If retirement is a complicated step to take in life, then leaving your working days behind before you're in your 60s is even more complex. Some people actively choose to do this, with all the money in place to live well outside of a career -- but others can end up retiring early because they fall ill or lose their jobs.

For those retiring on the early end of the spectrum, take heed. Managing the process without causing undue damage to your lifestyle takes know-how and careful planning.

Let's turn to the realities of early retirement and some strategies to make the most of the years it entails.

Frugal living leads to easier retirement
For the early retiree -- unless you enjoy significant independent wealth, investment windfalls, pensions, and/or an inheritance -- retirement usually demands a more frugal lifestyle before leaving work. Start with the idea that conventional retirement advice, on the most basic level (and there are many variables, such as returns on investments), pegs the amount you need to save to retire at 15% of your annual take-home for about 45-50 years. If you take home $100,000 annually, then you could put some $15,000 per year into a 401(k). Say your salary increases an average of 3% per year, and your employer matches your contributions at 50% up to 3% of your salary -- and figure an annual compounded return of, say, 5% -- then you could be looking at about $4.2 million in savings after 45 years. You'd then live, under typical models, on about 4% of what you tucked away per year. In our example, that's about $168,000 annually, plus any additional income from any assets.

Early retirees need to approach the equation even more aggressively. Assuming one could live frugally before retirement and save 30% for 30 years, under the same circumstances as our 45-year at 15% model, then you could estimate a career-end balance of about $2.9 million. That would become some $116,000 annually (again, figured at 4% per year to live on), post-retirement.

Early retirees and Medicare
One benefit of retiring early is that health considerations are often farther off than is typically the case for those who leave work in their 60s or later. In any case, for individuals seeking coverage away from the workplace, buying health insurance may be simpler under the Affordable Care Act than it was before -- especially given the removal of obstacles surrounding pre-existing conditions. But remember that you still won't qualify for Medicare until you're 62. And even when that program kicks in, you'll have spent resources for up to (or exceeding) a decade already. Bottom line, if you retire early, you'll likely need additional monies to cover health expenses, given the longer span of exposure to personally covered events.

The Social Security hit
If you were born after 1960, full retirement age is 67. While you can collect Social Security as an early retiree, you probably won't get the full benefit of the program. That's because the government calculates your payments based on a full 35 years of your highest earnings as a worker. Retirees who haven't racked up those 35 years are penalized, in a sense, because the non-working years amount to zeroes in the Social Security calculation.

Penalties for early account withdrawals
If your early retirement depends upon withdrawing funds from a 401(k) or an IRA, the government will take a share of that money when you draw it down before age 59-1/2. Unless you can show hardship or a medical emergency, expect to pay a 10% penalty for withdrawing from these kinds of instruments before you reach the minimum age.

If all of this makes early retirement sound challenging, remember that it's not impossible. People do successfully retire early, but they need strategies in place to absorb some of the long-term costs that come with a non-salaried lifestyle. By taking into consideration housing, taxes, and their lifestyle budget, early retirees can maximize the money they have to spend.

  • Downsize your home. Housing can consume more than one-quarter of the average household's budget. Downsizing one's home, renting part of it, refinancing to a shorter-term mortgage to save on interest, or even selling one's house and creating a savings instrument with the net can significantly change your early-retirement equation for the better.
  • Consider location in light of taxes. States that do not levy income tax can create savings for early retirees facing what is probably an extra decade or more of making their nest egg last. But even a less-than-total reduction of taxes can help keep more money in place for longer, and this includes sales tax and property tax. Part of the care that goes into a successful early retirement is the concept of location. Where you choose to live is deeply intertwined with how you're able to live after work.
  • Identify and minimize go-forward expenses. Controlling expenses for early retirees means reapproaching even basic concepts, such as transportation. For example, the cost of owning and maintaining a car can run into the five digits during the life of the vehicle. Public transportation options and rentals can create significant savings. If you travel abroad, which is the desire of many retirees, pick places where your dollar is worth more because of exchange rates. Countries such as Chile, Argentina, and India are often advantageous destinations in this regard.

Finally, remember that many retirees -- early or otherwise -- return to part-time work to augment their available resources.

"Retiring today doesn't necessarily mean not working," says Don Tebbe, a consultant to retiring executives for the past 20 years, in an email interview. "For many it means post-career work, paid or unpaid -- maybe even an encore career -- that is more engaging, offers more freedom, and provides greater contribution and satisfaction."

And this can be key to balancing all the frugality we've just examined.

Say you drove deliveries or long-haul for years, but as a retiree you've given up your vehicle to save money. Explore driving shifts in a cab part-time. Another example: A carpenter or a landscaper wants to be near the water, but he or she has relocated away from the beach to cut post-retirement expenses. That person could pitch off-season care-taking services to homeowners in waterfront locales. Others will pick up work in more conventional ways -- the former human-resources head who consults, the former business-owner who takes on business planning projects with new entrepreneurs, etc.

Leveraging the skills you've developed in a career of work can supplement your income and change your retirement lifestyle, not only providing additional purpose to your days, but also increasing the longevity of the plan you've put in place.

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James o'Brien is a contributor to WiserAdvisor.