How to retire at 40

According to Gallup research, the average retirement age in the US has oscillated between 59 and 62 over the past couple of decades. Other findings have shown that, between 2016 and 2022, 1% of America’s retired population was aged between 40 and 44.

Although it remains uncommon, retiring at 40 is possible. It requires hard work, acceptance of delayed gratification, strategic savings, and finding ways to reduce expenses. Find out how to retire at 40. 

Can I retire at 40? 

While many Americans aim to retire at what Social Security considers the normal retirement age of 66 or 67, some have bigger ideas and ask, “Can I retire at 40?”  

Early retirement at this age isn’t impossible, but it’s not likely to happen without hard work and extraordinary dedication.  

Retiring early means losing out on more than 20 years of working and saving. You’ll need to ensure that you can save enough money to cover all your expenses and maintain the lifestyle you desire.

Speak to a regulated financial advisor if you’re thinking about committing to retire long before your mid-to-late 60s. A trusted advisor can help you draw up an early retirement plan, and they can recommend savings vehicles. 

How much money do I need to retire at 40? 

The single most important question if you’re looking to say goodbye to the working world earlier than what’s considered normal for most people is: “How much money do I need to retire at 40?” Unfortunately, there’s no simple answer.

According to some financial advisors, a good general rule to follow when considering how to retire at 40 is to multiply your desired annual income in retirement by 45 to get a rough idea of how much money you need to save.

For example, if you want an annual retirement income of $50,000 a year, or $4,166.67 a month for a projected 45 years, you’ll need to have saved $2.25 million.

Remember that the amount of money you would need to save for retiring at 40 varies from state to state due to differences in the cost of living, earning potential, and other factors.It’s a good idea to take your expenses into account. While you can’t know exactly how much you’ll spend day-to-day, having a guesstimate is a sensible starting point. This will help with your “how much money do I need to retire at 40?” calculations.

Take a look at the average annual expenses of people aged 65 and older in 2023 according to the U.S. Bureau of Labor Statistics (BLS):

What are the average retirement savings at 40?

According to the Federal Reserve, the average retirement savings of a person aged between 35 and 44 in 2022 was $141,520. However, an earlier survey from the Employee Benefit Research Institute showed that one in three Americans believed they would need a minimum of $1 million in savings for a comfortable retirement.

The numbers suggest, therefore, that the average American would be unable to retire at 40. Despite undoubtedly being difficult, the aim is not impossible.

Saving for retirement at 40: How do I do it?

If you’re willing to rise to the challenge of saving for retirement at 40, the next question is: “How do you do it?”

Here are four ways that could yet enable you to achieve this aim:

1. Determine a savings goal: Multiply your desired annual income by 45, as outlined above. You can work on a lower amount if you factor in Social Security payments and income from part-time work or a side hustle in retirement. Consider your budget and see if you can maintain a comfortable lifestyle for less money, such as retiring overseas.

2. Estimate your savings growth: Consider how much you have saved already and how much time you have until you turn 40. This will give you an idea of how much to save monthly and yearly to be able to retire at 40. Take potential income from Social Security and/or a side hustle into account.

3. Find more ways to save money: Explore ways to increase your income and invest the extra money you make. Consider looking for a part-time job or requesting additional hours at work to boost your cash flow. Look for ways to reduce your expenses, such as canceling cable TV, selling your car, or switching to public transport.

4. Choose the best savings products: Saving for retirement at 40 means saving strategically for a shorter period. Speak to a financial advisor about the best savings products and strategies. Ask about regular, taxable, non-retirement accounts, as there are significant tax implications for 401(k)s and IRAs if you take early retirement.

Get expert retirement advice

Early retirement at any age can be difficult but not impossible. If you’re looking at how to retire at 40 because that’s what you plan to do, you may have a big task ahead of you.

However, retiring at 40 can be done with the help of a trustworthy financial advisor, careful planning, budgeting, strategic savings, and finding ways to increase income and trim expenses.

Learn more about retirement with Unbiased, and let us match you with a regulated advisor for expert financial advice.