INSIGHT

How much money do I need to retire at 40?

Michael Watson, Sergio Fernandez • December 15, 2025

If you’re seeking financial independence by 40, you’re part of a growing movement of ambitious professionals who want to redefine what retirement looks like.

Perhaps you have your heart set on a passion project, want to spend more time with family, or desire the freedom to choose how you spend your days.

Retiring at 40 may seem challenging, but for high earners with the right financial plan, this goal is ambitious yet attainable.

If you’re planning to retire at 40, it’s easy to think that aggressive saving is the only thing you’ll need, but it’s so much more than that. This goal requires sophisticated investment strategies, careful tax planning, and honest lifestyle evaluation.

How much do you need to retire at 40?

The amount of money you need to retire comfortably at 40 depends on several factors, with your savings strategy and timeline carrying the most weight.

It’s much easier to visualize your portfolio requirements when you look at hypothetical numbers, so we’ve created a couple of scenarios to illustrate what retiring at 40 could look like:

Scenario 1

Annual expenses: $300,000 (includes travel, multiple properties, family obligations, healthcare)
Required portfolio: $7.5 million

Using the 4% withdrawal rule, this generates $300,000 before taxes annually to cover your expenses for 50+ years.

Keep in mind that the 4% withdrawal rule wasn’t built for multiple decades’ worth of withdrawals, so your rate may need to be adjusted depending on various personal circumstances and economic conditions.

Scenario 2

Annual expenses: $150,000 (modest travel, single residence, basic family needs, healthcare)
Required portfolio: $3.75 million

We’ll dive deeper into the 4% rule later in this piece, but again, using this “rule”, you’d assume about $150,000 in annual income before taxes.

In both scenarios, the calculations assumed that you wouldn’t bring in any additional income from part-time work, consulting, or other employment avenues.

This isn’t typical for early retirees. Instead, many opt for hybrid approaches, such as consulting work, board positions, or passion projects that generate additional income.

For example, if your chosen work brings in $50,000 to $100,000 annually, this partial income can reduce your required portfolio by $1.25-2.5 million, since you’re not entirely dependent on investment returns.

And remember, the 4% rule isn’t an exact science and may need to be adjusted over the years, particularly during market downturns, given the longer retirement time horizon.

Let’s look at some other calculations considering a lower withdrawal rate of 3%.

Annual Expenses	Portfolio Needed (No Bridge Income)	Portfolio with $100K Bridge Income
$150,000	$5.0 million	$1.7 million
$200,000	$6.7 million	$3.3 million
$300,000	$10.0 million	$6.7 million
$400,000	$13.3 million	$10.0 million

These numbers are just numbers without your specific context—lifestyle goals, debts, and existing or planned financial commitments.

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Guidelines to help determine how much money you’ll need to retire at 40

You’ve probably come across various “rules of thumb” for retirement planning, and while they can be helpful starting points, retiring at 40 requires a more nuanced approach.

Let’s explore a couple of the most common frameworks and how they could apply to your situation:

The 4% rule

The 4% rule is a guideline that suggests retirees can withdraw 4% of their retirement portfolio in the first year and then adjust that amount for inflation in subsequent years. It’s based on historical market data and has become a cornerstone of retirement planning for a long time.

While this can be helpful in certain circumstances, retiring at 40 presents some unique challenges for this rule:

Extended retirement periods: When you retire at 40, your portfolio potentially needs to last 50+ years—that’s 20 years longer than the original study that created the 4% rule was designed to handle.
Sequence of returns risk: According to more recent research, with a withdrawal rate in the 3.25-3.50% range, you would have survived even during the most challenging historical market conditions. This suggests 4% may be too aggressive for early retirement when you have such a long horizon ahead.
Higher absolute withdrawal amounts: A $4 million portfolio following the 4% rule generates $160,000 annually, but market volatility on larger portfolios can create swings in your available funds from year to year.

So what other approaches might you consider?

25x expense rule

The traditional FIRE (Financial Independence, Retire Early) movement suggests saving 25 times your annual expenses—which is essentially the inverse of the 4% rule. For high earners, this calculation may require some careful adjustment for lifestyle costs.

For example, a $200,000 annual expense budget would traditionally require $5 million using the 25x rule.

