Want To Retire Early? Check These 7 Things Right Now

Early retirement is alluring. Imagine trading office buildings for Florida beaches, waking up to the smell of freshly brewed coffee instead of alarm clocks and having the freedom to pursue your hobbies without the pressure of a traditional job.

While it’s fun to think about, the reality is that early retirement requires a significant amount of savings and contingencies to help you maneuver through potential obstacles like inflation, surprise expenses and market volatility.

Proactive planning — guided by the steps outlined below — is critical for any retirement plan, whether you’re aiming for FIRE (Financial Independence, Retire Early movement) in your 30s or 40s or just want to exit the workforce a few years ahead of schedule.

Why retire early?

Better question: Why wouldn’t someone want to retire early? Everyone has their own reasons for stepping away from their 9-to-5, including: 

• More time for creative and lifestyle pursuits: If you’ve always dreamed of writing a book or picking up where that amazing painting elective left off in college, early retirement offers the perfect opportunity to pursue your passions. Similarly, the idea of more free time to travel or simply relax after a lifetime of work can be major motivations.
• Spending more time with family and friends: Fifty-one percent of retirees said a desire to do other things or to spend time with family was important for their decision of when to retire, according to a May 2024 report by the Federal Reserve.
• Health concerns: Not everyone retires early into a carefree life. The Federal Reserve found that 29 percent of retirees said that a health problem played a role in their decision about when to retire, and 16 percent said they retired partly to care for family, according to a 2024 Federal Reserve report.

7 things to check before you retire early

If retiring ahead of time is a priority for you, here are seven steps you can take to make your retirement dream a reality.

1. See if your savings rate is up to snuff

Before you can plan your path to early retirement, you need to hone in on a savings target that will allow you to support yourself in the future. Determining how much money you need to save for retirement depends on the age at which you want to retire and the lifestyle you envision.

There are no wrong answers when it comes to living your best life in retirement, but there are wildly different price points attached to each scenario. 

2. Calculate the real cost of your lifestyle

Gaining a clear understanding of your current financial situation is essential to making a workable early retirement plan. This involves evaluating your income, expenses, assets and liabilities. Don’t forget to factor in expenses that could impact your savings and investment plans during the years between now and retirement (e.g., sending kids to college, buying a new home).

Once you’ve gathered this information, you can track your income and expenses (consider using a budgeting app) and identify areas where you can cut back and save more for retirement. 

3. Create a retirement budget (or a few of them)

Coming up with a savings goal for retirement can lead to a number that simply feels too theoretical and overwhelming to be useful.

Take the time to create a monthly budget for retirement. Much in the same way you have a budget for your life now, you can create mock budgets to pinpoint what your spending could look like in retirement.

Since people’s income and expenses typically shift in retirement, keep a few things in mind:

• Factor in Social Security: Estimate how much Social Security income you’ll receive (here are some averages) as well as a sustainable withdrawal rate from your retirement plans, such as your workplace 401(k) or an IRA. The “4 percent rule” is a good placeholder for your calculations.
• Adjust expenses based on your plans: Retirees might spend less money on things like transportation — goodbye daily commute! — but health care costs tend to rise with age. And if you want to travel extensively, you’ll need to budget for that, too. 

Don’t feel limited to just one budget — make several budgets that paint different pictures of what your spending might look like. And if early retirement means living on a leaner budget, practice doing that for a few months to see if it’s sustainable.

4. Maximize the right retirement accounts

Contribute as much as you can to tax-advantaged retirement plans, such as employer-sponsored 401(k)s or 403(b)s, and take advantage of any employer match. If you’re self-employed, consider a solo 401(k) or a Simplified Employee Pension (SEP).  If you’re age 50 or older, the IRS allows you to save even more in these plans through catch-up contributions.

Most retirement experts recommend saving between 10 and 20 percent of your income for retirement. But if you’re trying to leave the workforce early, you’ll likely need to set aside significantly more to cover expenses while you wait to file for Social Security. The earliest you can claim Social Security is age 62 — but waiting until at least full retirement age or longer will yield a bigger monthly benefit.

Early retirees should also save money outside of traditional tax-advantaged accounts (e.g., traditional IRAs and 401(k)s) to avoid paying early withdrawal penalties if you need to access the funds before age 59 ½. A taxable brokerage account is a good option, since the penalty does not apply. And you can minimize taxes on gains if you wait to take withdrawals until your income drops after leaving the workforce.

5. Look into your health insurance options

An often overlooked aspect of early retirement is figuring out how to pay for health care. You’ll lose your employer-based health insurance, which could be a huge headache if other members of your family depend on that coverage. And you’ll only become eligible for Medicare, the federal health insurance program, once you turn 65.

Options for early retirees to cover the years before Medicare coverage include enrolling in a plan through the federal Health Care Marketplace, joining your spouse’s workplace coverage (if they continue to work) or using funds from a health savings account (HSA) to self-pay for expenses.

6. Be prepared to pivot

There’s a reason few people retire early. For most people, pursuing early retirement means being laser-focused on hitting this goal, forgoing nonessential near-term spending and throwing every possible dollar into investments.

There may be times when you’re forced to trim the amount you’re saving in order to cover more pressing financial needs. Changes in circumstances force some people to accelerate their plans.

Whether you actually take an early retirement or not, there’s a huge benefit to planning for an early exit: You’ll be prepared in case you have to retire unexpectedly due to an illness or family circumstance.

If you don’t end up retiring early, at least you’ll have extra money saved up by the time you leave the workforce.

7. Have a pro check your plan

You can tackle many of the items on this list on your own. But when you’re trying something unconventional like early retirement, it pays to tap into the expertise of an experienced financial advisor.

Financial advice is available at many price points.

• Robo-advisors: If you’re looking mainly for investing advice, a robo-advisor is one of the best low-cost options for portfolio management. Some also include access to human advisors and provide tax-optimization services. (See what the top-rated robo-advisors offer.)
• Financial advisors: Traditional financial planners can provide personalized guidance on a wide range of topics for an hourly rate or a fixed per-service fee. We recommend looking for an advisor who is a CFP, or certified financial planner, a credential that requires them to bide by a fiduciary standard, putting their clients’ needs first.

Bottom line

Early retirement is a marathon, not a sprint. It requires careful planning and disciplined financial habits. Stay committed to your goals, make informed decisions and get professional advice when you need it. By following the seven steps outlined above, you can increase your odds of achieving financial independence and enjoying a fulfilling retirement.