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How to Retire Early: Here’s Everything You Need to Know

If you are looking for ideas on how to retire early, you aren't alone. Many young people are looking for ways to retire early.
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Do you want to get out of the rat race? If you are looking for ideas on how to retire early, you aren’t alone. The FIRE movement has gained a lot of attention over the last few years. It’s just one way to achieve early retirement, and live life with more freedom.

The first thing to consider when you are thinking about how to retire early is where the money is going to come from. You will have to save a large portion of your income, which means some pretty heavy financial discipline.

There are also some other important factors to consider. You might go on vacation once or twice a year, and fantasize about an endless summer for the rest of your days. It could come as a surprise, but many retired people look for things to do because they get bored.

Planning an early retirement isn’t especially difficult from a financial point of view. We are going to take a deep dive into what it really means to leave the working world early, and what you need to be aware of if you are planning to tap-out of the money hustle in your 30s or 40s.

Getting a Handle on How to Retire Early

Let’s get into the money side of the how-to retire early equation.

You are going to have to do some serious cost-cutting. It would be good to start with a goal of saving half your take-home pay, and see if you can build from there.

There are a lot of opinions on how much a person has to save to retire by a given age, but that kind of information isn’t really going to help you. Instead, we are going to focus on practical skills that can actually help you save the money, and keep on an extremely tight budget.

Another thing to consider is the self-control it takes to let the money you need for an early retirement sit in your investments. If you get to the point where more than half of your income is flowing into bank and investment accounts, you might be surprised at how fast it will add up.

If you think you are tempted by sweet financing deals now, just wait until you have the money lying around to buy a used Ferrari…in cash. You will need to be serious about breaking out of the game early to let that money keep stacking up.

Prepare for temptation.

Ok Great, Let’s Slash Your Budget

When we say that you need to slash your budget, you might think about small changes to your spending habits. No, no, if you want to retire early, we are going to have to make some major lifestyle changes.

First, let’s talk about eating out. You won’t be doing that anymore. If you don’t know how to cook, it is time to learn, and plan on preparing most of your meals.

In order to save half of your income or more, you are probably going to need to get past a number of bad habits. Eating out is the first one, and if you can’t drop it, the rest of the ideas here are likely going to be too extreme for you.

And you won’t be retiring early either.

So, how are you going to cook every meal?

Easy; when you have free time (probably on the weekend), you can plan on making enough food to last a week. There are a lot of foods that can be prepared in advance and kept in the refrigerator. All you have to do is come home, fire up the oven, and put whatever you made a few days ago in there.

Dinner will be ready in 20 minutes!

The same thing goes for breakfast and lunch. Breakfast is easy, making something like eggs or oatmeal is simple, and packing a lunch will save you a fortune. If you are used to spending $5 or more every day when you are working, do some simple math.

Spending $5 a day adds up to $25 a week (assuming you work 5 days a week), which is $100 a month, or $1200 a year.

Of course, packing a lunch isn’t free, but it will make a dent in your spending. In reality, you are probably spending more than $5 on food when you are out of your house.

Oh yeah, and no more Starbucks. Make your own coffee and buy a thermal mug!

How to Make a Budget

Read: How to Make a Budget: Complete Guide for Beginners

Get Serious About Your Spending

If you thought it was hard to give up your fancy morning coffee…this next cut might come as shock to your system.

Let’s think about how you can get rid of your car!

Ideally, you won’t own a car by the time this budget is in full effect. If you absolutely have to own a car, then it should be paid for, and you can plan on driving it until the wheels fall off.

Seriously, if you aren’t aware of how much you are paying to drive a late model year car, it is time to face facts. As soon as you drive the car off the lot the value of the four-wheeled financial disaster falls by double digits.

The newer a car is, the more expensive taxes, registration, and insurance will be as well. If you get in the habit of buying a car that is a few years old and keeping it on the road until it can’t go any further, you will be saving some serious cash.

If you are worried about it breaking down, just join a motor club. It is an expense, but when you weigh the cost of maintenance and motor club membership against all of the costs associated with a new car, there is simply no way that a new car makes financial sense.

Living Below Your Means

Read: The Complete Guide to Living Below Your Means

Get Rid of Your Car!

As we said, the ideal financial scenario for how you are going to achieve an early retirement doesn’t involve a car.

Ideally, you will use any sort of private transportation as little as possible, and bank all the money you save. If you absolutely have to use a car, it would be a good idea to use a ride-sharing service like Uber or Lyft.

