How to Retire Early

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A lot of people dream of being able to stop working their 9-5 job and retire early. But what does it take to make that dream a reality?

Here’s What You Need to Know About How to Retire Early

The first thing to think about when considering how to retire early is why you want to do it.

People have a lot of different reasons for wanting to retire early:

  • Spending more time with my family and friends
  • Quitting your current job and doing one you love
  • Going back to college
  • Living abroad
  • Traveling

In this article, we’ll look at six key steps you need to take if you’re planning to retire early.

Table of Contents

  1. Crunch the Numbers
  2. Get on a Budget and Live Below Your Means
  3. Eliminate All Consumer Debt
  4. Invest to the Max
  5. Pay Off Your Mortgage
  6. Meet With a Financial Advisor

Crunch the Numbers

No matter where you are in your career, the first step in figuring out how to retire early is crunching the numbers:

  1. Tally up how much money you’ve saved for retirement up to this point.
  2. Figure out how much more you’ll need to save to retire by your desired age.

The most common rule of thumb for retirement savings states that you’ll need 25 times what you expect your annual spending to be in retirement.

Maybe you’re on the fence about early retirement because you may have to support your children financially and/or care for your aging parents. In that case, you may want to play it more conservatively and stash away 30 times your anticipated annual spending.

Let’s take a look at a real-life example: Say you’re 30, you have annual pre-tax earnings of $60,000, you’ve managed to save $100,000 so far and your goal is to retire at 60.

To reach that goal, you’re saving 10% of your pay each month right now. So, at the current rate you’re going, are you on track to retire at 60 or not?

That’s where a free online retirement calculator — like this one from Nerdwallet — comes in handy.

Nerdwallet Retirement Calculator
Nerdwallet Retirement Calculator

When you crunch the numbers, you see you won’t quite make it at your current pace of savings. You’ll amass only about $1.16 million at the rate you’re going.

But if you’re willing to bump up your monthly savings rate from 10% to 25% for the rest of your working life, you’ll have an estimated $2.05 million. That’s very close to the nearly $2.1 million you’ll need to retire at 60.

This is just a hypothetical example. You can play around with this calculator and enter your own numbers here.

Note: These calculations exclude the impact of Social Security benefits and a pension if you have one.

Get on a Budget and Live Below Your Means

After you figure out how much you’ll actually need to retire, you’ll probably need to get on a budget.

There are multiple approaches to budgeting, but these two have proven themselves time and time again:

  1. The CLARK method
  2. The envelope method

The CLARK method is our own budgeting plan based on money expert Clark Howard’s teachings. It’s easy to follow because we want people to stick to it. You’re one click away from the free worksheet that will get you started!

Meanwhile, the envelope method is a traditional approach to budgeting. Here’s how to get started with that approach.

Many people who want to retire early decide to become extreme savers. They typically save anywhere from 50% to 75% of their pay. They also align themselves with the Financial Independence, Retire Early (FIRE) movement.

Clark practiced FIRE decades before it was called that.


As a young person, Clark lived on every other paycheck. So, he effectively had a 50% personal savings rate. Clark was able to retire by 31 after selling a chain of travel agencies he’d started.

“In the end, saving money is a choice; there’s no requirement that you do it,” Clark says. “And if saving is not something that’s important to you, it simply means you’ll probably have to work longer.”

Eliminate All Consumer Debt

To kick your budgeting efforts up a notch, try zero-sum budgeting. The idea here is that you assign every dollar in your life a job each month before it hits your account. It’s a great strategy to help target and pay off any lingering debt you may have.

Meanwhile, if you’re stuck paying off high-interest debt, you should consider getting an introductory 0% APR credit card and doing a balance transfer. Check out our list of The Best 0% APR Credit Cards Right Now.

Being debt-free buys you so much freedom. Eliminating all your consumer debt today is one surefire way to get on the path to early retirement tomorrow.

“I want you to take charge and take control. One dime at a time, one dollar at a time and one day at a time,” Clark says. “The end game is not to pinch a buck; it’s to have the freedom to make choices — freedom to save, invest and do as you wish.”

Invest to the Max

If you hope to retire early, your goal should be to max out all your retirement accounts.

Very often, that starts at your workplace with your 401(k), 403(b) or 457 plan. The first two are more common than the latter one. Be sure to check out our 401(k) guide and our 403(b) guide.

You contribute pre-tax money to these plans and they often have an employer match. If they do, that’s free money you’re being offered to save for retirement!

You can see annual contribution limits for these plans here.

Once you max out your retirement plan at work, the next step is to focus on doing a Roth IRA. Unlike a 401(k) or 403(b), you fund a Roth IRA with after-tax money. However, it has considerably lower contribution limits than those other pre-tax accounts.

If you manage to max out the Roth IRA and still have money left over to invest, then you’ll probably want to open a brokerage account and put additional money in low-cost index funds.


Pay Off Your Mortgage

You may be familiar with the idea of “good” debt and “bad” debt. In the latter category, you have things like credit card debt that can be a big drag on your financial well-being.

But when it comes to “good” debt, people often talk about things like federal student loans and mortgages. The thinking is that you’re investing in something — equity in real estate or a potentially better career for yourself — rather than using money you don’t have to make lifestyle purchases.

But here’s a reality check: If you want to retire early, there’s really no such thing as “good” debt!

That’s why a lot of people who are preparing to retire early aim to pay their mortgage off before they pull the trigger on retirement. After all, a mortgage is probably the biggest line item in your budget. Wouldn’t it be nice to erase it from your balance sheet as soon as possible?

“One common trait of happy retirees is that they have either paid off their mortgage or they are within five years of having it paid off when they retire,” certified financial planner Wes Moss says. “Conversely, a large percentage of unhappy retirees have 10 or more years until their house will be paid off.”

Setting up your own free accelerated biweekly mortgage payment plan is a great way to get your mortgage paid off in a shorter amount of time.

Meet With a Financial Advisor

When you’ve built up substantial assets and are approaching your early retirement date, there’s no substitute for sitting down with a well-trained and educated fee-only financial planner.

A fee-only financial planner can provide invaluable guidance for when you’ve amassed a sizeable portfolio and it’s getting closer to time to spend it.

“If you’re looking for investment advice, I’ve long recommended and,” Clark says.

Garrett Planning Network is great for one-time hourly advice when you just want someone to look over a portfolio that you’re self-directing.

NAPFA is geared more toward ongoing financial advice rather than the occasional check-in.


Final Thought

Learning how to retire early isn’t for everybody. Some people simply can’t do it because they’re too burdened by past financial choices like credit card debt and student loans.

But if you’re eyeing an early retirement, you have to do your homework and make a plan to get there. Budgeting and investing well is such a big part of early retirement. Don’t overlook them!

If you have questions about investing, consider contacting Clark’s free Consumer Action Center.

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