*I’m 55 years old, and I’d like to retire early. I have $200,000 of equity in my home and I have $350,000 saved in my 401k. Can I afford to retire early? — Joe S.*

First off, congratulations on saving $350K in your 401k at the age of 55! You saved more than twice as much as most people your age. With the money saved, you are in a great position to retire early. It really depends on what age you would like to retire. If you are like Joe and want to retire early then you need to answer these 3 questions.

1) Can you be debt free and pay off your house before you retire?

2) Will your retirement income match your retirement lifestyle?

3) Are you willing to downsize your home or relocate?

Given that Joe has $350,000 in your 401K and $200,000 in home equity – Let’s break down the retirement scenario at each age. Retiring at 55, 62, and finally 65.

### Scenario 1 – Retire early now at 55 and move abroad.

With the amount of money Joe has saved up, he simply does not have enough money to retire early at the age of 55, unless he wants to move someplace where living is cheaper. If he stays here in the US and sells his home at the age of 55, he will have spent all of his equity by the time he reaches 60. And when he reaches 65, he would have spent most of his 401K money. He’s done a good job saving his money, but this is not a smart way for him to retire at the age of 55.

So lets think outside the box a little bit, and consider retiring in, say, Thailand. If you think about it, packing up and moving abroad might be just your smartest financial decision. It’s really cheap to live there as the minimum monthly income requirement on a retirement visa is 65,000 baht. This is equal to $1,800 in US dollars. And living in Thailand on $1,800 a month is really easy. Your money goes a really long ways in Thailand.

Renting a home or condo in popular places like Chiang Mai or Hua Hin is cheap (around $300 to $600 a month). The food is even cheaper ($5 to $10 a day), and it’s delicious. Plus Thailand has really modern inexpensive hospitals. If you retired in Thailand on $1,800 a month, your $200,000 that you got from selling your home would last 9 to 10 years. By this time you would be 65 and you would be able to draw money from both your Social Security and your 401k at the same time. You would have more than enough to retire on in Thailand. This is a fantastic plan to retire early at the age of 55.

But not everyone is cut out for living as an expat. If you want to live in the US comfortably, then you should wait until you are 62, 65, or 67 to retire.

### Scenario 2 – Retire early at 62.

Joe never mentions how much money he is currently making. The amount of money you make each year influences how much money you will get from Social Security. Lets assume Joe was making $75,000 a year. Using the government’s Social Security calculator, we figure Joe will bring in about $17,000 a year if he retires at 62. This equals to around $1,400 a month. That’s not very much money to retire and live comfortably, but luckily Joe has been saving steadily into his 401k.

If Joe waits another 7 years and retires at 62, then his 401k should grow by quite a bit. This is all due to the wonders of compounding interest. Lets assume Joe makes $75,000 a year and contributes 4% and his employer matches his contributions. And lets also assume the stock market has a good year and he gets a 8% return on his 401k. With compounding interest, his 401k will grow from $350,000 to $650,000 in just 7 short years when he turns 62.

If Joe wants his 401k to last 30 years or more, he will probably withdraw 4% from his 401k each year. This will give Joe an additional $26,000 a year, or $2,200 every month.

So adding up Joe’s Social Security and is 401k will give him an income of $43,000 each year at the age of 62. This means Joe will be taking in $3,600 each month for the rest of his life.

What Joe does not mention, is how much money he owes on his house. He only mentions his $200,000 equity. If he can pay off his house, then $43,000 a year sounds pretty good. If he still has a house payment, he may need to downsize his home so he can pay his bills.

### Scenario 3 – Retire at 65.

Again, assuming that Joe is making $75,000 a year. If he waits 10 years until he is 65 to retire, then his Social Security benefit will bring in about $1,800 a month in today’s dollars, using the Social Security calculator.

His 401K would have grown from $350,000 to $860,000 if he continues to contribute with a company match, assuming a 8% return each year. At the age of 65, Joe’s 401K will bring in an additional $34,000 a year if he withdraws 4% each year. This is equal to $2,800 a month.

Adding up Joe’s Social Security and his 401K will give him an income of $56,000 a year, or around $4,600 a month.

### It’s a tough decision – but it’s fun to think of the possibilities

Do you retire early at 55 and move to Thailand, while you are young and healthy? That’s 10 years of early retirement on a tropical beach without having to push the pencil for the man.

Or do you opt to continue to live and work in the US for another 7 to 10 years? The benefit of waiting means you will still live close to your longtime friends and family when you retire.

It’s a tough decision, but it’s fun to think of the possibilities. Either way, I think Joe has a bright future ahead of him.

Photo By Ken Teegardin via StockPholio.net