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How Much Money Do I Need to Retire at 40?

Retirement Planning
Young man in a hammock asks himself, "How much money do I need to retire at 40?"

Key Takeaways

  • Early retirement at 40 requires significant savings, and the 4% withdrawal rule is a common guideline for calculating the required retirement fund.
  • Future expenses to consider in retirement include housing, transportation, groceries, utilities, debt, childcare, entertainment, and travel expenses.
  • Health care costs can be a major concern for early retirees, as they may not be eligible for Medicare and could face expensive private insurance options.

Over the last decade, the "financial independence, retire early" (FIRE) movement has become one of the hottest mantras for those under 60.1 But the reality is that leaving the workforce in the prime of your life requires even higher investment contributions and more severe cost-cutting than you might think.

Wondering how much money do I need to retire at 40? Here's what to know.

How Much You Need to Budget to Retire at 40

If you're looking for a quick answer, the amount is a lot. Extremely early retirements can be a tricky proposition — you're giving yourself fewer years to build up a reserve of savings and leaving yourself with more years to live off those funds.

The more optimistic FIRE adherents assume that a 4% withdrawal rate from savings, adjusted annually for inflation, will leave them with enough funds for a prolonged retirement (assuming at least half their money is invested in stocks).2 That means they'd be able to quit their full-time job once they've saved 25 times their yearly wages. In a low-interest-rate environment, some suggest even greater reserves.

It's true that you might not need quite as much income in retirement, as you won't have to commute every day and can save on other costs associated with working full-time. But in a lot of cases, your current spending levels are a pretty good starting point for estimating what your post-work budget is going to look like.

Here are the future expenses you'll want to consider:

  • Housing costs
  • Car payments and fuel costs
  • Grocery bills
  • Utilities
  • Student loans and other debt
  • Child care costs and college savings, if applicable
  • Entertainment and travel expenses

How Will You Cover Health Care Needs?

And that doesn't even cover one of the biggest spending categories for any retiree: health care. Those who retire at an age when most people are considered "mid-career" face something of a conundrum. They're far too young for Medicare's relatively low premiums and unable to get subsidized care through an employer.

It certainly helps if you're eligible for coverage on a spouse's plan, as going it alone can be an expensive undertaking. According to the Kaiser Family Foundation, the average 40-year-old enrolled in a private plan might spend $342 a month for the least-expensive option in 2023, and they would potentially have to pay $472 to stay on the most-expensive plan.3

Needless to say, those rates can climb quickly if you have to add kids or a spouse to the plan. And they could rise even further as you get older.

How Much Retirement Income Will You Need at 40?

Suppose, in adding up all your expenses, you anticipate being able to live comfortably on $50,000 a year following your retirement. (Our Retirement Cost of Living Calculator can help you do the math.) Following the 4% withdrawal rule, that means you'd need to have $1.25 million saved by the time you end your career. With a 7% return on your investment during your working years, you'd need an average investment contribution of $3,000 a month between age 22 and age 40 to reach $1.25 million, although this scenario does not take into consideration market volatility or the consequence of fees or taxes on the account.

If you want to play it safe because of low interest rates — following a 3.5% withdrawal rule, for example — you'll want a bit more than that.

So, how does one get there? For a start, saving very aggressively. Typically, you can't pull money out of a 401(k) until you reach age 59½ without incurring penalties, so diverting some of those funds to a taxable brokerage account is likely a necessity.

That audacious savings level means you're either earning a very good salary or you've managed to trim your expenses so much that most of your income is going straight to an investment account. For most workers, simply skipping your daily latte at the coffee shop isn't going to cut it; you may need more drastic measures, like living below your means and making due with public transportation instead of owning your own car.

Are You Prepared to Retire at 40?

It's important to bear in mind that planning for an extended retirement invites a number of financial risks. The market could experience fluctuations that erode your account balances. Or you could face an unexpected medical condition that requires care in an expensive nursing facility.

Those hoping to leave their 9-to-5 to retire at 40 would do well to expect the unexpected and proceed cautiously. As with any complex financial decision, talking with a trusted financial professional is time well spent. You'll likely come away with a more precise answer to the question, "How much money do I need to retire at 40?" and could gain a detailed plan for accomplishing that goal.


  1. How to retire early: Your game plan for financial independence. https://www.sfgate.com/personal-finance/article/how-to-retire-early-18186151.php.
  2. The Four Percent Rule for FIRE - The Definitive New Zealand Guide to a Financially Secure Retirement. https://www.moneyhub.co.nz/four-percent-rule.html.
  3. Average Marketplace Premiums by Metal Tier, 2018-2023. https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D.

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