Suze Orman is right. In order to retire early, you need at least $5 million in investable assets. With interest rates so low, it takes a lot more capital to generate the same amount of risk-adjusted income.
Before the coronavirus pandemic, there was maximum Fear Of Missing Out (FOMO) with the Financial Independence Retire Early (FIRE) movement. It seems like lots of people want to retire early because they are seeing other people do so and living a fabulous life.
In 2009, I helped start the modern-day FIRE movement. The goal was to make as much passive income as possible to pay for our way of life.
Unfortunately, a lot of people are retiring too soon and ruining their lives and finances because they didn’t save enough after-tax to make enough passive income to pay their bills. People are retiring without strong fundamentals because they see so many retire so soon.
Does it really make sense to retire early only to live near abject poverty? I dont think so.
Suze Orman, a famous personal finance guru for the past several decades says she hates the FIRE movement. She says that people who retire too soon will make the worst financial mistake of their lives and that we should work as long as we love our jobs.
Further, she says that we need $5 million to retire early. Her views have ruffled a lot of feathers, but after crunching the numbers, I have to agree. $5 million sounds about right if you want to retire before the age of 60. Bad things happen in life all the time that costs money!
Are you dreaming about retirement? Maybe you’re hoping to exit the workforce a few years early, or perhaps you’ve caught the FIRE (Financial Independence, Retire Early) bug and want to quit your 9-to-5 as soon as possible. Whatever your retirement goals, one question inevitably comes up: How much money do I actually need?
Financial guru Suze Orman has some pretty strong opinions on this topic, and her answer might leave you gasping for air. Let’s dive into what she recommends and whether her advice makes sense for regular folks like us.
The Multi-Million Dollar Bombshell
If you have been saving hard and have grown your nest egg to $2 million, you may be feeling pretty good about your chances of retiring. Well according to Suze Orman, you shouldn’t get too comfortable.
In a now-famous episode of the podcast “Afford Anything” with Paula Pant Orman, she said the following:
“Two million is nothing. It’s nothing. It’s pennies in today’s world, to tell you the truth.”
Yep, you read that correctly. According to Orman, $2 million—an amount that most Americans can only dream of saving—is practically pocket change when it comes to retiring early.
So what number does Orman think is sufficient? Hold onto your hats…
$5 to $10 million.
That’s right. Orman suggests that to retire early without financial worries, you might need between $5 million and $10 million saved up.
Why Such a High Number?
You might be wondering why Orman believes such a massive sum is necessary. Here are her main concerns:
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Inflation: Inflation has caused living costs to rise dramatically over the past few years. Today’s money might not last as long in 10, 20, or 30 years.
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Longevity: Early retirement means your money needs to last longer. If you retire at 40 instead of 65, that’s an extra 25 years your savings need to cover.
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Healthcare costs: Medical expenses can be unpredictable and astronomical, especially as we age.
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Unexpected disasters: Sometimes you have to deal with illnesses, taking care of elderly parents, or other financial emergencies that come up out of the blue.
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Loss of compound interest: When you retire early, you miss out on additional years of compound interest growth.
Does Orman Support the FIRE Movement?
Given her view on needing millions to retire, it’s probably no surprise that Orman isn’t a fan of the FIRE movement. She believes that extreme frugality to retire in your 30s or 40s doesn’t account for life’s unexpected twists and turns.
She worries that FIRE enthusiasts aren’t considering what might happen if:
- They need to care for aging parents
- They face a serious illness themselves
- Their investments don’t perform as expected
- Inflation erodes their purchasing power faster than anticipated
But Wait—Is Orman’s Advice Realistic?
Now, I don’t know about you, but when I heard Orman’s $5-10 million figure, I nearly spit out my coffee. For context, the median retirement savings for Americans between 65 and 74 is around $200,000—a far cry from Orman’s recommended multi-millions.
Some financial experts have pushed back against Orman’s high targets. They argue that her numbers are unnecessarily intimidating and could discourage people from saving altogether because the goal seems so unattainable.
Retirement Is Not One-Size-Fits-All
The truth is, the amount you need for retirement—early or otherwise—depends on numerous personal factors:
- Your lifestyle expectations: Do you plan to travel extensively or are you content with simpler pleasures?
- Where you’ll live: The cost of living varies dramatically across different regions and countries.
- Whether you own your home outright: Housing costs are typically the largest expense in retirement.
- Your health status: Some people will face higher healthcare costs than others.
- Whether you’ll work part-time: Many “retirees” continue earning some income.
Orman’s General Retirement Savings Milestones
If you’re wondering how your current savings stack up, Orman does offer some general guidelines. She suggests having:
- 1x your current income saved by age 30
- 3x your current income by age 40
- 6x your current income by age 50
- 8x your current income by age 60
- 10x your current income by age 67
These milestones might be more realistic targets for most of us compared to the $5-10 million early retirement figure.
Practical Advice from Orman That Actually Makes Sense
Despite her somewhat discouraging multi-million dollar retirement recommendation, Orman does offer some solid advice:
1. “Live below your means but within your needs”
This is Orman’s mantra, and it’s actually pretty sound. She emphasizes the importance of distinguishing between needs and wants, and focusing your spending on the former.
