I’m 46, make $340,000 a year, own a big home and have $2.8 million saved for retirement — what’s a realistic retirement budget if I quit work tomorrow?

What you need to consider if you’re thinking of retiring at 46

Retiring at the very early age of 46 could introduce some challenges. First, any funds you have in a tax-advantaged retirement plan like an IRA or 401(k) won’t be available to you penalty-free until age 59 ½.

If you have some of your long-term savings in a taxable brokerage account, that may not be an issue. But if the bulk of your savings is tied up in an IRA or 401(k), you’ll need to think about the cost of accessing that money early.

Retiring at 46 means you’re almost 20 years away from being able to get health coverage through Medicare (eligibility starts at 65).

Also, retiring at 46 means you’re at least 16 years from being able to claim Social Security. And while your robust $340,000 salary sets you up for a generous monthly benefit in theory, do keep in mind that the number of years you work plays a role in what Social Security pays you each month. If you began working at 21 and are retiring at 46, you have a 25-year work history. But Social Security considers your 35 highest-paid years of earnings when calculating your benefits. So if you miss 10 years of income it will negatively impact your monthly retirement check amount.

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Make sure you can afford the lifestyle you want

A popular rule of thumb says you’ll need 80% of your pre-retirement income during your retirement to maintain your lifestyle. Since you’re earning $340,000 a year, it would be highly unlikely for you to uphold that lifestyle if you decide to call it quits at 46.

Let's assume you need your $2.8 million nest egg to last 40 years if you retire at 46. That means the 4% rule, which aims to make sure savings last for 30 years, can’t be of any use to you. A more conservative withdrawal rate would be needed in this situation.

According to an influential 1998 study by professors at Trinity University, which looked at stock and bond returns from 1926 through 1995, your nest egg would have a 100% chance of lasting you 40 years with a 3% withdrawal rate. This assumes your portfolio is 50% bonds and 50% stocks.

This means you can withdraw not more than $84,000 a year during your retirement. Going from $340,000 a year in income to a significantly smaller amount may be jarring. And between the cost of health care and having to pay for your large home, you may find that you’re forced to pinch pennies on some expenses to make sure you’re not overspending. Even if your home is paid off, a large home could mean expensive maintenance, property taxes, and insurance.

Set up a budget before taking the leap

No matter your retirement age, it's important to set a budget so you're able to stretch your income. Make a list of your essential living costs first and see what they amount to. These include:

• Housing
• Transportation (car payments, fuel, insurance)
• Health care
• Food and personal care
• Utilities
• Communications (cell phone, internet service)

If it’s just you, you won’t have to include child care or pet care costs. Otherwise, factor those in as well.

If you’re going to live on $84,000 a year, or $7,000 a month, you might lose around 20% of that to taxes. So that whittles your post-tax income down to $5,600 monthly.

Here’s what your budget might look like assuming you’ve paid off your mortgage:

• Housing - $1,000
• Transportation - $720
• Healthcare - $500
• Food and personal care - $500
• Utilities - $500
• Communications - $300

This brings your total essential costs to around $3,500 a month, leaving you with $2,100 a month for discretionary spending like entertainment and travel. Ideally, your housing costs won’t exceed 30% of your post-tax income, but with a larger home, they might, especially if you’re not done paying your mortgage. If you don’t downsize or shrink your housing costs, you may be left with little to no money for non-essential bills.

Of course, you’ll need to plug in numbers that are specific to you if you’re contemplating retirement at 46. A larger nest egg may make a super early retirement possible, but consider the adjustments you’ll need to make before moving forward.