How Much Money Does the Average Person Need to Retire at 55? (The Real Numbers Will Shock You!)

Anyone else want to quit their 9-to-5 job ten years early? You’re not the only one! Many Americans want to retire early at 55 and have more freedom while they’re still young enough to really enjoy it. Still, the big question is: how much money does the average person need to retire at age 55 and be happy?

The answer might surprise (or shock) you, especially when you consider factors like where you live, healthcare costs, and how long your money needs to last Let’s dive into the real numbers and practical strategies to make early retirement possible!

The Hard Truth: Retirement at 55 Requires Serious Planning

According to financial experts, retiring at 55 isn’t impossible, but it definitely requires more careful planning than retiring at the traditional age of 65. Why? Because:

1. You’ll need to fund potentially 30+ years of retirement (compared to 20 years for traditional retirees)
2. You won’t have access to Medicare until age 65
3. Social Security benefits typically don’t begin until age 62 (and are reduced if taken early)
4. Many retirement accounts have penalties for withdrawals before 59½

So How Much Do You Actually Need?

The Average American’s Retirement Savings at 55

Let’s start with what people actually have saved. The Federal Reserve’s 2019 Survey of Consumer Finances shows that Americans between the ages of 55 and 59 who are getting close to retirement have saved an average of $223,493. 56. The average for people aged 60 to 64 is $221,451, which is a little less. 67.

But here’s the catch – these numbers are woefully inadequate for most people hoping to retire at 55!

The Target: 6-8x Your Annual Salary by Age 55

Financial advisors generally recommend having 6-8 times your annual salary saved by your mid-50s. So if you’re making $70,000 a year, you should ideally have between $420,000 and $560,000 stashed away.

But that’s just a general rule. Your specific number depends on numerous factors:

• Your desired lifestyle in retirement (travel, hobbies, etc.)
• Where you plan to live (huge cost variations by state!)
• Your debt situation (mortgage, other loans)
• Healthcare needs and costs
• Whether you plan to leave money to heirs

The Geographic Factor: Retirement Costs Vary Wildly By State

One of the biggest factors affecting how much you need is WHERE you plan to retire. The difference between states is absolutely stunning!

According to CNBC’s analysis, annual retirement costs vary by as much as $66,000 between states! Here’s a peek at the extremes:

• Hawaii: $121,228 per year (ouch!)
• Mississippi: $55,074 per year (much more manageable)

Other expensive states include:

• District of Columbia: $99,980
• Massachusetts: $97,699
• California: $90,399
• New York: $88,444

On the more affordable end:

• Alabama: $56,769
• Oklahoma: $56,508
• Kansas: $56,899
• West Virginia: $58,528

So depending on where you choose to retire, your required nest egg could vary by over a million dollars! That’s not small change.

Breaking Down the Early Retirement Math

Let’s do some back-of-the-envelope calculations to see what you might need if retiring at 55:

If we assume:

• You’ll live until 85 (30 years of retirement)
• You need $70,000 annually for expenses
• You’ll earn an average 5% return on investments (after inflation)
• You’ll eventually get some Social Security benefits

Using the classic 4% rule as a rough guideline, you’d need approximately $1.75 million saved. But this is very simplified and doesn’t account for:

1. Higher healthcare costs before Medicare kicks in
2. Potential long-term care needs
3. Market volatility
4. Changes in tax laws
5. Inflation spikes

Many financial planners now recommend a more conservative 3-3. 5 percent withdrawal rate for early retirees, which would bring the amount needed closer to $2-2 3 million.

The Biggest Challenge: Accessing Retirement Funds Before 59½

Here’s a major hurdle for the 55-year-old retiree – most retirement accounts penalize withdrawals before age 59½. But there are ways around this:

1. Rule of 55 for 401(k) Plans

If you leave your employer in or after the year you turn 55, you can withdraw from that specific 401(k) without the 10% early withdrawal penalty. However, you’ll still pay ordinary income taxes.

2. Substantially Equal Periodic Payments (SEPP)

This IRS-approved method allows penalty-free withdrawals from IRAs through a specific formula. The catch? You must continue these withdrawals for 5 years or until you reach 59½, whichever is longer.

3. Roth IRA Contributions (Not Earnings)

You can withdraw your original Roth IRA contributions (but not earnings) at any time without taxes or penalties.

4. Taxable Brokerage Accounts

For early retirement, it’s important to have investments outside of retirement accounts. You can open a brokerage account at any age, and long-term capital gains tax rates are usually lower than ordinary income tax rates.

The Healthcare Conundrum Before Medicare

Another major expense for the 55-year-old retiree is healthcare. With Medicare unavailable until 65, you’ll need to budget for 10 years of potentially expensive coverage.

Options include:

• COBRA (usually limited to 18 months)
• Public healthcare marketplace plans (Obamacare)
• Private insurance
• A spouse’s plan if they’re still working
• Retiree medical benefits (if your employer offers them)

This can easily add $12,000-$20,000 per year to your expenses! That’s a significant chunk that many early retirement plans fail to adequately address.

Real-World Strategies for Retiring at 55

If you’re serious about retiring at 55, here are some practical strategies:

1. Maximize Retirement Savings Now

• Max out your 401(k) or 403(b) contributions
• Use catch-up contributions if you’re over 50
• Fully fund IRAs (traditional and/or Roth)
• Build up taxable investment accounts

2. Create a Bridge Strategy

Plan specifically for those years between 55 and 59½, when accessing retirement accounts is trickier.

3. Reduce Debt Before Retirement

Ideally, enter retirement with your mortgage paid off and no other significant debt.

4. Consider Part-Time Work

Even a small income during early retirement years can significantly extend your savings.

5. Be Realistic About Expenses

Many retirees spend more in the early “go-go” years of retirement on travel and activities.

Don’t Forget About Longevity Risk!

One thing many early retirees underestimate is how LONG they might live. According to data from J.P. Morgan and the American Academy of Actuaries:

• A 65-year-old woman in excellent health has a 31% chance of living to 95
• A 65-year-old man in excellent health has a 22% chance of living to 95
• For a 65-year-old couple, there’s a 73% chance at least one will live to 90

If you retire at 55, you could potentially need to fund 40+ years of retirement!

Bottom Line: Can the Average Person Retire at 55?

The honest truth? For many Americans, retiring at 55 with current average savings levels is not realistic unless they’re willing to significantly reduce their standard of living.

That said, it’s absolutely achievable with:

• Early planning (ideally starting in your 30s)
• Aggressive saving (15-20% of income)
• Smart investment strategies
• Realistic expense management
• Flexibility regarding where you’ll live

Get a Personalized Plan

Rather than relying solely on general rules of thumb, work with a CERTIFIED FINANCIAL PLANNER™ to create a detailed analysis specific to your situation. They can run Monte Carlo simulations to stress-test your retirement plan against various market conditions and help you understand what trade-offs might be necessary.

And remember – even if full retirement at 55 isn’t feasible, perhaps a transition to part-time work or a less stressful career could give you many of the benefits of early retirement while still providing income security.

The bottom line is this: retiring at 55 is definitely possible, but it requires planning, discipline, and usually more money than the average American currently has saved. Start planning now, and you might just find yourself enjoying an early retirement while your peers are still grinding away at their desks!

Have you started planning for early retirement? What age are you targeting? I’d love to hear your thoughts and strategies in the comments below!