2. Maximize employer contributions
Take full advantage of any matching contributions offered by your employer—it’s essentially free money.
3. Pay off your mortgage before retiring
Eliminating your largest monthly expense can significantly reduce the amount you need to have saved.
4. Delay claiming Social Security until age 70 if possible
As Orman explains, “A benefit that starts at age 70 is 76% higher than if you start receiving your payout at age 62.”
My Take on Orman’s Advice
I think Orman’s $5-10 million figure is both helpful and harmful. On one hand, it’s a wake-up call that retirement—especially early retirement—requires serious financial planning and discipline. On the other hand, it sets an unrealistic bar that might discourage average earners from even trying.
Here’s what I think makes more sense:
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Set a retirement goal based on YOUR lifestyle and expectations, not someone else’s arbitrary number.
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Use calculators and tools that account for your specific situation rather than general rules of thumb.
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Consider working with a financial advisor who can help create a personalized retirement plan.
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Don’t dismiss the possibility of part-time work in retirement. Many retirees find that some work keeps them engaged and reduces financial pressure.
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Be flexible with your retirement age. Maybe full retirement at 40 isn’t realistic, but what about scaling back at 55?
The Bottom Line
Suze Orman’s advice to have $5-10 million to retire early might seem extreme, and for most people, it probably is. However, her underlying message—that retirement requires careful planning and significant savings—is valid.
Rather than fixating on a specific number, focus on:
- Maximizing your savings rate
- Investing wisely
- Minimizing debt
- Creating multiple income streams
- Being realistic about your retirement lifestyle
Remember, retirement success isn’t just about hitting a magic number—it’s about creating a sustainable financial plan that aligns with your personal goals and circumstances.
What do you think about Orman’s retirement advice? Do you find her $5-10 million figure motivating or discouraging? I’d love to hear your thoughts in the comments!
FAQs About Retirement Savings
Q: Is $2 million really not enough to retire on?
A: For many people, $2 million can be more than adequate, especially if you retire at a traditional age, have modest spending habits, and have your home paid off.
Q: How can I know if I’m on track for retirement?
A: Compare your current savings to Orman’s age-based milestones, use online retirement calculators, or consult with a financial advisor.
Q: What if I can’t save $5-10 million before retirement?
A: Don’t panic! Most Americans retire on much less. Focus on maximizing what you can save, reducing expenses, and possibly working part-time in retirement.
Q: Does Orman recommend any specific investments for retirement?
A: Orman generally advocates for diversified investments including index funds and Roth IRAs, though specific recommendations should come from a personal financial advisor.
Q: How much does the average American actually have saved for retirement?
A: As of recent data, Americans between ages 65-74 had a median of around $200,000 in retirement savings—far below Orman’s recommended amounts.
Remember, everyone’s retirement journey is unique. While Orman’s advice offers valuable perspective, the best retirement plan is one that’s tailored to your specific financial situation, goals, and dreams.
Key Points To Remember For Early Retirement
1) Passive income is everything if you truly want to live a carefree retirement lifestyle. Shoot to have as much in after-tax investments as you do in pre-tax investments by age 30.
2) Earning supplemental income in early retirement is beneficial. Every $10,000 in supplemental income you make equals $250,000 in capital at a 4% withdrawal rate.
3) Dont underestimate the cost of healthcare and accidents. The average company pays $20,000 a year in healthcare costs for their employee. If you retire early, you will bear these costs as we do with our $1,700/month bill. Bad things do happen all the time folks! Think about sickness, aging parents, accidents, infertility treatments, and more.
4) The longer you work, the less you need. Your net worth starts to skyrocket the older you get due to the power of compounding. However, ironically need less money the later you retire. People suffer from the “one more year syndrome” all the time due to this fact. However, were living longer so either working longer or having more money is a must.
5) A safe withdrawal rate is between 3% – 5%. The risk-free rate of return (10-year US treasury bond) is now roughly 3%. Therefore, you can withdraw 3% from your after-tax investment accounts every year and never touch principal. Keep the maximum withdrawal rate at 5% if you dont plan on making any supplemental income in retirement. By the time you turn 60, your pre-tax retirement accounts will provide you an extra financial boost if necessary.
6) Dont confuse brains with a bull market. It is very risky to think that you will make even more progress in the next 10 years than you did in the last 10. Your risk-tolerance, income payouts, and investment returns will all change once the market turns down. A lot of FIRE people got slaughtered during the March 2020 downturn and panicked.
Here’s Why You Need $5 Million To Retire Early
Once you’ve put as much as you can into your 401(k) and other pre-tax retirement accounts, it’s important to make as many after-tax investments as you can for passive income.
After-tax investments include all stocks, bonds, rental property equity, real estate crowdfunding, business equity, and private investments. You could include your primary residence equity if you plan to rent out rooms or sell the property, but a conservative person would not.
Since you need after-tax investment money to make passive income and live a comfortable life in early retirement, it makes sense that after-tax investment money is equal to a multiple of pre-tax money. The bigger the difference between your after-tax income and your pre-tax income, the easier it will be to live on in retirement without a job.