Personal FinanceDean Drobot and ChristianChan from Getty ImagesChristy Bieber
A Reddit user is retiring while he is in his 50s.
He has a net worth of over $10 million and wants to spend $300K to $400K annually.
Being able to spend a lot of money in retirement requires more savings than you’d think.
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After working for 31 years, a Redditor has managed to amass a net worth of over $10 million, including his primary residence and 50% ownership in a second home. Although he lives in California, which has high taxes, and he pays a .5% management fee for his portfolio, he still has a pretty generous net worth that’s many times greater than the median balance of $88,488 among those 65 and over.With so much money invested, the poster is wondering if he can comfortably spend around $300K to $400K per year and still leave an inheritance behind for his kids. Here’s what he needs to know. Choosing a safe withdrawal rate as a retireeWith a net worth of over $10 million, the original poster (OP) theoretically doesn’t need to be too worried about running out of money during his later years — even though he is retiring in his 50s. While his savings will need to cover medical insurance until he reaches 65 and qualifies for Medicare and it’s going to need to support him for longer because of his early exit, he has enough money that these issues may not be major obstacles for early retirement.What the OP does need to do, however, is decide on a safe withdrawal rate. He could talk to a financial advisor to create a personalized plan. Or he could opt to follow the standard rule of thumb, which used to say you could withdraw 4% from your nest egg in the first year of retirement and then adjust upward for inflation, but which has now been revised to suggest starting at 3.7%.Since some of his money is tied up in his home but he doesn’t say how much, let’s assume he has $8 million actually invested. By following the 3.7% rule, he could produce around $296k or right around the $300K he’s looking for. If his home is worth a little less and he has $9 million invested, he’d be in slightly more comfortable territory at $333k. In either scenario, though, a $10 million net worth with some of that money in illiquid assets isn’t really going to support $400K in annual spending — especially in a high-tax state like CA and especially if he’s retiring young and also hopes to leave an inheritance for his kids. Now, if he adds his Social Security into the mix when he becomes eligible to claim at 62, this will get him closer — but he can’t count on these benefits coming fo