Early Retirement: How to Turn Your Dream into a Reality

Whether it’s having time to pursue your passions and talents, volunteer for an important cause, or be together with the people you love, many of us dream of an early retirement. But early retirement takes a serious commitment to saving and planning. Here are eight steps to get you to your goal:

1. Define what early retirement is to you

   Retiring early doesn’t necessarily mean never working a day in your life again—unless you want it to. Many retirees choose to leave their high-stress jobs and long hours to move into a job with more flexibility. Whatever early retirement looks like to you, start by figuring out what you want. Remember, the typical full retirement age is between 65 and 67 years, depending on your birthday.

2. Take stock of what you have

   To figure out how much you’ll need, you have to calculate what you already have. Take some time to sit down and figure out your net worth. This will include a full list of your assets and liabilities.

3. Calculate how much you’ll need

   Once you’ve figured out your net worth, calculate how much more you’ll need for the future. Since your retirement plan is unique to you, it will depend on what kind of lifestyle you hope to have as well as other factors like healthcare expenses and personal goals. If you’re having a hard time coming up with this list, here are a few things to consider:

   • Think about how you want to spend your time. After all, you’ll have at least 40 extra hours per week to do what you want!

   • Think of the personal goals you have. Do you plan to start your own business, travel the world (or at least your own little corner of it), volunteer your time or something completely different?

   • Identify what you want your life to look like in 5, 10, even 30 years from now.

   • Evaluate your housing situation and decide if you plan to downsize or move once you retire.

   • Ask yourself what financial sacrifices you’re willing to make to retire early.

   • Plan for an emergency fund. The financial experts at Mountain America recommend having 3–6 months’ worth of income saved.

   • If you don’t plan to continue working, make sure you have enough saved for your future healthcare needs.

4. Establish a financial target

   After determining what your version of early retirement looks like, establish how much money you’re going to need to make it a reality. Start by paying off all your debt and adjusting your lifestyle so that you are fully prepared.This part may be a bit difficult to pin down on your own—so seek out expert advice. Schedule a meeting with your financial advisor. They can help you calculate how much you’ll need, including taking inflation and the possibility of a recession into account.

5. Make the most of your income

   If you plan to retire early, it’s crucial to stick to a well-defined budget. Create a list or spreadsheet that tracks your income and develop a habit of updating and analyzing this information often. Doing so will help you become aware of every dollar that goes in and out of your accounts. You’ll also gain an understanding of how much it takes to cover your expenses and where you can make adjustments to save money.

   If you’d like to find a way to make more money, start by picking up extra shifts or using your talents to work on a side gig. Apps like Fiverr or TaskRabbit help connect people with freelance opportunities and work projects.

6. Maximize your retirement plans

   If you haven’t already done so, see what kind of retirement plans your employer offers. Then, make the most of them by contributing as much as you can—many employers provide a match up to a certain percentage. Take full advantage of this benefit—otherwise, you’re leaving free money on the table. If you find it challenging to manage your retirement accounts yourself, think about meeting with a financial advisor—they can explain the ins and out of a 401(k) or IRA and keep you on track to realizing your retirement dreams.

7. Invest, invest, invest

   All the steps listed above will help you get closer to an early retirement but, unless you’re independently wealthy, it can be challenging to save up enough money for the rest of your life. Whether it’s mutual funds, stocks, bonds or real estate, investing can provide an income source to maximize your savings in retirement. Of course, all investments come with some degree of risk, but an appropriate mixture of low and higher risk investments can help to protect you.

8. Have a backup plan

   No matter how foolproof your plan may seem, it’s always good to have a backup plan. Develop a strategy to handle a down economy or pay for unexpected medical bills. Running through your worst-case scenarios can help you further evaluate your plan and gives you an opportunity to make adjustments.