But, an executive with $300,000 in annual living expenses might actually need $10 million (33x expenses) rather than $7.5 million (25x expenses) to safely support early retirement, especially given the extended timeline and lack of Social Security supplementation.

The truth is, no single approach is perfect for everyone. Your specific situation may require custom planning based on your risk tolerance, other income sources, existing debts, planned expenses, and how your expenses might change over time.

Evaluate your true retirement lifestyle costs

When planning for an early retirement, it’s important to be honest with yourself about your desired lifestyle, both now and in the future, so you can create the best plan to suit your goals and dreams.

Travel and entertainment expenses

If you love to travel and entertain—as many successful professionals do—you should build that into your retirement savings plan.

Consider things like:

Vacations—how many trips do you tend to take per year? How much do you typically spend on transportation, lodging, and experiences while there?
Dining—consider your current dining habits and if you’ll want to carry those over into retirement. This could be dinners out, at home chefs, catered parties, etc.
Hobbies—not all hobbies are created equal for your wallet. Consider the time, equipment, gear, and location expenses you may incur, especially if you plan to take up a new hobby in retirement.

As you can start to see, these costs will add up quickly. Plus, these discretionary expenses often increase in early retirement as you have more time to pursue leisure activities and explore new interests.

Real estate considerations

Real estate can be quite lucrative for early retirees, but it’s important to consider all the costs that come with it, especially if you own multiple properties (primary residences, vacation homes, investment properties, etc.).

In addition to regular mortgage payments, you’ll also need to prepare for property taxes, insurance, maintenance, and utilities.

This makes the conversation about where you live in retirement really interesting. As you likely know, property insurance costs vary by location. Florida, for example, faces higher premiums due to hurricane risks, while California properties may carry earthquake insurance considerations.

These nuances can make a big difference in terms of your bottom line annually per property.

Family obligations

Family financial commitments have a way of persisting well into retirement years, and they’re often more significant than people anticipate.

If you have children, you might be thinking about private schooling, college, graduate programs, or even home down payment assistance.

Many high earners also find themselves supporting aging parents with healthcare costs or providing financial assistance to adult children for home purchases or business ventures.

Expenses like these are choices that need to align with your values—something critical to a fulfilling retirement—but they will need to be properly factored into your retirement planning.

Healthcare expenses

Here’s one that catches many early retirees off guard: healthcare premiums can represent one of your largest unexpected costs.

Without employer-sponsored coverage, the average cost for a family marketplace plan is $1,483 monthly for a 40-year-old married couple with two children who don’t receive government subsidies. That totals approximately $17,800 annually—and this is before any actual medical expenses occur.

Tax implications

Tax considerations can become quite complex when you’re withdrawing large amounts from retirement accounts before age 59½, and this is where many people underestimate the real cost of early retirement.

Early withdrawal penalties of 10% apply to traditional 401(k) and IRA distributions, while high earners may face federal tax rates up to 37% plus state income taxes.

Here’s how this could play out in an example: A $300,000 annual withdrawal could result in approximately $141,000 in combined federal taxes and penalties alone. That’s nearly half your withdrawal going to taxes and penalties.

This makes building a tax-efficient investment and withdrawal strategy extremely important. Our wealth management team can help you strategically pull from the right accounts to help minimize your tax liability and align with your lifestyle goals.

Social Security and Medicare gaps

Retiring at 40 creates some long-term gaps that are worth understanding upfront.

You’ll have 25+ fewer working years contributing to Social Security, which may reduce your future benefits calculation. More importantly, you won’t qualify for Medicare until 65, requiring 25 years of private healthcare coverage.

The combination of higher healthcare costs, tax considerations, and lack of traditional retirement benefits means early retirees typically need substantially larger portfolios than those retiring at 65. These additional costs often require portfolio value well beyond what you’d need just for basic living expenses.

Maximize high-income saving strategies in your 20s and 30s

Building a $4-7 million portfolio by age 40 isn’t just about saving more—it’s about saving smarter. This requires sophisticated strategies that make the most of your high earnings and take advantage of every available tax benefit.

