How to Retire Early: 5 Tips to Achieve Early Retirement (2024)

It’s the dream, really: to retire early. We picture pina coladas on a beach, hours to sleep in, quality time with our family, and endless flexibility to pick up hobbies that seem impossible with a full-time job and other commitments. The thing is, it’s not just a dream. Many people have reached early retirement not thanks to wealthy relatives or winning the lottery but good old-fashioned hard work.

Take Anne McGinty, a serial entrepreneur who retired when she was 39 and her husband was 43. Inspired by her parents—immigrants who built a successful life for themselves and their children through dedication and smart investment strategies—she focused on making a substantial income while also living below her means.

This included, among other tactics, housesitting, spending a few years in a tiny apartment she found on Craigslist, and putting whatever she made from various side gigs and small businesses into savings accounts, investments, and real estate.

Early retirement may not have been her initial goal, but more time with her family was always something she strove for. At one point, she says, her father, having missed a lot of her childhood because of his job, encouraged her to scale back on work. “You can always go back to work or you can always start another business, but you can never get this time [with your kids] back,” she says he told her.

David Delisle reached semi-retirement when he was 40, through a path similar to McGinty’s that involved real estate investing and entrepreneurship. Perhaps the biggest contributor to his success, though, was the simple concept of compound growth—the idea that if you start early and invest often, you can build significant wealth over time.

Their stories, among others, prove that early retirement doesn’t have to be complicated. Below, McGinty, Delisle, and personal finance experts share their best tips for how to retire early—that actually make it feel like a realistic goal.

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What is early retirement?

Experts agree that there’s no defining age for early retirement. Rather, if you’re able to stop working or relying on a regular paycheck, and you’re not yet eligible for social security and Medicare, consider yourself enjoying early retirement.

One report from The Motley Fool found that only 1% of Americans retire in the age range McGinty and Delisle did, while that number increases only slightly to 6% for individuals in their early 50s.

Regina McCann Hess, a certified financial planner (CFP) and divorce financial analyst at Forge Wealth Management who’s been coaching clients for more than 25 years, says a lot of the early retirees she advises are in their early 60s. While this may not seem encouraging—no doubt we all prefer to leave our jobs sooner than that—consider what just a few years of financial freedom could do for your mental health and lifestyle.

Retiring early also doesn’t mean you quit the workforce altogether. Some people choose to continue with part-time gigs, small businesses, or volunteer opportunities that speak to their passions and provide purpose to their everyday lives. Given this, Chris Urban, CFP, the founder of investment advisory firm Discovery Wealth Planning, prefers to think of early retirement as a period where work is “optional,” rather than nonexistent.

Do I need to be rich to retire early?

The short answer: Absolutely not!

Many financial planners, including McCann Hess and Urban, have seen individuals of all backgrounds exit employment sooner than the federal retirement age.

As New York Times Magazine reporter Amy X. Wang put it in her recent story about the FIRE—Financial Independence, Retire Early—movement, “Conventional FIRE adherents are not necessarily big earners or genius mathematicians with incredible impulse control. Their superpower is their expert planning; it’s the ability to see the finish line from miles away that has allowed even some minimum-wage workers to achieve early retirement.”

Shooting for riches is also a poor strategy when it comes to retiring early if you’re not factoring in your spending habits. “I’ve met people who make a bundle of money and they also spend a bundle of money—and they don’t capture enough,” McCann Hess says. “And I’ve met people who are secretaries and who have scrimped and saved and been so frugal.”

This is also why it’s not enough to just pick up as many income-generating opportunities as possible. “Most people get a side gig and they just spend that money on more things,” Delisle says. “It’s not actually creating retirement or anything. They’re just working more and spending more.”

You might be wondering, “What about debt? Can I still retire early if I have student loans or a mortgage or credit cards to pay off?” McCann Hess says early retirement is still achievable for those individuals so long as they’re meticulous in planning ahead—and quickly cut out expenses that are leading to credit card debt specifically.

“I’ll have people retire and they may still have 10 years left on their mortgage, but we’ve calculated that into their budget, and as long as we could do that, they’re OK,” she says.

How to retire early: 5 tips for achieving it

Ready to make the first move toward financial freedom? Here’s a step-by-step guide to retiring early without sacrificing your comfort, safety, and sanity.

1. Start right now

“Saving and investing as early as possible in your career is definitely the biggest factor,” Urban says. “A close second would be spending within your means.”

However, this shouldn’t deter people who are further along from setting out to retire early. “Time is important, but don’t be discouraged,” says Stacey Black, a financial educator at not-for-profit credit union BECU. “Start now if you haven’t started yet.” Consider this: Even if you’re in your 30s or 40s, your money has years—if not decades—to generate returns through investments, a 401K, or a high-yield savings account.

