If you want to quit the corporate world 10 or 15 years earlier than most Americans, you’ll need a sizable nest egg to draw from.

To find out exactly how much you’d need to invest to retire at 55, we consulted Brian Fry, a certified financial planner and the founder of Safe Landing Financial.

Fry used a Monte Carlo simulation to estimate the starting balance someone would need in a taxable investment account the day they leave work to live on either $100,000 a year or $65,000 a year in dividends (fixed income from bond investments) and capital gains (income from equity investments), and principal, after paying taxes, until age 90.

To run the simulation for a hypothetical retiree, Fry had to make assumptions about the retiree’s investments and tax treatments. You can find the full list of assumptions at the end of this post, but in short, he used Right Capital, financial-planning software that used JPMorgan long-term return estimates for investments; assumed a conservative 3% inflation estimate; assumed no state or local taxes; and did not factor in Social Security.

In addition, the investments are assumed to be held in a taxable investment account, not a retirement account like an IRA or a 401(k), since you can’t withdraw money from those accounts without a penalty before age 59 1/2.

According to the calculations of Frey, an investor who leaves work at the age of 55 need to $3.45 million on a taxable investment account for retirement, if they want the annual income after taxes in the amount of $100,000.

If the investor reduced their target annual income to $65,000, they would need only $2.2 million invested on the day they retire. If you plan to live on even less or expect to reduce your spending as you age, you’d likely need a smaller lump sum to start.

In addition, those who are planning to begin to withdraw money from their retirement accounts beginning with 59-and-a-half years – less than five years after retiring from work – it will take an even smaller lump sum in a taxable account.

Fry recommended investing 70% of the lump sum in stocks and 30% in bonds, which is considered a “growth” asset allocation because of the age of the investor. However, he noted that it’s important the retiree update their financial plan yearly, or whenever they experience a significant life change.

“Investors tend to be their own worst enemy when experiencing investment losses,” Fry said. “If you don’t have the time, interest, discipline, and expertise, it’s better to work with a fee-only certified financial planner that can tailor your investments to track to your financial plan.”

It’s worth noting that many early retirees continue to earn income after leaving their 9-to-5. In fact, some who earn passive income through real-estate investing, blogging, or some other monetizable hobby consider themselves financially independent rather than retired, meaning they don’t need to earn a steady paycheck to afford their lifestyle.

Fry’s simulation also did not factor in potential Social Security income. Americans born in 1960 or later — age 59 or younger in 2019 — can retire with full Social Security benefits at age 67, so long as they’ve worked at least 10 years. The amount of a person’s Social Security benefit is equal to an average of monthly wages for their 35 highest-earning years, adjusted for inflation.

The future of Social Security is uncertain, however, and some financial planners recommend their clients implement a saving and investing strategy to afford retirement without it.

Fry said the Monte Carlo simulation has two clear limitations: The outputs are only as good as the inputs, and it does not factor in the behavioral aspects of finance or how investors react to swings in the markets.

Here the assumptions used in the modeling:

Investment

Taxes

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