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Dependents can change everything.
When it’s just you, or you and a partner, you have more room to adapt financial plans to your personal situation. If you want to retire early, you can adjust your spending, change zip codes or even move abroad to align with your savings.
When you have children, aging parents or other dependents, though, they define your options. They will need care, housing, comfort, education and more, and you can’t just plan that spending out of existence. Budgeting for retirement, especially early retirement, needs to account for their needs, too.
For example, say that you’re 51 years old. You’re divorced and a father of two, with $780,000 in your 401(k). You can contribute the maximum to this account each year.
So, can you retire at 61? Here’s what to consider.
A financial advisor can also help you create a plan tailored to your specific situation and needs.
First, Plan Your Portfolio
The first thing to do is run the numbers. What, realistically, might your portfolio look like in 10 years? You can estimate this based on a combination of historic growth, future projections and ongoing contributions.
Start with your contributions. If you can “contribute the maximum,” what does that mean? Since you’re over the age of 50, your 401(k) contribution limit is $31,000 per year ($23,500 standard cap + $7,500 in catch-up contributions). Your employer can match these funds up to the lesser of either 100% of your pay or a total of $77,5000 in contributions, yours and theirs combined ($70,000 general cap + $7,500 in catch-up contributions).
Beginning in 2025, individuals between the ages of 60 and 63 are allowed catch-up contributions of $11,500. However, for ease of use, we will avoid the one year of additional contributions this would allow you here, and we’ll assume that you have $31,000 per year in contributions. If you have additional employer-matched contributions, your portfolio contributions could potentially be far more generous.
From there, the question is your average rate of return. You have an aggressive goal, so let’s assume that you are pursuing an equivalently aggressive investment plan. You’re 51 years old, with significant contributions and the flexibility to accept risk. So let’s say you have everything held in an S&P 500 index fund returning the market’s average 11% per year.
With that profile, by age 61, you might have about $2.7 million in savings.
If you think you might need help managing an investment strategy, consider speaking with a financial advisor.
Next, Plan Your Income
Once you have a sense of your wealth, it’s time to plan for potential income. Between withdrawals and Social Security, what can you expect per year? And how do you plan on bridging the gap between retirement and Social Security? Depending on when you start taking benefits, this could be anywhere from one year (if you take minimum benefits at age 62) to nine years (if you take maximum Social Security benefits at age 70).
At a baseline level, let’s consider two ways to plan your portfolio.
First, you could take a high-security approach. You might simply slide all your money across the table and purchase a lifetime annuity contract. In this case, a representative lifetime contract starting at age 61, purchased for $2.7 million, might pay $16,548 per month, or $198,576 per year.
This would not be adjusted for inflation, however, so you will need a plan for rising costs over the course of your retirement. Inflation planning is particularly important with an early retirement, since you’ll live longer on a fixed income. Your Social Security benefits might help with this, providing additional income that you can use to compensate for rising costs.
Alternatively, you could follow the 4% rule. Under this approach, you would plan to withdraw 4% of inflation-adjusted income per year from your portfolio for 25 years. Since you would be retiring six years early, we will adjust these numbers. For a 31-year retirement, you would plan on withdrawing about 3.2% per year for purposes of fund sustainability. With a $2.7 million account, that would yield about $86,400 per year in income ($2.7 million * 0.032). You would also want to plan for some variable withdrawals, taking out more per year earlier in your retirement until you can begin collecting Social Security benefits.
Your specific circumstances and the nuances of inflation and other dynamics may impact projections. Consider matching with a financial advisor who can help you do the math.
Consider Spending and Dependents
Finally, balance this income against your budget. Here, as a divorced father, you likely have a few specific needs to plan for.
Alimony and Housing Costs
What do you owe to your ex-spouse?
Most divorce agreements involve some amount of alimony, and many also involve shared costs. Here, do you owe alimony to your ex? If so, how much and for how long? Few states continue the practice of lifetime alimony payments, so plan for when those payments will sunset. Do you continue to make payments on any shared property, such as a family home or vehicles? Do you have any other significant, shared assets with your spouse?
Particularly important, does your former spouse have any claim to your 401(k)? If you generated this wealth while the two of you were married, that segment of the portfolio will almost certainly be considered a marital asset. Make sure that this money is yours free and clear before you make any plans for it.
Child Support and Other Costs
What do you owe to your children? This will depend entirely on the nature of your family and your relationship with your children.
In some cases, if you have a limited relationship with your children, you may spend nothing more than structured child support and any other elements of the custody agreement. (For example, it is common for custody agreements to involve college fund contributions.) In this case, your financial planning will be straightforward. Anticipate this spending into your monthly budget, and see where that leaves you.
If your ex-spouse has custody, but you are more actively involved with your children, then your costs become more unpredictable. You will likely still have fixed costs in the divorce and custody settlements, but you will also have the variable spending that comes with childcare and household budgeting. You can review your spending, and perhaps sit down with your financial planner, to come up with a monthly estimate for this average spending.
Finally, if you have primary custody, your spending will be mostly based on household budgets. Again, review your divorce and custody agreements, and then your monthly spending to get an estimate of how much your childcare costs on average. Make sure to account for long-term costs such college funds and other savings projects.
Health Insurance and Taxes
Finally, you’ll want to account for new and long-term costs. Among other issues, remember that you’ll almost certainly owe taxes on any financial plan you make. Since your savings are held in a 401(k) account, you’ll owe income taxes on this money no matter how you withdraw it. Make sure that you plan for the fact that all income and withdrawals will be taxed.
Then, remember that you’ll need to pay for insurance. Between ages 61 and 65, you’ll need to pay for your own health insurance. This will be expensive for you alone, and potentially very expensive if you also pay for your children’s insurance. Your average costs can range from around $470 per month to more than $1,500 per month depending on how many people you cover and what kind of coverage you need.
After age 65, you’ll need to pay for gap insurance, to cover the health care that Medicare doesn’t accommodate. You may also want to budget for long-term care insurance, an extremely important part of retirement planning.
A financial advisor can help you create a retirement plan that takes these additional considerations into account.
Can You Retire?
All of this leads back to our original question, can you retire at age 61?
It depends entirely on your personal budget and your family’s needs. If you earn around the median income, the odds are good that you can do this.
The median household income in 2025 is around $78,000. With aggressive estimates, you might have about $2.7 million in your portfolio by age 61. This could buy you an annuity that pays almost $200,000 per year. While not inflation-adjusted, it’s almost three times the median household income. And your Social Security benefits can eventually fill in the gaps for rising costs.
That said, if you can spare $31,000 per year for retirement contributions, you almost certainly make far more than $78,000 per year. So, the question here is how much you make and how much your family needs. If you make $150,000 per year, for example a representative annuity might still be a net gain, making this a safe bet. If you make $310,000 per year, then an annuity would cut your income to two-thirds, making this a riskier choice.
Review what you have and what you need, then answer this very simple question: If you retire at 61, can you take care of the people who need you?
Bottom Line
Retiring early involves several concerns and questions that aren’t usually a problem for households in their late 60s and early 70s. Most importantly, if you still have a family and dependents, can you retire and still take care of the people who need you?
Tips on Retiring Early
- As always, the best way forward is to make a good plan. Here are eight solid strategies that can help you plan for an early retirement.
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
- Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.
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