How to Retire at 50 Pt. 2: Probabilities of Success in Retirement

Retirement might seem a long way off, but you are better off planning as soon as possible. While everyone will retire one day, I’m more concerned with the probability of staying retired successfully.

In the last blog post, Time to Retire Early at 50, I covered why my wife and I set our exit target after 2032 (seven years). It’s an expedited runway compared to the average retirement age of 62. For me, this means I’m getting out 12 years early. My wife will be getting out nearly 20 years early or even 25 years from her original expectations.

With that said, I didn’t get a chance to dive into why I’m confident with our chances of pulling this off.

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The Price of a Success Retirement

It’s no small thing to retire. Stack on the expectation of spending around $200k annually, most might think it’s lunacy. Why $200k? It’s an approximated number based on 80% of our current spending, plus inflation, and lifestyle expenditure increases. Stretch it out for 25 years, with the restraint of an accountant, $80k of annual expenses today will be $150k tomorrow. To challenge myself further, I sprinkled in an extra $50k for charitable giving and other activities.

Inversely, our minimum annual income is expected to be around $290k. I probably should round that up to $300k. Either way, this will give us a $90k wriggle room with over $5M worth of investments to pass over to the next generation. Again, these aren’t simple conclusions to come to, nor are they easily duplicated.

As of 2022, the median household retirement savings for Americans ages 65-74 is $200k. Most will be reliant on social security benefits. It’s important to note that the average monthly benefit varies by age, work history, and when benefits are started.

The 2024 median monthly Social Security benefit of retirees aged 60–69 was $1,654 (less than $20k annually). American retirees, aged 70-79, had a 17% increase in their benefits of $1,951 per month. It’s not enough. According to the Bureau of Labor Statistics 2023 data, retiree households spent $60,087, a figure 3.9% higher than the previous year.

According to Barron’s, the average millennial, if they retire at the traditional retirement age of 65 in 2054, would need about $2.5 million saved. According to the National Institute on Retirement Security, 66% of working millennials have nothing saved for retirement.

With the odds against us, the price of success is steep.

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What to Expect Beyond the Next Seven Years?

Over the last 5 years, my wife and I squirreled away funds against challenges and headwinds. We were able to 8x our wealth. When we got engaged in November 2019, our collective wealth was less than $200k. By November 2024, we hit $1.6M. We know the price; it’s diligence and patience. Having a robust financial plan also helps, check out a FREE financial plan that you can download. Because wealth compounds, 7 years will look like a different story.

Wealth is all in the details.

We were able to stay on the job during the pandemic. In addition, we already had the condo so our housing costs stayed consistent. Finally, we were able to participate in a large wealth increase as investors in the market. We didn’t pick the perfect stock however our consistency paid off. Our investment performance hit +187.78% during the same period, outpacing the S&P which hit +91.92%. Like low housing interest rates, we can’t expect these market conditions forever.

Beyond the seven years, we had to plan out for contingencies. Here are the top five things you need to consider retiring successfully; Inflation, Lowered Growth Outlook, Sequence of Returns Risk, Up/Downgrading Lifestyle, and Health Care.

Inflation and Permanent Global Competition on Retirement

According to current economic forecasts, inflation over the next 10 years is expected to trend around the Federal Reserve’s target of 2%. Most predictions say that the annualized average 10-year inflation rate will be 2.4%. However, against the St. Louis Federal Reserve information, I think we will see a sustained increase which will land inflation north of 3.5% through 2050.

Over the next 50 years, global competition is expected to be fierce on the socio-economic front with a primary focus on emerging technologies like artificial intelligence (AI), database infrastructure, cloud computing, electric vehicles, cybersecurity, biotechnology, and space exploration. America is sunsetting as the global leader. BRICS nations with players like China will vie for dominance. Intense competition for market share and innovation, robotics, and future air mobility.

If you can’t beat them, invest in them to benefit.

Lowered Future Growth Outlook and the Decline of American Exceptionalism

According to recent expert forecasts, the average investment growth over the next 20 years is expected to be around 5.7% per year for U.S. equities. This translates to a lower real return compared to historical averages. Some experts predict a real return closer to 3.1% after adjusting for inflation.

This is significantly less than the historical average of around 7% annual real return on US stocks. A seismic change like this will increase working years to about 70 by my estimates. The money won’t be like what it was back in 2020-2021.

I’m just taking wild guesses at this point.

The Sequence of Returns Risk that can Affect your Success

Sequence of returns risk is the risk that an investor will experience a series of negative market returns during their working years or early retirement. These negative returns can have a significant impact on an investor’s portfolio and income.

The order and timing of poor investment returns can drastically change how long your retirement savings last. I wouldn’t recommend panic selling and trading in and out. This is why older investors like Warren Buffet look into companies with wide moats that payout great dividends.

Older people shouldn’t be looking for big wins just to swing and miss. You don’t have the back for it. It’s best to reduce the risk and have a sustained growth of 8%-9% braced by 2%-3% dividend payouts.

Significant Lifestyle Changes in Retirement

The financial experts say to expect to spend 55%–80% of your current income annually in retirement. Sadly, it’s not that simple. Retirement comes with its complications. You will need to support your kids as they matriculate to their adulthood. This may include paying a portion of their student loans, and a $20k deposit on a wedding or a home. After that, it’s not too long until there are grandkids.

Retirement is fluid and it can be just as expensive. This doesn’t even include the roof, water heaters, or driveway repairs. Materials and labor to upgrade the home, increases in property taxes, all of which can be cut into fixed income ranges.

That 80% expectation might increase to 125% if you don’t run the math with extreme caution. Here’s a list from Investopedia on the overlooked retirement costs. Most, I fear, will have to contend with lifestyle decreases which will come with mental health concerns.

With the rise of single adults with no kids, the contingency of family support won’t be there either.

Health and Wellness Check

Right behind housing is healthcare. The body is an interesting thing. While the hair tinning was cosmetic, it triggered a latent fear of my mortality. You will know it when it happens to you. That’s the moment when everything seems riskier than it was yesterday.

I’ve jumped out of an airplane, joined the Marines, driven (reverse manual) in Ireland, and stayed in questionable parts of the DR. Yet all of that terrifies me now. I used to be dangerously fearless, climbing ropes with my bare hands and no leg support.

Now, I’m scared of getting up too fast. Funny but true.

Health care and wellness checks are just as important as having enough funds. The cost of keeping unhealthy American culture alive for the next few decades will only increase. Health insurance, paying for medical services and supplies, and filling prescriptions are major expenses. They can spring up randomly.

Older adults depend heavily on high-quality medical care that can cost nearly $100k per year. You have to take care of yourself and factor in those costs before you retire. It’s a lot but be sure to absorb this information.