2. Let go of an arbitrary number

You’ve probably thought to yourself, “If I only had a million dollars, I’d be set for life.”

But going back to the misconception that you need to be rich to retire early, there’s also no ideal number you have to hit to say you’re done working. “A fair budget for me might be too frugal for someone else and not frugal enough for somebody else,” McCann Hess says.

Instead, figure out how much you plan to spend in retirement, then make that your savings goal. “Sixty to 80% of what you’re spending now would probably be a good place to start as far as your budget for retirement,” she says. That number should factor in your current and future 401K contributions, as well as social security, pensions, or other retirement or investment accounts you already have in place.

3. Make a financial plan tailored to your needs only

“Don’t retire without a financial plan,” McCann Hess says. She’s seen what happens otherwise: Once, a client came to her having already decided she would retire at the end of the year. But after looking at her financial situation, McCann Hess realized the woman didn’t have enough savings to maintain her current lifestyle.

What proceeded was a tough conversation where McCann Hess suggested the woman stay employed for a few more years if she wasn’t willing to cut back. “Had she retired without that financial plan, she would’ve been hosed, and she wouldn’t have found out until she was in her mid-80s,” she says. She would’ve run out of money.”

When budgeting out your life in retirement, first outline mandatory payments such as:

  • Living fees (rent or mortgage)
  • Property and other taxes
  • Utilities
  • Healthcare and/or insurance (until you reach Medicare age; at which point your cash outlay may decrease but not disappear entirely)

From there, you can factor in other costs, like food, travel, or luxury items. “The bigger budget piece tends to be travel because people are feeling good, they want to celebrate, they’ve been stuck in an office building for, I don’t know, 30 years or so, and they want to go see the world,” McCann Hess says. “So we usually model a bigger travel budget for the first five years and then we rein it in a little bit after that.”

Whatever you decide is a reasonable amount for each category, remember that your budget will be highly personal and likely different from those around you—and that’s more than OK. “If you can avoid trying to keep up with the neighbors and what all your friends are doing and if you can avoid getting caught in that trap, that’s a good approach and strategy for setting yourself up for success later in life,” Delisle says.

McGinty uses a spreadsheet to track what she brings in and how she spends her money. “I totally geek out on it, but to me it feels so good when I see it and I adjust it and I just make sure that everything is going the way that it’s supposed to,” she says.

Proving McCann Hess’s point, McGinty considers travel a must, while clothes and other purchases are less important. Delisle, too, values experiences and quality time with family over physical items. He calls these priorities “the awesome stuff.”

“But take the judgment out of this,” he says. “If it is a house and a car and all that—if that’s your awesome stuff—that’s fine. It’s going to be individual.”

4. Put your money away—and to work

“Out of sight, out of mind” is really the motto for early retirement. When you can’t see your money, Delisle argues, you can’t spend it. In fact, you don’t even have a chance to miss it or consider what you’d do with it. “That’s what governments do when they take taxes right off your paycheck and you never see it,” he says. “We don't realize that money’s just gone.”

Where you put your money can vary, but most experts advise first taking advantage of retirement plans and employer 401K matching programs. “The earlier you start saving into your 401K, the better off you are,” McCann Hess says.

Tax-friendly options, like a Roth IRA or health savings account, are also worth investing in so you’re giving away less of your money long-term. Urban emphasizes diversification, a strategy that works just as well for retirement as it does for investing in the stock market.

“Who knows what the tax code is going to be whenever you retire or hope to become financially independent—but having the flexibility to pull from different accounts is pretty significant, and could be the difference between you being financially independent at a younger age or not,” he says.

5. Do a trial run

We test-run numerous things in our lives—work presentations, job interviews, fundraising pitches. So why wouldn’t we practice something as daunting and important as early retirement?

McCann Hess advises a lot of her clients to start living as if they’re retired a year before they actually quit or stop clocking in. “If you’ve practiced it for a year before you retire, it’s not going to be as painful or abrupt,” she says, adding that a trial run also gives you an opportunity to adjust your investments or spending habits should you miss the mark on your budget.

And if you end up netting out more money than you planned, put that away in a savings or investment account so you can’t touch it. “It rewards you because there’s a little slush fund at the end of the year for you to go into retirement,” she says.

Bottom line

Retiring early requires, maybe above all else, patience. You’ll have to make decisions that may not be ideal in the short term, but will benefit you in the long term. As McGinty puts it, it’s an exercise in delayed gratification.

“A lot of people look down on that idea because they just want to live in the moment today,” she says. “You have the choice to do that, but just know that if you spend your money and I save my money, then I’m going to get out of the rat race faster.”

Read this next: The Trick to Actually Saving Money When You Say You Will

How to Retire Early: 5 Tips to Achieve Early Retirement (2024)

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