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Here's How to Retire Early

By Maurie Backman - Feb 19, 2018 at 7:06AM

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Want to retire ahead of schedule? Here's how to get there.

Are you dreaming of an early retirement? You're definitely not alone. Who wouldn't want an opportunity to enjoy that flexibility at the earliest possible age?

Of course, when we think about early retirement, we tend to picture those folks who strike it rich with a killer investment or make millions on a brilliant Shark Tank-style idea. You know, the lucky folks.

But here's the thing: You don't need to be exceptional or overwhelmingly fortunate to wind up in a position where you're able to retire early. You just need to set your priorities and focus on the following steps that'll get you closer to that goal.

Middle-aged couple walking along the beach


1. Start saving early on

If you're intent on retiring early, you'll need to start saving early. It's a concept that's perfectly simple, yet many folks don't realize the importance of giving their money time to grow. But if you begin setting money aside for the future at an early age, you'll have a greater opportunity to take advantage of compounding, which is really the key to building wealth.

The following table further illustrates this point:

If You Start Saving $800 a Month at Age:

Here's What You'll Have by Age 55 (Assumes an 8% Average Annual Return):


$1.1 million









Data source: author.

Now obviously, it stands to reason that the more years during which you save, the more money you'll wind up with. But what you really need to pay attention to here is the gains portion of these calculations. In the first scenario, for example, that $1.1 million comes at an out-of-pocket cost of just $288,000. That's a gain of over $800,000. But as we go down the line, those gains start to decrease. And that's where savers can really lose out.

2. Invest wisely

As we just saw, the money you save for retirement can't just sit there doing nothing. Rather, you need to put it to work if you want to capitalize on the gains we just talked about. And your best bet in that regard is to go heavy on stocks, particularly if you start when you're young and give yourself ample opportunity to ride out the market's ups and downs.

Are stocks a riskier prospect than bonds, or a mix of cash and bonds? Absolutely. But if history tells us anything, it's that they'll make you a lot more money. For example, we just saw how an 8% average return over 30 years could turn $288,000 into well over $1 million, and that 8% is actually a bit below the stock market's average. But when we apply a 3% return, which is what you'll get if you mostly stick to bonds, or a bond-cash mix, that same $288,000 becomes just $457,000 after 30 years. And while that's hardly pocket change, you'll have an easier time retiring on $1.1 million than you will with less than half that amount.

3. Learn to live on less

You may be looking at that table and thinking, "That's all fine and good, but there's no way I can manage to save $800 a month." But it's this attitude that prevents so many people from retiring ahead of schedule. A big part of pulling off an early retirement is learning to be content with less -- both during your working years, to allow for more savings, and during retirement, to allow you the flexibility to get by on a limited income if that's what you're dealing with.

How do you change your outlook and redefine your personal needs versus wants? It might take some soul searching, and some trial and error, so play around with your expenses and see which cuts have the most and least impact on your happiness. It may be that while you're reluctant to live in a cramped apartment, you are willing to give up restaurant food and fancy gadgets. Or the opposite might come to be true -- you'd rather live in a smaller space but have the freedom to enjoy other luxuries. The choice is yours, but prepare to downgrade your current lifestyle to some extent if you want a chance to stop working earlier than your peers.

4. Don't view retirement as an all-or-nothing prospect

Many of us think of retirement as a period during which all forms of employment cease, but that doesn't have to be the case. If you're willing to work in some capacity, you'll have the flexibility to leave what you consider your full-time career sooner than you'd think.

In fact, retirement is actually the perfect time to start your own business or turn your favorite pastimes into a money-making opportunity. And the benefits of doing so are twofold. First, you'll be generating income, which puts less pressure on your savings and lifestyle. Just as importantly, you'll have something meaningful to do with your time. Financial implications aside, the danger of early retirement is getting bored too quickly and growing discontent or depressed as a result. So when you imagine yourself retiring, don't assume that you won't manage to earn a dime. Rather, think about retirement as an opportunity to work on your own terms.

So there you have it. Early retirement is a goal you can achieve, even if you're an average earner who's unlikely to invent the next big thing. It just requires a modest effort and the right attitude.

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