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How much money you need to retire at every age and comfortably live on
investment income
Tanza Loudenback

To retire early and live comfortably on investment income from a taxable
investment account, you need millions.
We consulted Brian Fry, a certified financial planner and the founder of
Safe Landing Financial, to run a simulation that estimates the lump sum
an investor would need the day they retire to live on a target annual
income of $100,000 a year or $65,000 a year, after investment income taxes.
Although many early retirees continue to earn money after leaving their
9-to-5, these figures represent the minimum investment balance you would
need to leave work and never turn back.
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Early retirement is having a major moment. Whether you're 25 or 55,
there's a heightened allure to turning in your time card and exiting the
corporate world for good.

But how much money does it really take to leave your 9-to-5 and never
look back? It depends on several factors, including your lifestyle and
how your money is invested, but generally you'll need millions.

To figure out how much money someone would need to have invested when
they retire in order to live comfortably on investment income until age
90, we consulted Brian Fry, a certified financial planner and the
founder of Safe Landing Financial.

Read more: 7 people who retired by age 45 reveal their top tips

It's worth noting that many early retirees continue to earn income after
leaving their 9-to-5, whether through real-estate investing, blogging,
or some other monetizable hobby, not to mention Social Security income
for older retirees. The distinction, for many, is that in retiring from
corporate life, they're free to create their own schedule and pursue the
projects they're most passionate about without worrying about earning a
paycheck.

Fry used a Monte Carlo simulation to estimate the starting balance
someone would need in a taxable investment account the day they leave
work to live on either $100,000 a year or $65,000 a year in dividends
(fixed income from bond investments) and capital gains (income from
equity investments), after paying taxes.

To run the simulation for a hypothetical retiree, Fry had to make
assumptions about the retiree's investments and tax treatments. A full
list of these assumptions is available at the end of this post, but in
short, he used JPMorgan long-term return estimates used for investments,
a conservative 3% inflation estimate, assumed no state or local taxes,
and did not factor in Social Security. The investments are assumed to be
held in a taxable investment account, not a retirement account like an
IRA or 401(k), since you can't withdraw money from those accounts
without penalty before age 59 and a half.

Fry notes that the Monte Carlo simulation has two clear limitations: The
outputs are only as good as the inputs and it does not factor in the
behavioral aspects of finance, or how investors react to swings in the
markets.

Read more: How to retire early so you can work, travel, and relax on
your own schedule

"Investors tend to be their own worst enemy when experiencing investment
losses," Fry said. "If you don't have the time, interest, discipline,
and expertise, it's better to work with a fee-only certified financial
planner that can tailor your investments to track to your financial plan."

It's also important to update your financial plan yearly, or whenever
you experience a significant life change, Fry said. For example, if the
market had lower than expected returns in any given year, the investor
would be advised to scale back spending, he said.

Below, check out how much you need to invest the day you retire at 25,
35, 45, 55, or 65, if your target annual income is $100,000 or $65,000.

(I have moved the age 25 to age 45 info, to the bottom.)

Age 55: You need a starting balance of $3,450,000 to live off $100,000 a
year
Age 55: You need a starting balance of $3,450,000 to live off $100,000 a
year
Cavan Images/Getty
To live off $100,000 a year in dividends and capital gains, after taxes,
an investor who leaves work at 55 would need $3.45 million in a taxable
investment account.

The ideal asset allocation would be 70% stocks and 30% bonds, a more
conservative allocation than a younger investor.

Age 55: You need a starting balance of $2,200,000 to live off $65,000 a year
Age 55: You need a starting balance of $2,200,000 to live off $65,000 a year
Thomas Barwick/Getty Images
To live off $65,000 a year from dividends and capital gains, after
taxes, a 55-year-old investor would need a starting balance of $2.2
million, with 70% invested in stocks and 30% invested in bonds.

Age 65: You need a starting balance of $2,525,000 to live off $100,000 a
year
Age 65: You need a starting balance of $2,525,000 to live off $100,000 a
year
iStock
For a six-figure annual income, a 65-year-old investor would need to
invest a lump sum of $2,525,000 on the day they retire. The ideal asset
allocation is 60% stocks and 40% bonds.

It's important to note two factors that are not included in this
simulation but would likely look different in the real world: retirement
accounts and Social Security.

An investor who retires at 65 is likely to have contributed to
tax-advantaged retirement accounts during their career, which they would
now be able to withdraw funds from, so the taxable investment account
probably wouldn't be their sole source of income. In addition, anyone
who qualifies for a Social Security benefit can opt to claim reduced
benefits as early as age 62, and full benefits between ages 66 and 67.