Depending on what you do for a living, you might consider moving to a home or apartment that requires less travel. If you are able to use a bicycle or walk to work, the amount of money you will save is enormous.

Even if you have to use a ride-sharing service when the weather is poor, you will still be saving all that money on nice days, and getting some exercise as well.

How Do You Live?

You might not think about your home or apartment as being changeable, but it is time to start. Where you live is just as important as how you live when it comes to spending.

The bottom line is that you need to find a cheap living option so that you can save as much cash as possible. Many financial advisers will push people to buy a house, but this might not be the best idea for someone who wants to retire early.

The most important thing to have is cash and investments that will allow you to gain a passive income. A home may fit the bill if you plan to rent it out, but this also locks you into being in a specific location.

We are going to talk about retirement lifestyle strategies in the next section. For now, let’s just say that you need to keep your housing costs as low as possible, and you may just want to rent an inexpensive home or apartment and not worry about real estate ownership.

How to Retire Early: The Lifestyle

Instead of telling you what kind of lifestyle you will need to have in order to figure out how to retire early, we think you need to come up with some ideas of what your life will be like when you stop ‘working’.

It might come as a surprise, but many retired people actually work or volunteer to stay busy. This leads us the question of: Do you really want to retire in your 30s or 40s? Or do you want to transition to a life that affords you more personal freedom?

If you just want to sit around all day in a tropical location, you probably need to sock away a lot more cash. On the other hand, if you want to run a small business, you can probably make do with a lot less savings, because you won’t rely solely on your investment to support yourself.

Minimalist Lifestyle

Read: The Minimalist Living Lifestyle: Complete Guide

Time to Make a Lifestyle Plan

Whatever your lifestyle goals, it is important to have them on paper before you decide that it is time to swap your job for a new life.

It is a good idea to plan for all of your major expenses:

  • Housing
  • Food
  • Medical Care
  • Transportation
  • Recreation / Discretionary Spending

Depending on where and how you want to live, the above costs could range anywhere from $1,500 per month into five figures. There are ways to drop your costs, like owning a self-sustaining building (an Earthship), or rental property that basically pays you to live in it.

It is all about lifestyle, and you need to have a good idea of what you want. Let’s talk about a few options, just in case you need some ideas.

The Typical Retirement

If you want to stay where you currently live, and just not work much, you might fit into the classic retirement mold. This lifestyle could also extend to moving to a normal retirement area, like Florida for people that are from the USA.

There are benefits to this kind of lifestyle, but it can also be very costly. It would be a good idea to own whatever you plan on living in so that you only have to worry about paying utilities and property taxes.

The real challenge to staying in a more developed nation is medical costs. The USA has one of the highest costs for medical care in the world, and living without any sort of insurance isn’t going to be a good long-term plan.

If you are planning on retiring early you will have a pile of money and perhaps other assets, which means that you won’t be getting any deals on medical insurance. For people that live in a developed economy that has actual socialized medicine (like Canada or the UK), this medical insurance problem isn’t as pronounced.

Be sure to do a detailed cost analysis of what you would need to survive without working in your current (or desired) location before anything else, and remember to account for inflation!

A Great Escape

If you are already an international traveler, you understand the difference in living costs from one country to another.

There is a good reason why more people from the developed North are looking abroad for their golden years, and you can take advantage of the same strategy. The ‘global south’, as it is sometimes called is both warm and cheap. There are also numerous countries that would be happy to give you and your money a new home.

From an economic point of view making a move to a cheaper country that you like has few if any flaws. On the cultural side of the equation, you might need to think a bit more about moving half a world away.

It is unlikely that your native language will be the native tongue in your new low-cost location, so considering how that will work on a daily basis is a must.

One of the things that keep people from moving abroad is fears about safety.

There is no way to make generalized statements about safety in one location versus another. Most big cities have both nice and not so great areas, and many locations that fall in more rural zones can have much lower rates of violent crime.

If any of this sounds good to you, try finding some reliable information about living costs in areas where you might want to relocate. You can even do some research in person when you check out the spot that interests you in person.

Off The Grid Living

Many younger people are looking for ways to live a lifestyle that is a world away from the situation they grew up in.

There are still many places where land is inexpensive, and labor costs are low. Ideas like an Earthship, or other home designs that are basically free to heat or cool once constructed turn the modern lifestyle on its head.

