Want to retire early? You’ll need at least $5 million, more likely $10 million, says famous financial personality Suze Orman.
I should know. She said that to me, directly, on this podcast.
I asked Suze for her opinion about a frugal, flexible person who wants to retire early with a $2 million portfolio. She warned that retiring would be a massive mistake.
“Two million dollars is nothing,” Suze said. “It’s nothing. It’s pennies in today’s world, to tell you the truth.”
“Listen,” she said. “If you have $20 [million], $40 [million], $50 [million] or $100 million dollars, be like me, okay. If you have that kind of money … and you want to retire, fine.”
“But if you only have a few hundred thousand dollars, or a million, or $2 million, I’m here to tell you … if a catastrophe happens … what are you going to do? You are going to burn up alive.”
But what’s wrong with retiring early on $2 million? Assuming it’s invested 50/50 in equities and bonds and harvested at a 4 percent withdrawal rate, a portfolio of $2 million could create annual investment income of $80,000. Surely that’s enough, right? Riiiight?
Nope. Suze says that’s not enough.
“I think that in the long run, $80,000, especially after taxes and as you get older, is not going to be enough. You may think it’s going to be enough, but it’s just not,” she told me on the Afford Anything podcast.
“You can do it if you want to. I personally think it is the biggest mistake, financially speaking, you will ever, ever make in your lifetime.”
I asked her if a $3 million portfolio at a more conservative 3 percent withdrawal rate would be okay for an early retirement. She said no.
“Think about it logically,” she said. Supporting a disabled family member who needs full-time care could cost $250,000 per year, she said. Ordinary cost-of-living would cost another $100,000 per year. This means you’ll need $350,000 per year after taxes to cover your costs, which is $500,000 per year before taxes, which at a 5 percent withdrawal rate means that you’d need a portfolio of $10 million.
If you don’t have at least $5 million or $10 million, don’t retire early, Suze said.
“Here’s what the FIRE people, you are not thinking about, so I’m going to give it to you straight here now,” she said.
She described the possibility of getting sideswiped by massive taxes and catastrophic emergencies. What if your home gets destroyed by an earthquake or flood and insurance denies your claim? What if you’re in a tragic car accident and you need full-time care? What if the U.S. experiences 25 percent unemployment, which means you won’t be able to find another job if you wanted one? What if your investment income gets consumed by massive future tax hikes?
“When you get older things happen,” Suze said. “You’re hit by a car, you fall down on the ice, you get sick, you get cancer. Things happen.”
“Alright, you can do it if you want to,” she said. “I’m just telling you, you will get burned if you play with fire.”
You can download the transcript for free here:
Listen to the episode here:
Thanks to our sponsors!
Do you want your money to make more money? Then check out Radius Bank’s free high-interest checking account. You earn 0.85% APY on balances of $2,500 and up – 12x the national average of 0.04% APY! To get started, head over to radiusbank.com/paula!
Simple Contacts is a super easy way to renew your contact lens prescription – you can reorder your brand of contacts from anywhere in minutes. You take a 5-minute vision test from your phone or computer, the results get reviewed by a licensed doctor, and you receive a renewed 1-year prescription. Get $20 off your order by going to simplecontacts.com/paula!
Gusto makes payroll, benefits, and HR easy for modern small businesses. In fact, 72% of customers spend less than 5 minutes to run payroll! If you sign up at gusto.com/paula, you’ll receive 3 months free once you run your first payroll.
Busy, but love to read and learn? The Blinkist app transforms the key insights of 2,000+ bestselling nonfiction books into packs that you can read or listen to in 15 minutes. You can start a free trial or get 3 months off your yearly plan when you join at blinkist.com/paula.
Photo Credit: Jacqueline Zaccor