Max out your retirement accounts

If you’re serious about retiring at 40, maximizing your available retirement accounts should be among your first priorities:

The Traditional IRA or Roth IRA contribution limit is $7,000 in 2025
Regular 401(k) contributions are capped at $23,500 in 2025
Health Savings Account (HSA) contributions allow up to $4,300 for individual coverage or $8,550 for family coverage in 2025

Many high earners focus on maximizing these foundational contributions first, particularly capturing full employer matching—that’s essentially free money you don’t want to leave on the table.

HSAs deserve special attention in your early retirement planning. They offer what’s often called a “triple tax advantage”: deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

When you’re planning to retire at 40, maximizing your HSA contributions becomes even more valuable since healthcare costs will likely represent one of your largest expense categories during those gap years before Medicare eligibility.

Prioritize taxable investment accounts

Here’s something many people don’t fully appreciate: taxable investment accounts become really helpful for covering expenses during those bridge years from age 40 to 59½.

Since early withdrawal penalties make retirement accounts costly to access before age 59½, you’ll need substantial taxable investments to bridge this gap.

The key is focusing on tax-efficient investments within these accounts—think index funds with low turnover ratios, municipal bonds, and growth stocks that generate minimal taxable distributions. Plus, realized gains from taxable accounts get preferential capital gains tax treatment (instead of ordinary income tax) if you held the investment longer than a year.

You want your money working for you, not generating unnecessary tax bills along the way.

Explore Backdoor Roth IRA conversions

If you’re a high earner, you’ve probably bumped up against income limits for Roth IRA contributions. In 2025, the income limits are $165,000 for single filers and $246,000 for married couples filing jointly for direct Roth IRA contributions.

But here’s where strategy comes in: high earners who exceed these limits can utilize the backdoor Roth approach by contributing $7,000 to a non-deductible traditional IRA and immediately converting it to a Roth IRA, effectively avoiding the income restrictions entirely.

Level up with Mega backdoor Roth strategies

This is where things get interesting for high earners.

The IRS allows total annual contributions—including employee deferrals, employer matches, and after-tax contributions—of up to $70,000 total. This can create opportunity for substantial additional tax-free savings:

After-tax 401(k) contributions: You may be able to contribute additional after-tax dollars into your 401(k) account, up to the 401(k) contribution limits.
Immediate Roth conversions: If permitted by your plan, these after-tax contributions can then be converted to a Roth IRA or Roth 401(k). Future qualified withdrawal from Roth accounts are tax free.

Plan for stock options, RSUs, and deferred compensation

If you’re a high earner, you may also receive equity compensation, and the timing of these decisions can make a meaningful difference in your retirement timeline.

This is often where professional guidance becomes valuable. You might want to consider consulting with BPM’s tax advisory services to optimize the timing of:

RSU vesting schedules to manage tax brackets across multiple years
Stock option exercises to take advantage of lower capital gains rates
Deferred compensation elections to shift income to potentially lower-earning retirement years

The key insight here is that retiring at 40 can become much more achievable when you maximize these strategies during your peak earning years in your 20s and 30s—when both your income and time horizon for compound growth are working most powerfully in your favor.

Design your path to financial independence

Achieving financial independence by 40 isn’t just about hitting a specific portfolio number—though that’s certainly important. It’s about designing a retirement that genuinely aligns with your values and goals.

The truth is, everyone’s version of early retirement looks different. Some people want to travel the world, others want to focus on family, and still others want to pursue passion projects or give back to their communities. Your plan should reflect your unique circumstances and aspirations.

If you’re ready to explore what financial independence by 40 could look like for your specific situation, contact BPM’s wealth management team to discuss tax-efficient investment strategies, retirement account optimization, and comprehensive financial planning designed specifically for high-earning professionals pursuing early retirement.

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This material is for informational purposes only and is not intended to provide specific advice or recommendations for any individual. This information is not intended for use as tax advice.

The examples given are hypothetical and are for illustrative purposes only. Actual results may vary from those illustrated. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC | Investment Advisory services offered through BPM Wealth Advisors, LLC and/or Valmark Advisers, Inc. each an SEC Registered Investment Advisor | BPM LLP and BPM Wealth Advisors, LLC are entities separate from Valmark Securities, Inc. and Valmark Advisers, Inc. 