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These Smart Decisions in Your 30s Could Lead to Early Retirement

By Maurie Backman – Jul 27, 2021 at 6:04AM

Key Points

  • Many people aim to retire early.
  • The sooner you start working toward that goal, the more realistic it becomes.

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If you want an early workforce exit, prepare to make these important moves while you're relatively young.

Many people dream of retiring early and escaping the workforce ahead of their peers. If that's a goal of yours, you should know that the sooner you start working toward it, the more likely you'll be to achieve it. And if you make these smart decisions in your 30s, you may be in line to leave your career behind in your late 50s or early 60s.

1. Buying a less expensive house than you can afford

As a general rule, it's a good idea to keep your housing costs, including your mortgage, property taxes, and homeowners insurance costs, to 30% of your take-home pay or less. Following that rule will help ensure that you have enough money left over to cover your remaining bills.

Just as importantly, by keeping your housing costs low, you'll free up more money to put into your retirement plan. Housing tends to be a lot of people's greatest monthly expense, so buying a modest home could be your ticket to extra IRA or 401(k) contributions that fuel your early workforce exit.

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2. Taking budget vacations

A lot of people think they need to stay at a high-end resort or travel to the most exotic corners of the world to have a truly meaningful vacation. In reality, if you work hard all year long, any place you escape to will be wonderful if it gives you a break from the grind.

By spending less on vacations through the years, you could set yourself up to retire early. And at that point, you may have the flexibility to not only visit the places you've always dreamed of, but to stay longer than you would under work-related constraints.

3. Driving an average car

Many of us need a car to get around, but there's no sense in overpaying for one. The more you spend on a vehicle, the less money you'll have on hand to contribute to retirement savings.

In fact, one thing you should know about cars is that they're the one asset that's practically guaranteed to depreciate over time (whereas your home could easily gain value as it ages). As such, buying a functional car without all the bells and whistles is a smart financial decision across the board -- even if you don't care about retiring early at all.

4. Investing in stocks

A lot of people get scared of the stock market because it can be rather volatile. But investing your retirement savings in stocks is also a great way to grow your nest egg into a much larger sum over time. And that could be your ticket to wrapping up your career on the early side.

Say you're able to contribute $800 a month to a retirement plan by making the choices above. Let's also assume you do so over a 30-year period, and that your investments generate an average annual return of 7%, which is a few percentage points below the stock market's average.

All told, you'll end up contributing $288,000 from your earnings. But thanks to that 7% return, you'll wind up with a total savings balance of about $907,000. That may be enough cash to allow you to exit the labor force early.

You don't need to be a super high earner to retire early, nor do you need to lead a ridiculously frugal lifestyle. Succeeding at retiring early often boils down to making a string of smart choices at the right time, and if you stick to the above plan, you, too, can enjoy the freedom of leaving the workforce at a relatively young age.

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