I’m not one for round numbers. But I had a thought recently. What if I could retire at 50, then live to 100?
Is that even possible? If so, which part is the bigger challenge?
The whole basis of this blog is my goal to retire by age 55, one year prior to the age my Dad retired. 55 was the goal I set back in 2003 when he retired at 56.
But I certainly won’t rule out retiring earlier if I can, or consider some kind of semi-retirement whereby I’d retire from full-time work but continue earning from part-time endeavors.
50 is a nice round number. And yeah, I’d be thrilled to beat my retirement goal by 5 years. However, that seems less likely these days for a few reasons.
Most of all, I’m the sole provider for my family. Healthcare insurance is major boogeyman when it comes to early retirement, especially with a family.
We’ve also committed to paying for our kids’ in-state college tuition. My oldest child will start college in the same year I turn 55. The college cost estimates for our family are daunting.
Not to mention, I kind of like my new job. Maybe I’ll want to keep working past 50.
The longer I work, the more I can secure my financial longevity, ensuring I could live more comfortably for another 40-some years.
The Surprising Odds
I did some random googling and found some astonishing numbers.
According to a graphic on the Financial Samurai blog, less than one percent of American’s retire at 50 or before. That’s surprisingly low, but it’s hopefully a number that’s increasing with the growing popularity of early retirement movements.
Another analysis based on the most recent decennial census (2010) says that roughly 1 in 6000 Americans are 100-years-old or older. Those odds don’t look good either.
However, that number is expected to improve each year as health and medicine improve and more people become centenarians.
According to this article based on U.K data, a 20-year-old woman today has a 26.6% chance of living to 100. A 20-year-old man has a 19.5% chance. The younger you are today, the greater your chances are of living to 100 thanks to healthcare innovation, safety improvements, and smarter living decisions.
Along similar lines, I found this very basic but fun calculator from the U.K. Office of National Statistics (embedded below). It simply asks what are your chances of living to 100?
I ran my numbers and it returned the following:
- Average life expectancy for a 43-year-old man: 86-years-old
- This is 43 years from now (I’m now officially over the hill!)
- There’s a 1 in 4 chance of reaching age 96
- 1 in 10 chance of reaching age 101
- Chance of reaching age 100: 12.4%
Lot of obvious caveats here including genetics, lifestyle choices etc, and actual results will vary from person to person. But those are better odds than I expected.
Now You Try the Calculator!
This is cool.
Just enter your age and gender and click the button. Then scroll down to read the results (and keep reading afterward).
Cool, right? How do your prospects look?
It’s kind of crazy to think that my ballpark odds (12.4%) of living to 100 are greater than the odds of retiring by the age of 50 (<1%).
Why is that?
It turns out that about 50% of U.S. workers retire in their early 60’s. That puts age 50 at the front end of the bell curve. So that makes sense.
Most people are not financially secure at age 50 so they need to continue working to support themselves and their families. Other people enjoy work and want to continue.
Healthcare is often based on employment in U.S. and parents are having kids later in life. That stretches the timeline too.
Even with the new-ish healthcare law that is supposed to help people find affordable insurance, it’s still hard to leave a job with good benefits when you have a family.
Medicare starts at age 65, and Social Security anywhere from age 62 to 70. These policies heavily influence retirement age in America.
Modern retirement planning is commonly based on what’s known as the 4% rule. This came from an academic endeavor in the 1990’s called the Trinity Study and helps savers determine when they can retire (conservatively).
The 4% Rule to Retire at 50
The 4% rule says, after many assumptions, that a retiree needs to save 25-times his/her annual spending before retiring securely (i.e. if you spend $60,000 per year, you should save $1.5 million). It’s a goal most Americans will never achieve. Those that do usually reach their number well after age 50.
When 4% of the invested portfolio is withdrawn per year, the nest egg should last about 30 years, according to the math.
But not 50 years.
This rule has been mathematically beaten to death in the financial planning space and basically holds up when back-tested using various 30-year time periods.
For someone who retires at 50 and lives to the average age of 80, it’s perfect. Add in Social Security or other income, or withdraw less than 4% per year and the retirement portfolio can last 50 years or more.
But for someone who retires at the average age (63) and lives to an average age (80), 25-times spending is more than enough.
This math is often sourced as the foundation for achieving early retirement, essentially saying the 4% rule is too conservative. Especially for young retirees who choose to continue to earn money after ‘retirement’ from a full-time profession.
Now, since you’re reading this article on an early retirement blog and maybe you read some other early retirement blogs, that 1% chance of being able to retire at 50 number probably seems low. But people like you and me are definitely the minority.
Being that I’ve been planning for early retirement for quite a long time, I’d say my odds are much better to retire by 50 than 1%. But still, maybe I’m focusing on the wrong thing.
Perhaps I should set a goal to live to 100, then start a blog about that. Not sure my readership could withstand 57 more years of writing about water aerobics and good colon health.
An Alternative to the 4% Rule
A 12.4% chance of living to 100 isn’t great, but it’s definitely within grasp. Unfortunately, I’ve probably made enough unhealthy lifestyle choices over the years to eventually miss this mark.
But there’s still a 50/50 chance I’ll need my retirement funds to last 30 years after retiring at age 55.
I’m cognizant of the 4% rule and certainly track my net worth to determine my financial independence number. However, I prefer to also invest to earn more sustainable income.
That is, I build income streams in taxable accounts that continue to pay me without drawing down the principal of the investment.
Of course, not all individual investments pay perpetually. Companies will fail, be acquired, or stop paying dividends. Recessions and market crashes will bruise the income investor.
However, a broadly diversified and actively monitored income portfolio will likely continue paying reliable and predictable income into the future, irrelevant of its performance against the broader market indexes.
My portfolio of income-producing investments currently pays me almost $9,500 per year (before taxes). Multiply that by 25-times to test the 4% rule, and that’s $237,500 less money I’ll need save to reach financial independence.
Partially living off of that money instead of drawing down savings will extend the compounding time frame of my tax-advantaged accounts, solidifying my portfolio until 100 and beyond, barring any significant assisted living needs.
Before digging for the numbers, I expected it to be easier to retire at 50 than to live to 100. For me, maybe. But for the broader working population, it’s not.
That gives me pause. Because I’d much rather live to 100 than retire at 50 or 55. Maybe my primary goal of retiring is misguided.
Perhaps this is what fitness bloggers and enthusiasts think about when they talk about their passions. Maybe health and wellness are more about longevity than happiness and looking good to attract the opposite sex.
If I retire at 50, I could spend the next 50 years focusing on the second goal. That doesn’t excite me as much day-to-day now, but it’s certainly appealing over the long-term.
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