Age 65: You need a starting balance of $1,620,000 to live off $65,000 a year
Age 65: You need a starting balance of $1,620,000 to live off $65,000 a year
Hinterhaus Productions/Getty Images
To live on dividends and capital gains of $65,000 a year, after taxes, a
65-year-old would need a lump sum investment of $1.62 million in a
taxable investment account, allocated as 60% stocks and 40% bonds.

The same considerations regarding tax-advantaged retirement accounts and
Social Security income apply.

The assumptions about taxes and investments used in this simulation are
listed below.
The assumptions about taxes and investments used in this simulation are
listed below.
Alyssa Powell/Business Insider
Fry used a Monte Carlo simulation to estimate the starting balance
someone would need in an investment account the day they leave work to
live on either $100,000 a year or $65,000 a year in dividends (fixed
income from bond investments) and capital gains (income from equity
investments), after paying taxes.

The following assumptions were used in the simulation:

Investments

All investments are in a taxable account
Used $8,333/month for $100,000 target annual income and $5,417/month for
$65,000 target annual income
JPMorgan long-term return estimates used for investments, 3% inflation
used for conservative amount
Assumed younger investors can take on more risk than older investors
5% annual portfolio turnover
$0 capital loss carry over
No asset-under-management fees included
Lump-sum is invested at start of simulation as cash with no built-in gains
Taxes

No state or local/city tax factored in
Standard deduction taken for a single filer
No Social Security payments factored in for older investors
Dividends — 85% are qualified dividends, 15% are non-qualified dividends
Capital gains — 90% long-term capital gains, 10% short-term capital gains
Tax law — TCJA sunset 2025: reflects all updated provisions related to
TCJA, including the sun-setting of most individual income tax provisions
in 2025
Fry notes that the Monte Carlo simulation has two clear limitations: The
outputs are only as good as the inputs and it does not factor in the
behavioral aspects of finance, or how investors react to swings in the
markets.

SEE ALSO: How to retire early so you can work, travel, and relax on your
own schedule
DON'T MISS: A couple who retired early with $1.5 million despite never
earning 6 figures uses a 'bucket' system for their money so they'll
never run out
More: Features Retirement Early retirement Retirement Savings
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Age 25: You need a starting balance of $6,000,000 to live off $100,000 a
year
Age 25: You need a starting balance of $6,000,000 to live off $100,000 a
year
Mauricio Santana/Getty Images
If you leave your desk job at age 25, you'll need about $6 million
invested in a taxable account in order to live off $100,000 a year,
after paying taxes for capital gains and non-qualified dividends.

The ideal asset allocation is 80% stocks (known as equity holdings) and
20% bonds (known as fixed income), Fry said.

Age 25: You need a starting balance of $3,800,000 to live off $65,000 a year
Age 25: You need a starting balance of $3,800,000 to live off $65,000 a year
Westend61/Getty Images
To live on $65,000 a year, an investor would need to start with $3.8
million in a taxable investment account the day they retire.

Again, the investments are held in 80% stocks and 20% bonds, which is
considered an "aggressive" asset allocation, due to the age of the investor.

Age 35: You need a starting balance of $5,225,000 to live off $100,000 year
Age 35: You need a starting balance of $5,225,000 to live off $100,000 year
FilmMagic/Getty Images
An investor who leaves work at age 35 would need over $5 million in
their taxable investment account to be able to live on dividends and
capital gains amounting to about $100,000 a year, after taxes.

The ideal asset allocation is 80% stocks, and 20% bonds.

Age 35: You need a starting balance of $3,250,000 to live off $65,000 a year
Age 35: You need a starting balance of $3,250,000 to live off $65,000 a year
Kacey Klonsky/Getty
A 35-year-old investor would need about $2 million less on the day they
retire if their target annual post-tax income is just $65,000. This
assumes the same asset allocation of 80% stocks, 20% bonds.

Age 45: You need a starting balance of $4,300,000 to live off $100,000 a
year
Age 45: You need a starting balance of $4,300,000 to live off $100,000 a
year
Shutterstock/Monkey Business Images
An investor who leaves their 9-to-5 at age 45 and has a target annual
income of $100,000 a year, after taxes, would need to invest a lump sum
of $4.3 million in 80% stocks and 20% bonds.

Age 45: You need a starting balance of $2,750,000 to live off $65,000 a year
Age 45: You need a starting balance of $2,750,000 to live off $65,000 a year
Thinkstock Images/Getty
A 45-year-old investor with a target annual income of $65,000 in
dividends and capital gains, after taxes, would need a lump sum
investment of $2.75 million on the day they retire, with an 80/20 asset
allocation.