Most of the advice on blogs like this comes from people who earn well above average. Often both partners make six figures before retirement. If a six-figure income equals “having money,” does anything less mean you have none? Let’s look closer.
It’s not surprising that households making $150,000 or more can quit working by 40 or earlier. But what about retiring before 50 when the household makes under six figures?
For this case study, meet the “Johnsons.” Using recent census data, the average household income is $52,000 a year—this is Mrs. Johnson’s gross pay. Before they had kids, Mr. Johnson earned half that, $26,000. From college until the kids arrived, the couple’s combined income was $78,000 a year.
Both are 33. Mrs. Johnson is the main earner and works as a dental hygienist. Mr. Johnson stayed home to care for twin toddlers, now age 3. He supplements their income by teaching a few cross-fit classes each week, bringing in about $5,000 net per year.
To keep things simple, assume Mrs. Johnson has earned $52,000 every year since leaving school with no raises (note: average pay for dental hygienists is actually about $72,000). Mr. Johnson made $26,000 per year before the kids and now works less as the primary caregiver.
Mrs. Johnson contributes 10% of her pre-tax income to a 401(k) and gets a 3% employer match. All of that goes into large-cap growth index funds. After her 401(k) contribution and taxes, the Johnsons’ take-home pay is $40,800 a year (this includes Mr. Johnson’s part-time gym income).
They live in the Minneapolis metro area. A 2015 SmartAsset analysis ranked Minnesota 44th among states for cost of living.
Mrs. Johnson has $20,000 in student loan debt, and they’ve avoided carrying credit card debt over $1,000. With one working parent, they use a single hatchback. There’s $10,000 left on the car loan, with $300 monthly payments.
For nine years before having kids, Mr. Johnson worked full-time as a gym instructor, making about $26,000 a year. They saved all of his pay for a down payment on a modest $150,000 house a year after college. Over the next nine years, his earnings went toward the mortgage. By age 31, the Johnsons owned their home outright. Huge win.
Two years after paying off the house and before the twins arrived, they added a bedroom and bathroom for $50,000. Mr. Johnson had set aside two years of his pay to cover it. The house now comfortably fits a family of four.
Mrs. Johnson has a 10-mile commute, and the family bikes and walks around the neighborhood. The grocery store, library, and pharmacy are all within half a mile. That keeps fuel costs low and helps keep medical bills down since everyone stays active.
The Johnsons have a lot going for them: no mortgage, only one car (so lower maintenance, insurance, fuel, etc.), and careful money habits.
They want an early retirement. They enjoy fitness, travel, and the outdoors, want to be there for their children, volunteer, garden, and maybe write about their finances in a blog.
To retire at 45 they need enough money to cover expenses until they can access 401(k) funds at 60—15 years. Sounds like a big climb.
Because they’re disciplined, they decide to invest all their annual net savings from age 33 to 45 into a taxable index fund with low fees (Vanguard). Assuming a 7% average return, investing $11,600 a year would grow to about $250,000 by age 45. At that point they may shift to a mix of stocks and bonds to reduce volatility.
For extra safety, Mr. Johnson keeps a part-time gym job and Mrs. Johnson works part-time tutoring, bringing in $400 net per month. That small income helps make the $250,000 stretch for the 15 years, with an annual withdrawal of $24,000 to cover living costs until they turn 60.
Within five years after retiring, Mrs. Johnson’s student loans will be gone. Their kids will have completed two years of community college and will transfer to an in-state university. With lower expenses when the kids move out, the Johnsons feel confident they can make it to 60 on the savings they built.
At 45, with the car and student loans paid off, the Johnsons can buy a high-deductible health plan through the Minnesota exchange. Their low income qualifies them for a sizable subsidy, so premiums should run about $400–$500 per month. (Note: exchange premiums have been rising, so this could change.)
From 60 onward they’ll rely on their 401(k) and Social Security. The 401(k) is projected to reach roughly $1.2 million by age 60. With Social Security added, they could safely withdraw around $50,000 a year (about 4%) until a long life into their 90s. If needed, they could sell their home and downsize for extra cash.
By 60, their net worth could be about $1.5 million (retirement savings plus home equity). Not bad for a couple who lived on about $38,000 on average between ages 22 and 60—$14,000 less than the $52,000 average U.S. household income.
Critical factors in this success include paying down debt quickly and avoiding lifestyle upgrades like bigger houses, fancier cars, or private schools.
They live in a higher-cost state, but Minnesota has good public schools and a high quality of life. They have no pets because of allergies, which also saves them roughly $33,000 over 15 years (assuming they would otherwise have one cat and one dog).
There’s no cable and only a basic cell plan. They watch TV with a high-def antenna for free local channels and check out movies from the library. If they wanted, they could fit a Netflix subscription into their budget.
They set aside $1,000 a year for travel. It’s not much, but they enjoy road trips and can save up for bigger trips when they want. With good credit scores, they could also use credit card sign-up bonuses to cut travel costs.
Early retirement is possible for the Johnsons. The key is saving a lot: save 40% of your income and you can retire in about 20 years; save 60% and you can do it in about 12 years.
If you make under six figures and want to see how your early retirement plan stacks up, tools like OnTrajectory can help—you might be closer to your goal than you think.