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What It Takes to Retire Early

If you want to live it up in your retirement years, why wait until you're too old to enjoy them?

As a runner and outdoor enthusiast, I'm keenly aware of the dilemma that potential early retirees face. You don't want to wait so long you're no longer physically able to do the things you enjoy. Yet the longer you work, the more money you'll have to support yourself for the rest of your life.

And while longer life expectancies make the risk of outliving your money an important thing to consider, the ultimate nightmare would be to spend your life working hard to save a comfortable nest egg -- only to run out of time. I've seen that firsthand too -- my dad died at age 64, having worked until his failing health forced him to stop.

So with all that in mind, what does it take to retire early?

A different frame of mind
With so many people worried about whether they'll be able to retire at all, it takes a special kind of confidence to keep alive your dream of early retirement.

For some, that confidence results from laser-precise budget management. Rather than using income to improve their standards of living, many early-retirement seekers save extraordinary amounts of their earnings. This helps them reach their goals faster in two ways: They build their savings faster, and they learn to live on less.

Early-retiree wannabes are also ruthless in their cost-cutting. From oversized houses and pricey home improvements to having all the latest gadgets, they can't afford the cost of trying to keep up with the Joneses.

Finally, investing plays a major role in the success of your early retirement plan. If you're fortunate enough to make bold investments in stocks with high returns, then you'll be able to retire a lot sooner than if you invest more conservatively. For example, John Greaney, who has contributed several articles to the Fool's Rule Your Retirement newsletter, was able to reach and sustain his retirement at age 38 largely from investing in Dell (Nasdaq: DELL  ) and Pfizer (NYSE: PFE  ) in the early 1990s, both of which proceeded to do extremely well for the rest of the decade.

It's not for everyone
As much as you may look forward to punching the clock for the last time, early retirement doesn't suit everyone's lifestyle. Cutting costs to the bone can create some awkward social situations. When your friends or co-workers don't budget their expenses as strictly as you do, something as simple as going out to dinner can make you uncomfortable.

Moreover, many people just don't want to stop working early in their careers. When I was living in Seattle in the late 1990s, I knew a lot of people in their 20s and 30s who had capitalized on the Internet boom and were ready to take a break. Simply by virtue of having worked for Microsoft (Nasdaq: MSFT  ) or Amazon.com (Nasdaq: AMZN  ) , these young professionals were able to cash in stock options and do whatever they wanted.

Yet after a few years, many of those Internet early retirees chose to go back to work. Similarly, in Silicon Valley, many Yahoo! (Nasdaq: YHOO  ) and eBay (Nasdaq: EBAY  ) employees made enough money to be financially independent, yet that didn't keep many of them from moving on to start their own businesses or to work in other fields.

Know your priorities
To a large extent, how early you'll be able to retire depends on what's most important to you in your life. For instance, if you want to raise a family, you'll have less to put aside toward retiring early. Putting together the life you want requires trade-offs.

Rest assured, though, that many people have successfully retired early. If you're interested in reading some of their stories, try out a complimentary one-month pass to Rule Your Retirement. Inside, you'll learn about the many different paths people have taken to reach their retirement goals.

If early retirement is your top priority, have faith that you'll get there. All it takes is the courage to live a less common lifestyle and the determination to keep working toward your goals. When you walk out your employer's door for the last time, you'll find it was all worth it.

For more about retiring early:


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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