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Who Can Retire Early?

Retiring "early" means different things to different people. But let's just say retiring before age 60 constitutes an early retirement for most people.

Retiring before age 60 is but a dream for many folks. The average retirement age has gone up over the last decade as many people have figured out that they a) didn't save enough money and/or b) couldn't use their house as an ATM any longer.  

The question is, what does it take? I am not going to include those public sector workers who might be receiving a $75,000 or more pension for life at age 55. We know they can retire before they're 60. But what about everybody else?

Analyzing A Couple's Retirement Situation

Let’s look at a couple with a couple that is 50 years old and is asking if they can retire before they turn 60. They currently have $500,000 saved. Half of their money is in taxable accounts and half is in IRAs. I also assumed that 70% of their money is in value stocks and the rest is in medium-term treasury bonds. They save $10,000 a year, they will receive a combined $45,000 in social security payments when they reach age 67, and their plan is to spend $55,000 a year in retirement. I have assumed 2.5% inflation per year, 6% returns on equities per year, and 2.5% returns on their treasury bonds per year. Here are my assumptions summarized:

Inflation (CPI)


Current Age of Both People


Age Of Retirement


Age When Both People Have Passed Away


Social Security at age 67 (combined)

$45,000 per year

Average Savings Rate

$10,000 per year

Total Investment Balance Today


Recurring Annual Expenses in Retirement


Investment Mix

70% U.S. Value Stocks, 30% Medium Term Treasuries

Investment Location

50% in taxable accounts, 50% in IRAs

Return Assumption Value Stocks

6% per year

Standard Deviation Value Stocks


Return Assumption Treasuries

2.5% per year

Standard Deviation Treasuries



I placed all of these assumptions into the WealthTrace personal financial planning software and found that this couple would have about $675,000 when they retire and that they will never run out of money. That's the good news. But it's also important to look at their probability of never running out of money. I ran their plan through our Monte Carlo analysis that generates one thousand simulations shocking investment returns, and found that they only have a 65% probability of never running out of money.

Improving Their Chances Of Success Using Dividend-Growth Stocks

Odds of 65% aren't that great for something as important as outliving one's money. What can they do to get better results? I ran various scenarios and found at least three ways they can boost the probability to 80%: They can retire two years later, they can save $2,000 more each year, or they can cut their expenses in retirement by $5,000.

But the goal is to retire by age 60, so the first idea is gone. Also, saving more is not an option for many people as they’re already finding it tough to make ends meet. Lastly, spending $55,000 in retirement is pretty frugal as it is, so this couple won't cut their spending either.

Part of the problem this couple has with attempting to retire earlier is that their income simply isn’t meeting their expenses. Recall that 30% of their funds are in treasury bonds earning 2.5% per year. But what if we were to move them into high quality dividend paying stocks that generate closer to 4% per year in dividend returns (which includes dividend yield and dividend growth) and 2% in price appreciation? Some of my favorite stocks for retirement portfolios that have a dividend yield of 2.4% or higher are Johnson & Johnson (JNJ), Intel (INTC), Merck (MRK), and AT&T (T).


Div. Yield

5 Year Div.
Growth Rate (Annualized)



















Going From Treasuries To Solid Dividend Payers

I decided to get rid of all their treasuries and buy the above stocks. I equally weighted them. I also made the assumption that these dividend payers are less volatile than a typical equity index fund, which has been shown to be true given their relatively steady dividend contributions to total returns. I assumed a standard deviation (volatility) of 12% for the stocks that I bought in this portfolio.

Now we have extra dividend income helping to cover expenses.  Because of this extra income, the probability of them never running out of money, even if they retire at age 59, is 87%. This is a very comfortable spot to be in.

Of course, moving their funds into equities is riskier than keeping it in shorter term treasuries. But the goal is to find companies with a history of paying strong and growing dividends over time. If we can find these types of companies, price fluctuations are not nearly as important as that dividend check coming through each quarter.

There are many different types of scenarios we can run, but the idea is to increase the odds of having more income in retirement. It is usually very tough to tell whether or not you can retire when you want until you sit down and actually run through the numbers. Only then can you can begin running interesting retirement planning scenarios that will tell you what you need to do to get to your goals.


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