4 Action Steps to Make Your Dream of Retiring Early a Reality

by Connie Mei · 5 comments

According to a recent Gallup survey, the average retirement age in the U.S. was 62 in 2014. That’s up from 61 in 2013.

What I found more interesting was that 11% of 18-19 years olds expect to retire before the age of 55, which is a much higher percentage than other groups.

The article theorized that this could be because young Americans don’t fully have an understanding of the financial realities of retirement, compared to their middle age counterparts. While that theory has some merit, I’d like to look at it from another perspective.

The thought of retiring at the age of 62 doesn’t really appeal to me. But up until not too long ago, I didn’t really think that I had any other options. But my opinion changed as I got older.

Growing up and seeing my parents work day in and day out and eventually retire at 62, I thought that was how life worked itself out if you worked hard and saved up.  However, when I started actually looking into retirement, I knew I had other options, as long as I started planning now.

While we’re a generation of dreamers, we also have much more access to resources than generations past. That’s why I think people in their 20s today are able to make more educated decisions about their finances and how it relates to retirement.

My goal, like 11% of my generation, is to retire by 55 (maybe even earlier). Yes, it’s a lofty goal but it’s not at all impossible. Are you hoping to retire early too? Here are four steps to take:

1. Determine Your Ideal Retirement Age

Everyone’s ideal retirement age is different. Some people love what they do and want to do it forever. Others want to drop it all and retire right now if they could.

As I mentioned, I’d like to retire at 55. That’s 7 years earlier than the average American, which means I need have to save a higher percentage of my income over the next 29 years.

The first step to reaching retirement early, is to do the calculations. Understand your expenses, both now and later. Then determine how much you need save, how you’ll invest your money for the future, and what return you expect to get. Of course, this is a rough number but it will be accurate enough for you to get started.

Once you determine your idea retirement age, you’ll have to closely monitor your spending and retirement accounts over the years leading up to your goal.

2. Save Vigorously

This might be obvious but it’s the most important thing you can do to ensure you’re able to retire early: save vigorously. This doesn’t mean you have stop spending altogether, but it does mean you have to watch how you spend, and prioritize saving over other things.

Most Americans spend frivolously on things they don’t need. I know I do. Understand what you need to cut out and make the necessary sacrifices.

Building a lifestyle that you’re comfortable with now will help you reach retirement early, but also enable you to live comfortably during retirement too.

3. Invest Early (But Cautiously)

The earlier you save and invest (even if it’s a very small amount), the higher chance of success. Why? Because you have the power of time and compound interest on your side.

Start investing your money early to get the most return. You also want to be cautious of investments that have too much risk — one bad investment can derail all of your retirement plans.

(Also note that if you chose to put your money in retirement accounts, you may be penalized for early withdrawals so make sure you understand what you’re putting your money into.)

4. Build An Emergency Fund

Life is unpredictable. You’ll probably encounter some unexpected life events, so plan ahead. While you’re saving up for retirement, you should also save up an emergency fund to pay for these surprises.

You don’t want to continue putting off retirement due to medical, family, or financial emergencies. Without an emergency fund, your finances are vulnerable, along with your dreams of retiring early.

Planning for Early Retirement

Do you know your ideal retirement age? How does that measure up to your financial standing, ability to save, and your investment strategy? Take a few minutes this week to evaluate your retirement situation and see what changes need to be made.

Don’t wait until next year, get started now! Each month you put off is another month you’ll have to postpone retirement in order to maintain the lifestyle you’re used to.

If needed, contact a financial advisor and talk to them about your plans. They may be able to help offer some ideas and strategies for you to reach your goal. Early retirement is possible, you just have to plan for it and prioritize it over your other financial goals.

When do you want to retire? What kind of sacrifices need to be made to reach that benchmark?

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  • alex wilson says:

    Industries are getting highly competitive and life is getting more stressful. I am just 31 years old but planning to get retired by 40. Trying my hands much on passive income sources for the living.

  • freebird says:

    I found the answer to #1 when I started my first job with a MegaCorp straight out of school. Within the first few days I realized working there was not what I wanted to do. So it was pretty clear my answer to #1 was ASAP. That led to #2 which in retrospect was the most important factor. I was OK with the grad student lifestyle and living in a cheap apartment while working in silicon valley (yes they’re out there if you look), so it took only 12 years to accumulate enough to live off passive income alone. Admittedly the roaring bull market of the 1990s accelerated the process, and that was enabled by #3. No I didn’t get lucky in a local startup nor through company stock options like my brother did, mine was straight up #2 and #3. And for #2 “vigorously” meant that for the past decade my annual living expenses (excluding income taxes) stayed less than 10% of my W2 income.

    Something unexpected did happen along the way, over the years my job became more tolerable, and eventually it actually became fun. So even though I did all this prep to retire early, and I’m now set financially, I’m staying on the job for awhile doing just what I enjoy. Ironically my job would be much less fun if I needed the paycheck because many in my age cohort and in the same line of work are stressed by the combination of regular layoff rounds and declining job mobility, especially those with high maintenance lifestyles. So in a way my great escape actually extended my career.

  • Mrs. Frugalwoods says:

    I like your advice to start now! It’s so true–investing as early as possible is crucial for reaching early retirement. My husband and I plan to enter a form of early retirement at age 33, so I’m all about saving money right now. Every dollar we spend is a debit against our future, so we try to keep expenses as low as possible.

    In addition to building up our net worth, we’ve created a lifestyle of permanently low expenses, which will serve us well in our version of early retirement. Low expenses mean we need less to retire on!

  • Tom Mullaly (@wagefreedom) says:

    H David, I love your site and how you help people systematically save money. There will never be enough reasonable advice like you offer on this site, imo.

    When it comes to retirement my take is a little different, toward a direction that’s not for everyone but worth considering.

    I’d like to respectfully suggest that looking at work/retirement as a black/white issue leads some people–not all–to spend decades working jobs or in careers they don’t like. We tell each other that it’s just how life is.

    Today we have more options than we used to, but there’s a huge industry whose existence depends on convincing everyone to keep their nose to the grindstone and pay into retirement plans for decades. Many people are uncomfortable talking about other options because they’re afraid it’ll sound irresponsible.

    What other options? I know I don’t have to remind you David, and I’m directing the following more toward your readers:

    There are so many ways to use the internet to create an income. I think everyone should look into matching their skills/interests/domain expertise with opportunity that exists.

    Income generating skills and marketing techniques can be learned in a thousand places online, for free.

    Nothing says you have to replace 100% of your current income with money you make online by next week. Start slowly and learn; you’d be surprised where you can be in six months or a year.

    Even if you decide to stay on your current retirement path you’ll have a lot more cash to put toward it each month. But you also might just find a way out of employment doing something you like better.

    I won’t even get into the expenses side of things; how tens of thousands of people around the world people have drastically reduced their expenses by moving to cheaper parts of the world.

    It might sound totally unrealistic — even irresponsible–but I know literally hundreds of people ranging in age from their 20s to their 70s who have gone this path, including myself.

    $1,000/month of online income might pay bills or a mortgage payment in the Western world; in SE Asia for example it might be all you need to live. Have a pension or retirement income? Even better.

    Just my two cents. Good luck to you David.

  • Money Beagle says:

    I’m not sure I’d put too much attention on the numbers for 18 and 19 year olds. A s you pointed out, they haven’t really been exposed to or grasp everything that ties into a retirement and when it can realistically take place. I think in their case, the question is probably more thought of as when they would like to retire. Only after you get more experience can you really answer the question of when you expect it to be a realistic option.

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