14 Ways to Retire Early


It seems like the economy is making it more difficult for people to retire at 65. That's true in some ways, but what if you had more control over your own retirement than you realized?

What if there were some practical things that you could do that would enable you to retire closer to 60 instead of 70? While we can't control the economy around us, there are some practical financial things we can do to round down our retirement age. (See also: Retirement Planning if You're Under 30)

1. Know What You'll Need to Live On

Simply knowing what your monthly expenses will be during your retirement years can be helpful when it comes to planning when exactly you'll be able to quit working. This worksheet from Vanguard covers most expenses and will give you a rough estimate of what you'll need to live on a monthly basis.

Let's assume that currently you're 27 years old and earning around $35,000 per year. We'll also assume (generously) that between a 401(k), savings, and other assets, you already have $30,000 saved.

According to CNN's retirement calculator, if you can save 15% of your income, you can retire at 65. That's $5250 a year or $438 a month at your starting income. (The calculator assumes that your income will grow at an annual rate of 3.8%, so your savings in actual dollar amounts should also increase each year.)

Now, if you knock your hopeful retirement age down to 60, 15% of your income suddenly isn't enough, as it falls quite short of what you'll need. It's not until you're saving 21% of your income that you make the cut to retire at 60. That's $7350 a year or $613 a month.

So your challenge is to increase your savings by 6%, or $175 a month.

2. Start Early

Starting to plan and save for retirement in any capacity is far easier in your mid-20s than your 40s or 50s. The earlier you start, the more time your money will have to accumulate and grow.

In the retirement calculator above, the starting age was set to 27. Knock that number down to 24, and you can get away with saving 19% instead of 21%.

3. Contribute a Weekly Amount to a Long-Term, Low-Risk Investment

If you start early, contributing as little as $20 a week to a money market mutual fund can grow to five figures (six if you start with a five-figure initial balance) by the time you're ready to retire.

Depending on your income and what you're saving already, $20 a week is $80 a month (plus two bonus weeks every year!), which gets us almost halfway to $175.

4. Save Your Salary Increases After a Certain Point

Our habit is to increase our income and upgrade, always hovering at the ceiling of what we can afford. If you get to a certain point where you're content with your lifestyle and living situation, stop upgrading when your salary increases, and instead, save that increased amount every year as a lump sum for your retirement accounts.

If you've been saving 21% of $35,000 (or even 15%), it's okay to loosen up a little. But keep your eyes on the prize. (See also: Lifestyle Inflation: The Ultimate Money Trap)

5. Keep Your Living Expenses Low

Keeping your living expenses capped will allow you to put more money aside for retirement and contribute more to investment accounts or a 401(k).

Stay practical for this one.

Start with a simple budget plan and then carve out unnecessary expenses. You also can work to lower your utility bill, which can save anywhere from $30 to $100 per month. (See also: Save $1,500 a Year in 15 Minutes)

6. Pay Off the Principal on Your House

If you can get your house paid off, you'll free up all the money that would normally go to a mortgage payment every month, which can go to retirement savings. Also, the more principal you've paid, the more you get to keep when and if you sell your house.

7. Take a State- or Federal-Level Government Job

Those who were born after 1970 and work for the state or federal government have a minimum retirement age (MRA) of 57, and often retire before 60 with a pension. These employees are entitled to public employee pension plans, though they vary by state.

8. Max Your 401(k) Contribution

If you have a 401(k) and can afford to contribute more, try to contribute as much as your employer will match.

If you're able to contribute an extra $1,500 a year total (starting when you're 25) that will give you roughly an extra $15,000 a year to live on if you want to retire at age 60.

9. Downsize Your Home When the Market Is Good

This can be a particularly good move if your house is paid off and the kids are all grown and moved out. Assuming the market is good, sell your home at a profit and move into a place that's smaller, cheaper, and better suited for just a couple people. Odds are that you'll have a sizeable amount to put away; perhaps even enough to get you through a year or two. (See also: How to Downsize and Live a Better Life)

10. Move to a State With Lower Taxes

Some states are easier to retire in than others. Property, income, and sales tax should all be taken into consideration if you plan to move. Reduced taxes mean reduced living expenses which means your retirement dollars go farther.

11. Exercise and Manage Your Health

One way that you can help to prevent increased expenses in your later years is to exercise and take care of your body. If you do, you might be able to qualify for cheaper health insurance plans and be less susceptible to increases in your monthly premiums. (See also: Live Longer With These Small Healthy Habits)

12. Start a Roth IRA

A Roth IRA is a retirement account that allows you to contribute after-tax money. The appeal over a traditional IRA is that withdrawals won't be taxed in retirement, and that your contributions can be withdrawn anytime without penalty (with some caveats), for emergencies.

13. Work the Tough Hours While You're Young

Working overtime and weekends, and doing what you can to bring in more cash flow is much easier in your 20s and 30s than when you're older. Work those hours now and put money away so that you can wind down as you get closer to retirement age.

14. Cultivate a Skill That You Can Do Part-Time in Retirement

Many people work part time in their retirement, if for nothing else as a means to kill time. Try to plan for a way to continue to bring home a paycheck even after you've retired. This can mean continuing in your line of work part time or perhaps going from a business owner to a consultant for another company. It also means your retirement funds won't be your sole means of support.

Planning Ahead

The most important thing you can do when it comes to securing your retirement is to do as much advanced planning as you can. While certain things can't be predicted, like exact living expenses or the cost of insurance, you don't have to wait until your 50s to start putting money away.

Be prudent when you're still young, and you'll make an early retirement far easier.

Do you have other ideas on how to retire early? Let me know in the comments below.

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Guest's picture
Riky N

This would fall halfway between 11 and 12, but reducing alcohol intake and food costs is probably one of the largest hits on young and older budgets. I spent thousands of dollars on alcohol and terrible food throughout my college years, and now in my young professional years, I'm regretting not using it to pay loans and start a retirement account.

Guest's picture

Retiring abroad is best, not just a different state. The world is too large to stay in the U.S. your whole life and things such as medical care, infrastructure, and general living is not only better in other countries, but far less expensive.

Guest's picture

Weaning yourself from gross consumerism also helps with having an early retirement. If you live without all the expensive gadgets, life is simpler and thus less money is spent on costly updated electronics. I don't have an iPhone or an iPad and I get along just fine. Clothes are a huge expense for some people. My clothes are limited to comfort clothes. I don't want to dress up in expensive clothes to go to an expensive venue for either food or entertainment. I realize some people crave this type of life style and that's fine. For me, the simple, inexpensive lifestyle afforded me the ability to retire at age 54 (I'm now 66) and retirement is as wonderful as I thought it would be. The best advice: save money don't spend on stuff you can't take with you.

Guest's picture

My wife and I are focusing all of our savings and effort toward early retirement. We have focused on lowering our living expenses (we currently only need 40% of our income for essential expenses) and saving the rest for retirement and other long term goals. We are pumping our Roth IRA's because we like the tax advantages in the future and we have been putting quite a bit into my 401k up till this point. I think the coolest thing of all of this has been that we actually consider early retirement a real possibility.

Guest's picture

Saving as much money as you can for retirement is good, but I think having a steady stream of passive income after I retire is much better. I'm in my mid 30's, and I have been buying rental properties since I was 25. By the time I turn 55, all my rental properties will be fully paid off and the positive cash flow each month will be more than enough for me to retire comfortably. However, this may work great for me, being a landlord of multiple properties is not easy and it's definitely not for everyone.

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