Retirement / Planning

Here’s How To Retire Early and Quit the Daily Grind

June 19, 2024

6 min Read

Written by Caitlyn Moorhead

Edited by Emily Gadd

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Inside Creative House / Getty Images/iStockphoto

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A GOBankingRates study showed that while the full retirement age is 67, in some states, the average retirement age is 61. Want to retire early? Here’s where to start.

6 Tips For Retiring Early

Although retiring early sounds like a pipe dream, it can be done — but you’ll need to make a plan. Not everyone takes the same path to early retirement, but certain steps are common among people who manage to achieve it, including:

Make lifestyle changes.
Increase your income.
Make a financial plan.
Create passive income streams.
Stay on top of your plan.
Follow the Rule of 25.

1. Make Lifestyle Changes

The more money you save, the more likely you’ll be able to retire early.

Making cuts to your lifestyle is one of the easiest ways to make sure that more of the money you earn goes into your savings. There are plenty of ways to cut spending, from trimming your daily expenses to the more substantial act of downsizing your home. Consider which expenses you can cut.

2. Increase Your Income

While you’re working hard to save for retirement during your peak earning years, use your professional expertise to make even more money by taking a second job or a side gig. Consider:

Working as a consultant in your field.
Using your crafting hobby to sell goods on Etsy.
Listing a spare room in your house on Airbnb.

Put all of the money you get from side jobs into a retirement account to give your savings a boost.

3. Make a Financial Plan

Once you’re saving and earning more, you’ll have to preserve that money to make it last for the rest of your life.

Find a trusted financial advisor who can help you plan a path to retirement based on your current age and desired retirement age. Diversifying both your investment accounts and investing strategies can stretch your retirement budget further.

4. Create Passive Income Streams

There are only so many hours in a day that you can work, so cobbling together extra sources of passive income is the way to go.

As the name implies, passive income, such as rental or investment income, flows into your account without you needing to be actively earning it. You can have multiple passive income streams without any of them taking up significant amounts of your time. Consider putting the money you earned in your side jobs into funding these investments.

5. Stay On Top of Your Plan

To successfully plan an early retirement, you’ll need to make some good estimates about your income and your expenses for the next 30 years or so. Here are a few things to consider in your estimates:

Retirement income can be fairly easy to determine, based on projections of your Social Security income, pension income and any side jobs you anticipate you’ll continue to work. Your expenses, on the other hand, can be harder to calculate.
In its Consumer Expenditure Surveys, the U.S. Bureau of Labor Statistics provides data that shows how much a 65-year-old spends today compared with the average spending across the U.S. You can use this information as a guide for your own projected retirement spending, subject to tweaks that are specific to your own lifestyle.
Once you’ve locked down your projected expenses, focus on the income and savings side of the equation with your financial advisor. No matter what you earn, you’ll need to save a lot if you want to retire early.

6. Rule of 25

The Rule of 25 means you should be saving 25 times your annual expenses to cover you for the rest of your life after retirement. To figure out your annual expenses, multiply your monthly expenses by 12. Then multiply this figure by 25.

The total you come up with is your financial independence retire early number, or FIRE number. Doing this calculation will help you see how close–or how far–you are from your financial and retirement goals.

Is Retiring Early Worth It?

The dream of early retirement appeals to some people, but if you’re seriously considering it, you’ll have to make a plan. Here are some things potential early retirees should consider:

If you couldn’t put away a large amount of your income, consider semi-retiring and still take consulting or part-time gigs.
Retiring early could offer you more free time and less stress. But to meet your savings goals, you may have to miss out on social outings, material goods and life experiences.
If you don’t know anyone else who can retire early, you might have to fill your day with solo activities.

Final Take To GO

The best retirement age is the one at which you can live comfortably and enjoy the fruits of your labor. That depends on the individual too. No matter what, you need to have a plan that starts with stowing away as much money as possible. You should retire when you feel like you have all your ducks in a row, such as health insurance, real estate and financial independence.

FAQ

What age is too early to retire?
- If you are considering retiring early, keep in mind that there could be certain disadvantages of early retirement. Above all, no matter what your retirement goals are, what you have saved up for retirement will essentially have to last you the rest of your life.
- For example, it may be too early to retire if you cannot afford out-of-pocket health insurance until Medicare kicks in at age 65.
Can you retire after 25 years of work?
- In many industries, you can retire or get your pension after 25 years of service, such as people working in certain unions, state departments or government jobs. Restrictions may apply, and often retirement before this point would result in reduced pension.
Can I retire at 55 with $1 million?
- Yes, you can retire at 55 if you have $1 million saved. Statistically, this would result in an annual salary of over $50,000 for the rest of your life.
Can I retire at 62 with $400,000 in a 401(k) or Roth IRA?
- Yes, you can retire at 62 with $400,000, if your cost of living is low enough. Statistically, this would provide you with over $25,000 annually for the rest of your life.

Jami Farkas contributed to the reporting for this article.

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