfortably on investment income until age 90, we consulted Brian Fry, a certified financial planner and the founder of Safe Landing Financial.

Read more: 7 people who retired by age 45 reveal their top tips

It’s worth noting that many early retirees continue to earn income after leaving their 9-to-5, whether through real-estate investing, blogging, or some other monetizable hobby, not to mention Social Security income for older retirees. The distinction, for many, is that in retiring from corporate life, they’re free to create their own schedule and pursue the projects they’re most passionate about without worrying about earning a paycheck.

Fry used a Monte Carlo simulation to estimate the starting balance someone would need in a taxable investment account the day they leave work to live on either $100,000 a year or $65,000 a year in dividends (fixed income from bond investments) and capital gains (income from equity investments), after paying taxes.

To run the simulation for a hypothetical retiree, Fry had to make assumptions about the retiree’s investments and tax treatments. A full list of these assumptions is available at the end of this post, but in short, he used JPMorgan long-term return estimates used for investments, a conservative 3% inflation estimate, assumed no state or local taxes, and did not factor in Social Security. The investments are assumed to be held in a taxable investment account, not a retirement account like an IRA or 401(k), since you can’t withdraw money from those accounts without penalty before age 59 and a half.

Fry notes that the Monte Carlo simulation has two clear limitations: The outputs are only as good as the inputs and it does not factor in the behavioral aspects of finance, or how investors react to swings in the markets.

Read more: How to retire early so you can work, travel, and relax on your own schedule

“Investors tend to be their own worst enemy when experiencing investment losses,” Fry said. “If you don’t have the time, interest, discipline, and expertise, it’s better to work with a fee-only certified financial planner that can tailor your investments to track to your financial plan.”

It’s also important to update your financial plan yearly, or whenever you experience a significant life change, Fry said. For example, if the market had lower than expected returns in any given year, the investor would be advised to scale back spending, he said.

Below, check out how much you need to invest the day you retire at 25, 35, 45, 55, or 65, if your target annual income is $100,000 or $65,000.


Age 25: You need a starting balance of $6,000,000 to live off $100,000 a year

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If you leave your desk job at age 25, you’ll need about $6 million invested in a taxable account in order to live off $100,000 a year, after paying taxes for capital gains and non-qualified dividends.

The ideal asset allocation is 80% stocks (known as equity holdings) and 20% bonds (known as fixed income), Fry said.


Age 25: You need a starting balance of $3,800,000 to live off $65,000 a year

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To live on $65,000 a year, an investor would need to start with $3.8 million in a taxable investment account the day they retire.

Again, the investments are held in 80% stocks and 20% bonds, which is considered an “aggressive” asset allocation, due to the age of the investor.


Age 35: You need a starting balance of $5,225,000 to live off $100,000 year

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An investor who leaves work at age 35 would need over $5 million in their taxable investment account to be able to live on dividends and capital gains amounting to about $100,000 a year, after taxes.

The ideal asset allocation is 80% stocks, and 20% bonds.


Age 35: You need a starting balance of $3,250,000 to live off $65,000 a year

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A 35-year-old investor would need about $2 million less on the day they retire if their target annual post-tax income is just $65,000. This assumes the same asset allocation of 80% stocks, 20% bonds.


Age 45: You need a starting balance of $4,300,000 to live off $100,000 a year

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An investor who leaves their 9-to-5 at age 45 and has a target annual income of $100,000 a year, after taxes, would need to invest a lump sum of $4.3 million in 80% stocks and 20% bonds.


Age 45: You need a starting balance of $2,750,000 to live off $65,000 a year

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A 45-year-old investor with a target annual income of $65,000 in dividends and capital gains, after taxes, would need a lump sum investment of $2.75 million on the day they retire, with an 80/20 asset allocation.


Age 55: You need a starting balance of $3,450,000 to live off $100,000 a year

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To live off $100,000 a year in dividends and capital gains, after taxes, an investor who leaves work at 55 would need $3.45 million in a taxable investment account.

The ideal asset allocation would be 70% stocks and 30% bonds, a more conservative allocation than a younger investor.


Age 55: You need a starting balance of $2,200,000 to live off $65,000 a year

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To live off $65,000 a year from dividends and capital gains, after taxes, a 55-year-old investor would need a starting balance of $2.2 million, with 70% invested in stocks and 30% invested in bonds.


Age 65: You need a starting balance of $2,525,000 to live off $100,000 a year

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For a six-figure annual income, a 65-year-old investor would need to invest a lump sum of $2,525,000 on the day they retire. The ideal asset allocation is 60% stocks and 40% bonds.

It’s important to note two factors that are not included in this simulation but would likely look different in the real world: retirement accounts and Social Security.

An investor who retires at 65 is likely to have contributed to tax-advantaged retirement accounts during their career, which they would now be able to withdraw funds from, so the taxable investment account probably wouldn’t be their sole source of income. In addition, anyone who qualifies for a Social Security benefit can opt to claim reduced benefits as early as age 62, and full benefits between ages 66 and 67.


Age 65: You need a starting balance of $1,620,000 to live off $65,000 a year

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To live on dividends and capital gains of $65,000 a year, after taxes, a 65-year-old would need a lump sum investment of $1.62 million in a taxable investment account, allocated as 60% stocks and 40% bonds.

The same considerations regarding tax-advantaged retirement accounts and Social Security income apply.


The assumptions about taxes and investments used in this simulation are listed below.

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Fry used a Monte Carlo simulation to estimate the starting balance someone would need in an investment account the day they leave work to live on either $100,000 a year or $65,000 a year in dividends (fixed income from bond investments) and capital gains (income from equity investments), after paying taxes.

The following assumptions were used in the simulation:

Investments

  • All investments are in a taxable account
  • Used $8,333/month for $100,000 target annual income and $5,417/month for $65,000 target annual income
  • JPMorgan long-term return estimates used for investments, 3% inflation used for conservative amount
  • Assumed younger investors can take on more risk than older investors
  • 5% annual portfolio turnover
  • $0 capital loss carry over
  • No asset-under-management fees included
  • Lump-sum is invested at start of simulation as cash with no built-in gains

Taxes

  • No state or local/city tax factored in
  • Standard deduction taken for a single filer
  • No Social Security payments factored in for older investors
  • Dividends – 85% are qualified dividends, 15% are non-qualified dividends
  • Capital gains – 90% long-term capital gains, 10% short-term capital gains
  • Tax law – TCJA sunset 2025: reflects all updated provisions related to TCJA, including the sun-setting of most individual income tax provisions in 2025

Fry notes that the Monte Carlo simulation has two clear limitations: The outputs are only as good as the inputs and it does not factor in the behavioral aspects of finance, or how investors react to swings in the markets.