How to Retire Early: It May Be Easier Than You Thought

How would you spend your early retirement? Source: Jade Mountain St. Lucia.

Most of us would love to retire early, but most of us also assume we won't be able to. Don't be too hasty in your thinking, though. For some people, retiring early is almost a piece of cake. For others, it will take more work but is still achievable. Read on and see where you fall.

The easiest way to retire early

If you're young and disciplined, you have the easiest path to early retirement. Young people usually don't have as much money as their older counterparts, but they have the secret ingredient of wealth-building: time.

For example, if you started investing at age 20 and socked away just $2,000 per year for 40 years, it would grow to nearly $1 million (growing at 10%). The more time your money has to grow, the more powerfully it can grow. You can accumulate even more and retire even earlier if you invest regularly and increase your contributions over time.

Running the numbers

Of course, if you're already 40 years old and you haven't been saving and investing for many years, it's a bit too late to start early. Still, all is not lost. If you're willing to be aggressive about it, you might be able to retire early -- or at least earlier than you expected to retire.

My colleague Chuck Saletta put together a great table showing how much you need to save and invest in order to accumulate a million dollars, depending on how far you are from retirement. For example, if you're 40 and hope to retire at 60, and you estimate your investments will grow at 10% in an environment with an average inflation rate of 3% (roughly the historical norm), you'll have to sock away $2,378 each month, or $28,500 per year. That's clearly a tall order, but even if you don't quite manage that, if you still sock away as much as you can, you can improve your retirement. Knowing how much to shoot for is a great start.

Tips for retiring early

Below are a few ideas that might help you save more and retire early. If you have some more ideas, especially ones that have helped you retire early, share them below in the comments section.

First, automate savings whenever possible. If you have a 401(k) at work, try to max out your contributions to it. Beyond that, you may also be able to have IRA contributions automatically deducted from your paycheck.

You can also make a game or contest of spending less. If you live with a partner or spouse, you might take turns preparing meals, seeing who can spend the least on a satisfying and nutritious meal. If you live alone, you could compete with friends, or just aim to top your personal best. You might spend $88 one week on food but then be dethroned by someone who spent $76. Alternatively, perhaps buy an inexpensive basket of ingredients at the market and see what meals you can make from it. If others start with the same basket, you can have fun by comparing notes.

Consider not using credit cards at all if you're apt to make impulse purchases. Studies have shown that people spend less when paying with cash. If you're disciplined enough to keep your spending under control, though, look into getting a card that gives you cash back. American Express' Blue Cash cards, for example, offer up to 6% back on supermarket purchases, up to 3% back on gas, and 1% back on most other purchases. A card like that can easily generate hundreds of dollars for your retirement account.

Give some thought to when you want to start collecting Social Security. There's no one-size-fits-all answer, and it's true that delaying benefits will boost your ultimate benefit by 8% per year beyond your normal retirement age. On the other hand, if you start collecting early, at age 62, your monthly checks will be lower, but you'll get far more of them. This is the right move for some, especially if you expect to live a long life and have sufficient income from other sources to support you in retirement. The Social Security Administration offers some guidance and tools to help you with this decision. Getting an estimate of your expected monthly benefit at different ages can be a big help in figuring out when (or if) you can retire early. 

Think outside the box, too. For example, you can save big-time on gas and car maintenance if you bike whenever possible. And if you can manage it, selling your car and getting by on two wheels exclusively could also save you thousands in car payments and insurance. If you have more house than you need, you should consider downsizing in order to save on mortgage payments, taxes, and utilities. These kinds of sacrifices aren't for everyone, but if you can bring yourself to make them, they can make the path to early retirement much shorter.

You may not be young anymore, but you can still make the most of the time you have by not putting off financial planning. You may be able to retire early by taking action -- starting today.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Read/Post Comments (6) | Recommend This Article (33)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 23, 2014, at 7:14 PM, Edward wrote:

    It's easy simple live below your means! Buy a 5 year old Corolla instead of the $40K new truck. Buy an 1000sqft house instead of the 3000sqft. Etc, etc.

    Read the "Millionaire next door"

    We started serious savings and cost control at 31 and retired at 43.

  • Report this Comment On August 23, 2014, at 10:50 PM, fredjohnson55343 wrote:

    @Edward: Retired at 43. Why? I'd get bored and yes, I have $5 mill saved for retirement already at age 59 and an $8 mill net worth, but retire and do what? Golf? Travel? Sleep? Visit relatives? Volunteer? Only so much of that you can do before you are bored.

  • Report this Comment On August 24, 2014, at 5:42 AM, Edward wrote:

    Fred, OMG get Bored!!!! No offense friend but that smacks of lack of imagination:) But your right most people need the 9-5 job to fill their days.

  • Report this Comment On August 24, 2014, at 11:31 AM, Jim8 wrote:

    At my company, in my profession, aerospace engineer, retirement has been slipping away for years.

    I remember people retiring 20 years ago with big savings plan balances, retiree medical, and a nice pension.

    Today our 401K balances are smaller, we lost our retiree health benefits to the exchanges, and people who hired on after the late 90's have no pension.

    For me losing that retiree medical was huge, because what's available is so much more expensive and covers so little that it's useless.

    I researched cash prices and decided that being uninsured is the best option.

    My retirement savings are now at risk, but the odds are with me, because I'm healthy and have almost no chance of using the $12,000 that the cheapest plan would have cost (premiums + deductible). If I had the cheapest plan, $4,000. For a plan that pays nothing until I pay another $5,000 deductible. So I now have over $9,000 to pay any bills that come up.

    My costs so far this year? $0 "Preventative," a physical, would cost me less than two months premiums.

    When I found out cash prices are as much as 2/3 less than what I'd pay if I used my insurance while paying the deductible I decided I'd always take the cash price and not pay one cent towards that deductible.

    Health Insurance is no longer worth purchasing for a lot of us.

  • Report this Comment On August 24, 2014, at 3:09 PM, RatchetOriginal wrote:

    Not a bad article. I retired at 53 and I still put money into savings each month!!!

  • Report this Comment On August 26, 2014, at 1:43 AM, RxPro wrote:

    LOL @ getting bored while retired. If you saved well (like you said you have $5M) you can literally do ANYTHING YOU WANT. Could still even work part time for extra spending cash if you need some kind of structure. Just try to open your mind, but then again if you have your own business and it brings happiness to you, your patrons, and employees then hey keep at it but try to think of the things you would look back and say, "man I wish I did that" and just DO IT if you saved up enough.

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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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