How to Retire Early (2024)

Wondering how to retire early? Lots of people would like an early escape from the rat race, whether it is to travel, pursue a passion project, start a business, volunteer, or just stop working.

However, retirement planning is tricky enough when you plan to work until your full retirement age. It is even more so if you want to stop working years—or even decades—sooner.

Can it be done? Absolutely. But unless you are independently wealthy—and few people are—it will take work and discipline. Here are five key steps to take.

Key Takeaways

  • To start planning for early retirement, estimate your monthly expenses and calculate how large of a nest egg you will need before you can retire.
  • Ideally, you will be debt-free when you enter retirement, and it is generally considered that roughly 70% of an individual's income from their last job before retirement is a good retirement income.
  • When retiring early, you have less time to save for retirement and more time to spend in retirement, so try to budget wisely and max out your retirement accounts.
  • Consulting a financial advisor can help you manage your savings and investments before retirement and your income from dividends, required minimum distributions, Social Security, defined-benefit plans, and real estate investments during retirement.

Step 1: Estimate Your Retirement Expenses

If you want to retire early, the first step is to estimate how much money you will spend each month once you retire. Start by adding up expenses for things you cannot avoid, such as housing, food, clothing, utilities, transportation, insurance, and healthcare.

Ideally, you will enter retirement debt-free. That means no mortgage, no credit card balance, no outstanding medical bills, and no student loans or other debt; however, if you are still paying off any debts, be sure those payments are included in your budget.

Next, add in any discretionary expenses you will have, including those for entertainment, travel, and hobbies. Add everything together to ascertain how much you will need each month to maintain the retirement lifestyle you envision.

Of course, keep in mind that your budget will change as you reach different phases of retirement—you may decide to drop your life insurance policy, for example. This preliminary budget will be a good starting point, so it is worth taking the time to make it as accurate and realistic as possible.

Step 2: Calculate How Much You Need to Retire

Now that you have an estimate for your monthly spending, the next step is to calculate how much money you need to save. There are several ways to estimate this. One approach is to have between 25 and 30 times your expected yearly expenses plus the cash to cover one year's worth of expenses.

Start with your monthly expenses and multiply by 12 to obtain an annual estimate. Next, find your "target" range. Here's an example. Assume your monthly expenses will be $5,000—or $60,000 per year. Using this approach, you will need between $1.5 million and $1.8 million to retire plus $60,000 in cash.

Another approach is to take your estimated annual expenses and divide them by 4% to see how big your nest egg should be. If you're likely to spend $60,000 per year, you will need $1.5 million ($60,000 ÷ 0.04).

If you want more wiggle room in retirement, try dividing by 3% (or somewhere between 3% and 4%). With the same $60,000 per year budget, you will need $2 million ($60,000 ÷ 0.03). It's always better to have a cushion.

To see how close you are to your retirement goal, subtract your current nest egg from your target number. For example, if you need $1.5 million and you already have $500,000, you'll need $1 million more before you can retire.

Step 3: Adjust Your Current Budget

Here's where the discipline comes in. You will have to work to make up that $1 million shortfall—particularly if you want to do it quickly.

You have three options here:

  • Spend less
  • Earn more
  • Do both

Remember, the more you earn, and the less you spend, the sooner you can quit your 9-to-5 and start enjoying retirement.

You must create a budget so you know where your money goes—and where you can cut back. There are lots of budgeting apps that can make this tedious process a little easier.

Step 4: Max Out Your Retirement Accounts

Regardless of when you plan to retire, it's wise to start early and save frequently. Retirement accounts like individual retirement accounts (IRAs) and 401(k)s are a great way to do this.

While you are still working, do everything you can to max out your retirement accounts. A traditional IRA allows you to contribute to your retirement, the earnings grow tax-free, and you get a tax deduction in the tax year you contribute; however, when the money is withdrawn in retirement, it's taxed at your income tax rate in the year of the withdrawal.

Conversely, a Roth IRA allows certain distributions or withdrawals to be made on a tax-free basis, and your earnings grow tax-free; however, Roth IRAs do not offer a tax deduction in the years they're funded.

For 2023, an individual can contribute up to $6,500 each year to a traditional or Roth IRA. If you are aged 50 or older, you can add a $1,000 catch-up contribution for 2023, for a total contribution limit of $7,500. For 2024, these numbers are $7,000, $1,000, and $8,000, respectively.

If you have a 401(k) at work, you can contribute up to $22,500 in 2023 and $23,000 in 2024. If you are aged 50 or older, you can contribute an additional $7,500 in both years. Be sure to invest enough to take advantage of any match your employer offers; it's free money.

Step 5: Work With a Financial Advisor

If you want to retire early, you have two big challenges:

  1. You have less time to save for retirement.
  2. You have more time to spend in retirement.

Unless you're a rock star investor, it's a good idea to work regularly with a financial advisor. An advisor can help you develop an investment strategy to make it easier to reach your retirement goals. They can also show you exactly how much you need to invest each month to reach your goal within a certain number of years.

