You Won't Be Ready To Retire Early Until Your Portfolio Reaches This Size

If you're burnt out from the daily grind, the idea of early retirement can sound enticing. For many people, it can also be a reality with the right degree of financial preparation. Retiring early means giving up a steady paycheck before your full Social Security benefits kick in, which can be a risky move. So, it's essential to have a good understanding of how much money you'll need to last you through retirement.

Figuring this out can be tricky, since it's impossible to know exactly how long you'll live and what future expenses may pop up. However, there are a few ways to predict your financial needs in retirement: For example, some experts say you need a nest egg of at least 10 times your annual income if you plan on leaving the workforce at the full retirement age of 67. But retiring early can significantly change that figure. According to Fidelity, even retiring at 65 could require you to increase that multiple to about 12 times your pre-retirement income.

Another way to estimate how you'll need to save is to account for your future spending. Some experts suggest that early retirees save enough to cover their expected annual expenses, with Fidelity recommending you account for 33 times your current yearly living costs assuming you plan to withdraw roughly 3% of your savings per year. If the balance of your portfolio is far less than this amount, it may be a warning sign that you're not financially ready to retire.

To determine how much you will need in your portfolio, you also need to estimate how long your retirement will last. While lifespans are unpredictable, many financial planners recommend using 95 as a target age for financing your golden years. The average American dies considerably earlier than that, but overshooting will be helpful in making sure you don't prematurely exhaust your funds. 

You also need to have a solid idea of your future expenses, which you can achieve by calculating the percentage of your current income that you'll spend in retirement. Often, experts recommend planning to spend upwards of 75% or 80% of your current yearly earnings, but that portion can vary based on what you make while you're still working. Those on the lower end of the income spectrum may be better off planning to spend 80% of their current salary, but high earners might spend a much smaller portion of their yearly income after retirement. For example, Fidelity reports that people making more than $120,000 may only need to plan to replace about 55% of their preretirement income. Based on that rule, someone with a $120,000 salary planning to retire at 55 and live to 95 may want to prepare for spending $66,000 per year — a total of roughly $2.6 million throughout retirement.

If any of these figures feel out of reach for your current financial situation, don't worry: There are plenty of ways to catch up on retirement savings to get your portfolio into the shape you need.