15 Secrets to Retiring Early

Early retirement is something many people dream of. And the good news is that you don't have to earn a fortune of money to leave the labor force at a relatively young age. If you make these moves, you may find that early retirement is something you can pull off without breaking a sweat.

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The sooner you decide you want to retire early, the sooner you can work toward that goal. Think about the age you'll be happy to leave the workforce at and start making a plan that supports that early exit. You can also talk to early retirees and see what they did in their careers to set themselves up for success.

Your first few years in the workforce may not be your highest years of earnings. But it's important to start saving for early retirement as soon as you begin collecting a paycheck. That way, you'll be able to invest your money and give it more time to grow.

The less money you spend on taxes, the more you'll be able to save for retirement. It pays to house a bunch of your savings in an IRA or 401(k) plan. A health savings account (HSA) is another good savings option, since it's actually triple tax-advantaged.

ALSO READ: Here's the Best Way to Benefit From Your HSA

The money you're diligent about socking away shouldn't just sit in cash. You'll need to invest that money to grow it into a larger sum. And the sooner you do, the more you'll get to benefit from the power of compounded returns.

Stocks carry risk, and because of that, some investors might shy away from them. But you need to take on some risk in your portfolio to grow your money substantially, so try to push yourself outside your comfort zone. If you stick to bonds and similarly safe investments, your money may not grow quickly enough to make early retirement possible.

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Dividend stocks offer two ways to make money. First, the value of your shares can grow over time. Second, you can keep reinvesting your dividends to grow your portfolio -- and end up with enough wealth to leave the labor force when you want to.

ALSO READ: If You Like Dividends, You Should Love These 3 Stocks

It's important to branch out in your portfolio rather than stick to a single type of asset or segment of the market. That could mean assembling a mix of stocks, bonds, real estate investment trusts, and income properties. And within your stock holdings, aim to mix things up by dabbling in different market sectors or buying broad-market index funds, which give you exposure to lots of different companies.

The more money you waste on interest, the less you'll have to save and invest. Aim to stay away from unhealthy debt, like credit card balances, if you want to retire early. That said, don't worry about paying off a mortgage over time, as that's a healthy type of debt that can help you own an asset with the potential to gain value.

A solid emergency fund can help you avoid debt when unplanned bills strike. And that could be your ticket to not wasting money you could otherwise be saving. Ideally, your emergency fund should have at least enough cash to cover three months of expenses -- though you may want to aim higher for added protection.

ALSO READ: Suze Orman Warns Your Emergency Fund May Not Cut It. Here's Why

Mortgage debt may be a healthy type to have. But you should still try to limit the amount you take on. The more you spend on housing, the less money you'll have to save for retirement.

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If you drive daily, there is something to be said about having a comfortable car with nice features. But that doesn't mean you need the highest-end car out there. If you limit what you spend on a vehicle, you'll have more money to sock away for your early workforce exit.

ALSO READ: Ask Yourself This Question Before Buying a Car in 2022

The better a job you do of living below your means, the easier it might be to free up money for savings. That means taking modest vacations instead of always staying at a high-end hotel or resort. It also means not always have the fanciest phone and limiting the amount of money you spend on conveniences like takeout, rideshares, and outsourced home maintenance.

The more money you earn, the more you'll have available to sock away. It pays to consider taking on a side hustle (or several) in the course of your career. Since that extra money won't be earmarked for bills, you can aim to put it into your IRA, 401(k), or brokerage account.

Claiming Social Security at a relatively young age could make it possible to retire early. Doing so, however, means slashing your benefits for life. If you want to retire early, think about how Social Security might play a role in that -- or not. You may decide you don't want to file early and would rather come up with another way to leave the workforce at a young age.

ALSO READ: Everything You Need to Know About Social Security Benefits

Medicare eligibility doesn't begin until age 65. If you want to retire early, you'll need to figure out a plan for securing health insurance. That could mean getting on a spouse's plan or saving enough so you're able to pay for private insurance on your own.

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Presented by Motley Fool Stock Advisor
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Many people think early retirement is a great thing to aspire to but too difficult a feat to pull off. But if it's something you really want for yourself, go after it. All of these tips could put you on a path to leaving the labor force when you want to -- and getting to enjoy the upside of years of hard work and solid savings efforts.

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