Can I Retire at 40 With $1 Million?

With rising living costs and ongoing financial uncertainty, many aspiring early retirees may be wondering if they can afford to retire early, or should be prepared to delay for a few years – or a decade. Whether or not you can retire as early as, say, 40, depends on a careful evaluation of your expected expenses, lifestyle choices and available income sources. For example, while amassing $1 million by 40 is a major achievement, stretching that wealth over several decades demands disciplined financial planning and smart decision-making.

Given the complexity of retiring so early, partnering with a financial advisor can help you assess your readiness.

Is $1 Million Enough to Retire at 40?

Retiring comfortably at age 40 with $1 million depends on how carefully you manage your withdrawal rate and investment returns. A common guideline financial planners recommend is the 4% rule. This rule suggests withdrawing 4%, or $40,000, of your retirement portfolio in your first year of retirement, then adjusting for inflation annually. In doing so, your retirement portfolio is estimated to last around 30 years. However, this rule is conservative, ideal for safeguarding against inflation, market downturns and longevity.

If your lifestyle demands a higher annual income, such as a 6% withdrawal rate, your risk of outliving your savings increases. Conversely, adopting a more cautious 3% withdrawal rate reduces risk, but provides less funds annually, meaning you’d need to make stricter budgeting and lifestyle adjustments.

Other Factors Affecting Retirement at 40 With $1 Million

Beyond basic calculations, several key considerations impact whether $1 million will be enough to retire at 40.

Retirement Portfolio Basics and Taxes

When retiring at 40 with $1 million, managing your retirement accounts is crucial due to age-related restrictions. Traditional retirement accounts, such as a 401(k) or IRA, generally cannot be accessed without penalty before age 59.5, meaning early retirees often depend primarily on taxable brokerage accounts, real estate investments and cash savings for income.

Unlike withdrawals from traditional retirement accounts, which are taxed as ordinary income, withdrawals from taxable brokerage accounts are subject to capital gains taxes, which can have notable implications on your retirement income.

For instance, suppose you’ve invested $400,000 in taxable brokerage accounts, and those investments grow to $600,000. If you withdraw $50,000 annually, a portion of that amount would represent gains subject to capital gains taxes. At a typical long-term capital gains tax rate of 15%, realizing $20,000 in gains in a given year would lead to $3,000 in taxes.

To minimize this tax liability, you might strategically sell assets with smaller gains or offset gains through tax-loss harvesting, selling investments at a loss to offset taxable gains.

Partnering with a financial advisor or tax professional can help you manage your tax-efficiency.

Location and Lifestyle

Geographical choice and lifestyle significantly influence how sustainable your early retirement is. An expensive metropolitan area or a luxurious lifestyle filled with travel and dining out will quickly diminish your savings. Choosing affordable locales or scaling back expenses helps your savings last significantly longer.

Inflation

Even modest inflation (averaging around 3% annually) steadily erodes your purchasing power. Over multiple decades, this effect compounds dramatically. Planning for inflation by gradually increasing your budget assumptions can help you to safeguard against shortfalls later in retirement.

Health and Longevity

Retiring at 40 means potentially funding healthcare coverage independently for 25 years before Medicare eligibility begins. Fidelity estimates that a healthy couple retiring at 65 faces approximately $330,000 in healthcare costs throughout retirement. Retiring 25 years earlier magnifies these figures significantly.

Planning for substantial healthcare expenses early in retirement can help you avoid depleting your savings prematurely.

Real-Life Scenario Analysis

As an example, let’s consider a 40-year-old retiree with $1 million, living in a tax-advantageous state such as Nevada. Annual expenses might look like this:

Housing (mortgage/rent): $16,200 (according to Apartments.com)
Healthcare coverage: $15,000
Utilities and property taxes: $5,000
Food expenses: $7,000
Entertainment and technology: $6,000
Transportation costs: $3,000

This totals $52,200 per year, or $4,350 per month.

To cover these expenses, suppose you could invest:

$500,000 into rental properties generating $48,000 yearly ($4,000/month).
$250,000 into conservative assets (such as bonds or CDs) yielding around 4%, equating to $10,000/year.
$250,000 in a diversified brokerage portfolio targeting a 6% return, producing approximately $15,000/year.

Your pre-tax annual income totals $73,000. Factoring in an average tax rate around 15-20%, you’d comfortably meet your annual expenses while retaining some cushion for unexpected costs or inflation adjustments.

Retiring at 40 With $1 Million – Social Security and Medicare

A woman content with her decision to retire at 40 with $1 million.

Choosing retirement at age 40 means significant delays until you’re eligible for Social Security (62 at the earliest) and Medicare (age 65). This 22-25-year gap means you’ll need to be prepared for self-funded healthcare and independent sources of income without government support.

Healthcare premiums, out-of-pocket costs and private insurance coverage require considerable annual expenses until age 65. Additionally, prolonged absence from the workforce may lower your eventual Social Security benefits, as your payout is calculated based on lifetime earnings.

And, as tempting as it might be to claim Social Security as soon as possible, there are merits to waiting to claim until 65 or even 70. For example, using 2025 data from the Social Security Administration, claiming at 62 would give you an average maximum benefit to $2,831, while claiming at 65 and 70 would increase your benefit to $4,018 and $5,108, respectively.

Considering challenges like delayed Social Security and Medicare eligibility and the potential impact of inflation, working alongside a financial advisor can help ensure your early retirement remains financially sustainable.

How to Manage a $1 Million Portfolio When Retiring at 40

Generating consistent income from a $1 million portfolio requires strategic diversification. A balanced mix might include dividend-paying stocks, rental properties, bonds and possibly savings accounts or CDs. For example, investing your portfolio for an average annual return of 5% provides about $50,000 annually, assuming moderate risk tolerance.

However, remember that income sources like rental properties or dividends incur taxes, potentially reducing net income significantly. So be sure to factor in your tax bracket when calculating your true take-home amount.

Keep in mind the importance of balancing growth and income production, as well, as overly aggressive strategies risk significant losses, and overly conservative approaches fail to produce adequate returns.

A suitable asset allocation at 40 might feature:

Dividend-focused stocks or ETFs (40-50%) to sustain growth and generate income.
Real estate or rental properties (20-30%) offering steady income and inflation protection.
Bonds or fixed-income investments (20-30%) for stability and capital preservation.

Periodic rebalancing also ensures you maintain your optimal risk level as market conditions evolve. And as we discussed above, you may need to adjust your allocation based on your income needs.

Annuities

Including annuities can stabilize income by providing guaranteed lifetime payouts. A deferred income annuity purchased at retirement could secure predictable payments later in life, minimizing reliance on volatile market returns. Yet, annuities involve fees and restricted liquidity, so evaluate carefully if they align with your long-term goals and risk tolerance.

Bottom Line

A woman researches "Can I retire at 40 with $1 million?"

Retiring at 40 with $1 million is achievable, but requires thoughtful planning, disciplined investing and realistic expense management. It’s essential to track your anticipated living costs, healthcare, taxes and inflation, combined with strategic portfolio management to produce reliable, long-term income.

Tips for Retiring at 40 with $1 Million

Investing $1 million for retirement means maximizing the return of every dollar during your career. Working for two decades or less means you can’t afford a mistake when investing. Fortunately, a financial advisor can help you find assets with low fees and substantial returns. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Ideally, retiring at 40 means starting off your golden years while you’re relatively young and healthy. However, your future health is unknown, especially as you age. So, you can prepare for this possibility by budgeting for the cost of independent living.