The advantages from a budget-busting perspective are manifold.

You are basically free from any utilities, and would only have to pay for maintenance on your home, as well as any taxes on the land. Many people elect to combine gardening food or keeping livestock with their off the grid existence, which further removes living costs.

This is also a perfect lifestyle for a person or couple that wants to keep on working but on their own terms. When your costs are less than $1,000 per month, a part-time online hustle goes a long way.

Should I Max Out my Tax-Deferred Accounts?

The question of tax-deferred retirement accounts is a little tricky for people who want to retire early.

For a person or couple that wants to retire early, tax-deferred retirement accounts aren’t as valuable. The simple reason for this is the long wait until 59 ½ years old (or whenever the money can be withdrawn without penalty).

If you are planning to stop working in your 40s, a retirement plan that kicks in 15 years down the road isn’t going to be as useful. If your employer matches your contributions, then it is still probably a good idea to push some money into your 401(k).

For people that are stuck with IRAs, the case to max out the accounts every year is far less compelling.

A regular brokerage account won’t help you to avoid paying taxes, but you will be able to use the money you deposit in it whenever you want. That makes a lot more sense for someone who is planning to leave the workforce decades before a tax-deferred account would be available as a source of funds.

What is a 401k?

Read: What is a 401k?

Is Early Retirement Right for You?

The foundation of achieving early retirement is a load of fiscal discipline combined with some pretty extreme levels of planning.

If you are serious about learning how to retire early, you will need to take the following steps. There is little room for compromise, and you will have to live a lifestyle that your current friends and family might not fully understand.

ONE-Save at Least Half Your Income

How you find half or more of your current income to save is entirely up to you. You may be able to give up your car or move into a home that is much cheaper. You are going to have to sacrifice today for more freedom in the future, and probably make some big lifestyle changes.

It may be difficult to say no when your friends ask you to go to an event, or out for some fun. If you can’t enforce a strict budget there is no way you will ever be able to save the amount of money you will need to retire early, so be ready to say ‘no’ a lot.

Some people are able to save as much as 80% of their income, and clearly, more is better. The more you can save the faster you will be able to quit your job, and start living a life that affords you a lot more personal freedom.

TWO-Have a Plan

Becoming a super saver is only half the battle in the early retirement game.

As your money starts to pile up, you are going to need to come up with a spending plan that can last you for the rest of your life. There are numerous unknowns in the financial world, like inflation and market meltdowns.

If you are using a best-case-scenario as your base case, you could be setting yourself up for big problems down the road. Make sure your plan includes a few stock market crashes and some bad luck at a personal level.

How you insulate yourself from the rough patches is up to you. If you are still able to work, it isn’t a bad idea to have a part-time ‘job’. Any income will offset the pressure on your savings, and it will also help you to fight off the boredom that many retired people have to deal with.

THREE-Make Sure You Are Ready For a Big Change

The difference in lifestyle between a person who works 40+ hours a week and someone who can do as they please is enormous.

Early retirement might sound like a nonstop vacation, but leaving the working world when you are still young can be difficult. Make sure you have things to do so that all your free time doesn’t get the best of you.

You can integrate activities that help to support you into your early retirement, like looking after a food-producing garden or running your own small business.

As long as you know how to set boundaries, and not get sucked into doing loads of work, a part-time hustle can feel like getting paid to play.

Good Luck With Your Early Retirement!

One of the best parts about learning how to save a huge portion of your income is that you will learn to be happy with a lot less. Getting ready for early retirement is like training yourself to be extremely frugal, which makes leaving the workforce a lot easier.

You don’t have to save 80% of your income the first year you get your early retirement plan going, but as time goes by, it is wise to be as frugal as possible. The less you spend, the less you have to make, which is always welcome to someone who doesn’t want to rely on work to survive!


Nicholas is an experienced Finance Journalist who has written for a number of prominent online publications. He grew up in Ann Arbor, Michigan with a father that would read him the Wall St. Journal along side of other bed-time fare. He has traveled extensively, and been lucky enough to study a changing global economy in person. Nicholas spent many years in the Southern Cone of South America, sometimes in the middle of the countryside where livestock starts its journey to all points of the globe. Today he is thoroughly bemused with the stance that Central Banks have taken in the wake of the 2008 meltdown. There is no telling what will come out of the global financial system next, but he is glad that he lives somewhere that gold can be bought and sold readily!

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