How Much You Actually Need to Retire at 40 — and How to Get There

If you want to retire at 40, the typical advice is this: you’ll need to save 25 times your annual expenses before you stop working. In other words, if you expect to spend $80,000 per year, you’d need a nest egg of $2 million by 40.

However, experts caution that early retirement changes the math—and it comes with many challenges. You’ll need to make sure you’re saving enough and accounting for decades of unknowns, from health care costs to market downturns.

Why the 25x Rule Falls Short

The 25x rule works reasonably well for someone retiring at 65, but Noah Damsky, founder of Marina Wealth Advisors, says it won’t cut it if you plan to stop working at 40. “At 40, you’re not just planning for traditional retirement years. You’re also planning to replace the income of what would be your prime earning years while in peak spending years,” he says. “Shoot for higher than 25 times, and even more so depending on the tax liability of your assets.”

Chris Diodato, founder of WELLth Financial Planning, agrees that the rule is helpful but imperfect. “All rules of thumb have limitations,” he says. “For one, the 25x rule assumes spending will be constant over time, but in many cases, it isn’t.” He points out that mortgages may eventually be paid off, and retirees may take on part-time work, but inflation, lifestyle changes, or raising children could also increase costs.

Preparing for a (Very) Long Retirement

When you stop working at 40, you may need to fund more than half a century of expenses. That comes with risks.

“Providing healthcare for a family outside of employer plans can be costly,” Damsky says. “Misjudging expenses can be a death knell and might put you back to work if it’s a big enough mistake.”

Diodato emphasizes the need to plan for inevitable disruptions. “Market and economic shocks are going to be inevitable as well as changes to tax rates and government programs,” he says. To prepare clients, he stress-tests retirement plans against higher taxes, inflation, or cuts to Social Security. “What’s critical, though, is that these tests and conversations are had before—and not during—an adverse event,” he adds.

Investment Strategies and Common Pitfalls

With a longer horizon, your investment strategy also shifts. Damsky suggests that early retirees consider long-term private investments. “These can be oriented towards growth or income and cater to your risk appetite and liquidity needs,” he says. “But be careful of landmines, as there are many opportunities to misstep.”

Meanwhile, Diodato often advises FIRE (financial independence, retire early) clients to stay aggressive until they actually retire. “I normally have aspiring early retirees invest somewhat aggressively right up to the point of retirement, unlike traditional pre-retirees, where I suggest de-risking years before cashing their final paycheck,” he says. The reason, he says, is that many FIRE followers have the flexibility to keep working a few more years if markets are down.

Both advisors warn about poor planning. “Unrealistic expectations can derail your plans quickly,” Damsky says. “Keep asking yourself how your situation can go wrong to get a glimpse of your blind spots.”

For example, Diodato often sees clients underestimate health insurance costs or overestimate how much they’ll actually want to spend once retired. Trying to envision several scenarios can help you see when things might get risky.