If you’re like many adults, the thought of taking an early retirement (could you retire at 45?) has probably crossed your mind at least once or twice. For most of us it’s simply not an option – the financial ramifications are complicated, not to mention those children who seem to need to go to college....Still, we sometimes hear about friends, family members or complete strangers who decided to clock out early and gamble that they’ll be able to make ends meet for the next several (or more) decades. Here’s a quick look to see if it’s possible to retire at 45 if you've managed to save $500,000 to fund it.

“Retire at 45 with $500,000” and the 4% Rule

The “four percent rule” – a widely accepted financial rule of thumb – states that your savings should last through 30 years of retirement if you withdraw 4% of your nest egg during the first year of retirement and then adjust each year thereafter for inflation. To figure out how big a nest egg you’ll need, you have to match that 4% to your anticipated expenses. If you plan to live on $30,000 each year, for example, you’ll need $750,000 socked away. If your expenses will be $40,000, you’ll need $1 million – and so forth. (For more, see What Does a Sample Plan Using the 4% Retirement Rule Look Like?)If you have $500,000, the math comes out to $20,000 a year, assuming a 4% withdrawal strategy. But remember, the 4% rule doesn’t work for an indefinite amount of time. It’s intended to see you through 30 years of retirement, which one hopes will not be enough if you retire at 45.

Reality Check

Whether or not you could live (and be happy) on $20,000 depends on your lifestyle preferences and situation. If you stick to 4%, you’re looking at about $385 a week or about $1,667 a month – which isn’t a lot. And there are those who think that in the current environment, 4% may be too generous.“The 4% rule does not work very well in today’s conditions with historically low interest rates. A safe withdrawal rate may be closer to 3% or 3.5%. There are some adaptive distribution strategies that might extract a little more value out of a $500,000 portfolio. Four percent is still rather aggressive even with constant portfolio monitoring,” says Louis Kokernak CFA, CFP, founder of Haven Financial Advisors in Austin, Texas. (Also see Why the 4% Rule No Longer Works for Retirees.)But for now, let's work with that budget and see what would help you manage on that amount. It will be easier if you:

Already own your home free and clear (no mortgage)
Don’t have college expenses coming up (you don’t have kids, they’ve already graduated, they’ll qualify for full scholarships, or you’ve already set money aside in a college savings plan)
Are healthy now and are really proactive about staying that way (eating well, getting enough exercise, getting enough sleep, etc.)
Are content to live frugally
Are willing to think outside the box and try a different approach

Out-of-the-Box Options

There are ways to lower your monthly living expenses if you’re willing to go that route. One option: Retire abroad in a destination that offers a change of scenery, new experiences, access to affordable healthcare and – the big one – a lower cost of living. It’s possible for a couple to live comfortably in Ecuador, for example, on about $1,500 per month, including rent. In Nicaragua you get by on less than $1,200 a month.