Once you retire, your advisor can help you manage your income streams to make sure the money lasts. Income streams might include income from dividends, required minimum distributions, Social Security, defined-benefit plans, and real estate investments.

Take the time to find an advisor you are compatible with—you could end up working with them for decades, after all. If you are concerned about the cost of a financial advisor, remember that you are not just paying for their time; you are paying for their expertise. If you find the right advisor, that expertise will more than make up for the expense.

What Is a Good Monthly Retirement Income?

What is considered a good monthly retirement income will vary depending on the individual. Many factors will affect what is a good retirement income, such as one's current lifestyle, expected lifestyle in retirement, dependents, such as children or grandchildren, outstanding debts, and health. In general, it is considered that around 70% of an individual's income from their last job before retirement is a good retirement income.

How Much Can I Contribute to My 401(k)?

In 2023, you can contribute up to $22,500 to your 401(k) and $23,000 for 2024. If you are aged 50 or older, you can contribute an additional $7,500 for both years.

At What Age Should a Person Be Debt-Free?

Some experts recommend individuals be debt-free by the time they are 45. This age is suggested because it is the last half of a person's career when they should have no debt obligations, other than their mortgage, and should ramp up saving for retirement.

The Bottom Line

To work towards early retirement, estimate your retirement expenses, determine your target nest egg, and then save and invest to make it happen. Early retirement may be possible for you, but it requires careful planning and decision-making.

How to Retire Early (2024)


How to Retire Early? ›

The common definition of early retirement is any age before 65 — that's when you may qualify for Medicare benefits.

How to retire early successfully? ›

Seven steps to retire early
  1. Determine how much income you'll need in retirement.
  2. Figure out how much will come from Social Security and other fixed sources.
  3. Calculate your "number."
  4. Take stock of where you stand.
  5. Make a savings and investment plan.
  6. Account for healthcare and other concerns.
  7. Stick to the plan.
Mar 12, 2024

How do I figure out how to retire early? ›

How to retire early
  1. In a nutshell. ...
  2. Determine your ideal retirement lifestyle. ...
  3. Understand the 4% rule. ...
  4. Take stock of where you're at right now. ...
  5. Factor in Social Security and other income sources. ...
  6. Use a retirement calculator to see how much you need. ...
  7. Find ways to save and invest more now. ...
  8. Build a bridge account.
Mar 13, 2024

How do you explain early retirement? ›

The common definition of early retirement is any age before 65 — that's when you may qualify for Medicare benefits.

What is the 4 rule for early retirement? ›

It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

What is the best job to retire early? ›

31 jobs that may help you retire early
  • Firefighter. ...
  • Secondary teacher. ...
  • Computer programmer. ...
  • Electrician. ...
  • Police officer. ...
  • Accountant. ...
  • Quality control inspector. ...
  • Insurance agent.

What is a respectable age to retire? ›

For Social Security purposes, full or normal retirement age typically means age 66 or 67, depending on when you were born. Early retirement for you could mean retiring at 62 but it could also mean retiring at 40 if you're interested in the FIRE movement.

What is the 3 rule for retirement? ›

What is the 3% rule in retirement? The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money. Historically, retirement planners recommended withdrawing 4% per year (the 4% rule).

Is retiring early worth it? ›

It depends on your lifestyle and income. A good place to start is by assuming you'll need about 75% of your current salary each year in retirement to live the same lifestyle as you have today. Then think about you and your family's medical history and longevity to estimate your potential life expectancy.

How to retire early in 7 simple steps? ›

A Gameplan for Retiring Early
  1. Determine what your goals are for early retirement.
  2. Create a mock retirement budget.
  3. Evaluate your current financial situation.
  4. Invest in a bridge account.
  5. Invest in real estate.
  6. Get serious about lifestyle changes.
  7. Play it smart when you retire early.
Apr 11, 2024

What is the earliest age for early retirement? ›

You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.

How to retire early in Canada? ›

Canada Pension Plan and Old Age Security could help you retire early if you include the benefits in your retirement income calculations. While you can't receive CPP until age 60, you may not need to draw as much income from your investments after age 60 or 65 if you can use CPP and OAS as a supplement.

What is the $1000 a month rule for retirement? ›

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

What is a good monthly retirement income? ›

Average Monthly Retirement Income

According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

Which is the biggest expense for most retirees? ›

Housing. Housing—which includes mortgage, rent, property tax, insurance, maintenance and repair costs—is the largest expense for retirees.

How to retire at 62 with little money? ›

If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.

What is the 25x rule for retirement? ›

If you want to be sure you're saving enough for retirement, the 25x rule can help. This rule of thumb says investors should have saved 25 times their planned annual expenses by the time they retire, according to brokerage Charles Schwab.

Is it healthier to retire early? ›

The findings are mixed. Most research shows that delayed retirement helps reduce mortality. A couple of studies show no relationship, and still others show that delayed retirement is detrimental or that early retirement is beneficial.


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