For decades, 65 has been viewed as the traditional retirement age, but many Americans would prefer to leave the workforce earlier, including myself. But is that possible as costs of living continue to rise and salaries don’t always compete?
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To explore what retiring early might look like, I asked ChatGPT to consider a hypothetical couple around the age, and career stage, that my husband and I are in (though not exactly), to see how much “we” would need to have saved to retire at age 60.
A Typical Mid-Career Starting Point
Playing with average data, this hypothetical couple, aged 50, has a combined household income of $120,000, retirement accounts totaling around $500,000 and liquid cash savings of $25,000. They contribute about 9% of their income to retirement accounts, will have their mortgage paid off by age 60, and hope to be able to retire on around $80,000 per year.
How Much Their Retirement Savings Could Grow by Age 60
ChatGPT first looked at the growth potential of this couple’s portfolio. Assuming an average long-term investment return of about 6%, the couple’s $500,000 portfolio could reach roughly $895,000 by age 60.
Meanwhile, making continuing contributions of around $10,800 per year could add another $145,000 to their savings.
Altogether, their retirement balance could reach approximately $1.03 million to $1.05 million by the time they turn 60. Not too shabby! However, it is still below what financial planners recommend having saved and too low to reach their goal of an $80,000 per year retirement income.
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What a $1 Million Retirement Portfolio Could Generate
If the couple follows the widely used 4% rule, their retirement savings would only generate about $41,600 per year, about half of their target.
How Social Security Changes the Equation
However, even if this couple retires at 60, they could start claiming Social Security benefits later, ChatGPT noted.
If both spouses earned roughly $60,000 annually over their careers, their combined benefit at full retirement age could total around $60,000 per year, or roughly $5,000 per month.
Once Social Security begins, the amount the couple would need to withdraw from investments drops significantly.
For example:
- Target annual spending: $80,000
- Social Security income: ~$60,000
- Remaining needed from investments: about $20,000 per year
That level of withdrawals would represent less than 2% of their portfolio, a relatively sustainable level.
Paying Off a Home Before Retirement Can Make Early Retirement Possible
In this scenario, the couple’s mortgage is fully paid off by the time they reach 60. Eliminating a monthly mortgage payment of around $2,000 reduces annual expenses by about $24,000, significantly lowering the income the couple must generate from their investments.
For many households, removing housing costs can have an impact comparable to adding several hundred thousand dollars to retirement savings.
Small Adjustments That Could Improve the Odds
The couple could make changes to improve the odds:
- Increasing retirement contributions from 9% to 12% or 15%
- Working one additional year before retiring
- Earning part-time income during early retirement
A Short-Term Side Hustle
A small side hustle during the early retirement years (60 to 65) before Social Security benefits could add “bridge income,” ChatGPT suggested.
The Savings Needed
This couple earning $120,000 per year who has $500,000 saved at age 50 could potentially grow that nest egg to around $1 million by age 60. But reaching their goal of $80,000 of income per year in retirement would likely require having more like $2 million by age 60. In other words, barring an unexpected windfall from somewhere, my hypothetical couple isn’t likely to be able to retire early on what they’ve already got.
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This article originally appeared on GOBankingRates.com: I Asked ChatGPT How Much I’d Need To Save To Retire 5 Years Early — Here’s the Reality Check
