Chinese philosopher Confucius said, "The man who moves a mountain begins by carrying away small stones." That's advice you can apply to any big goal you set for yourself, including the goal of retiring early.

Although a good percentage of younger workers believe they'll never retire, early retirement is a possibility for almost anyone. If you have the discipline to forgo immediate gratification and keep your eye on the long-term plan, you can save enough to replace your income -- well before your 60s. You will have to weather peer pressure from friends and family who want to spend on drinks, dinners, trips, and fun. But rise above all that and you'll be the one living the good life soon enough.

Man smiling with his golf club

Image source: Getty Images.

Inspired? Here is a two-step plan to help you retire early.

1. Budget for high-percentage savings

There's no getting around it: To retire early, you must budget. Grab a sheet of paper and draw a line down the center. Add up your net income on the left side, and sum your required expenses on the right. Hopefully, the income total is greater than the sum of your required expenses. If not, you'll have to make some drastic lifestyle changes. And by "drastic," I mean moving to a cheaper place, selling a car, getting a second job, or renting out a room in your home.

Those lifestyle adjustments are required, because the simplest way to guarantee early retirement is to save 35% or more of your earnings. Why 35%? Financial experts usually advise savers to contribute 15% of income to their retirement accounts. That 15% is sufficient when you're targeting a traditional retirement age of 62 or 65. But if you want to retire 10 years earlier, for example, the 15% may not get you there. You have to increase that percentage by enough to make up for the 10 years you won't be earning a paycheck.

An example demonstrates the difference that 10 years makes. Let's say you're 25 today and you make $45,000 annually. At a 35% savings rate, you're tucking away $1,312.50 monthly. Invest that money to earn 7%, roughly equal to long-term stock market returns, and you'll be a millionaire by age 50. But if you gave yourself another 10 years to save, you'd only need to save $565 monthly to reach $1 million by age 60.

2. Follow this early retirement waterfall plan

Traditional retirement savers would typically max out their tax-advantaged retirement accounts. But that approach doesn't work when you're on the fast track to retirement. Unless you want to pay IRS penalties, your 401(k) and traditional IRA funds are off-limits until the age of 59 and a half. Instead, you'll need to balance the perks of those tax-advantaged retirement accounts with liquidity. Here's one approach to consider.

  1. First, contribute enough to your 401(k) to max out your employer match. Employer-matching contributions are free money, assuming you plan to stick with your employer long enough to be fully vested.
  2. Second, max out Roth IRA contributions if you meet the income requirements. You can contribute up to $6,000 annually in a Roth IRA if you make less than $139,000 as a single filer or $206,000 as a married filer. Roth IRA contributions are after-tax and you can withdraw your funds at any time. You'll only face a penalty if you withdraw the earnings from your account. The IRS assumes any withdrawals consist of contributions first and earnings second. That means you'll sidestep penalties as long as you don't withdraw more than you put in.
  3. Third, max out HSA contributions. Healthcare is a wild card, so it's wise to plan for the worst by maxing out your HSA if you have a qualifying high deductible health plan. In 2020, you can contribute up to $3,550 to your Health Savings Account or HSA as an individual. If you are contributing as a family, the annual limit is $7,100. These contributions are pre-tax and distributions to cover out-of-pocket medical costs are always tax-free. Once you turn 65, you can take taxable distributions for any purpose.
  4. Fourth, invest in a taxable brokerage account. Put the rest of your savings contribution in a taxable brokerage account. You'll pay taxes on any realized gains, dividends, or interest you earn -- but you'll have the flexibility to access your funds whenever you want. If you save enough to retire by age 45, for example, you can reach into this account without generating an IRS penalty. Keep your annual tax bill low by investing in passively managed mutual funds and a diversified portfolio of blue-chip stocks. If you invest in dividend-paying stocks, hold back enough cash from those dividends to cover your tax bill and reinvest the rest.

The table below shows how this waterfall approach plays out on an annual salary of $45,000 and a total contribution of 35% or $15,750. As your income increases each year, keep up with any changes to the Roth IRA and HSA contribution limits and then put the excess funds in your taxable brokerage account.

Account Type

Contribution Amount




This amount will be based on your plan. I assume here that you can max out your employer-match with a 6% contribution.

Roth IRA


This is the maximum allowed Roth IRA contribution in 2020 for savers under age 50.



This is the maximum allowed HSA contribution for an individual under age 55.

Taxable brokerage account


This contribution brings the total savings up to $15,750, or 35%, of the $45,000 salary.

TABLE DATA SOURCE: Author calculations

Stick to the plan

At any income level, saving for retirement can feel like carrying small stones to move a mountain. But keep your chin up and stick to the plan. After 10 or 15 years, you'll see the momentum build significantly as your portfolio balance stretches up over $200,000. That's when the mountain starts to take shape and your early retirement feels truly attainable.