6 Min Read | Updated: January 29, 2024

Originally Published: November 06, 2019

7 Tips on How to Retire Early

Dreaming of retiring in your 30s? Find out how you can save enough money to retire early and enjoy life.

7 Tips on How to Retire Early

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

At-A-Glance

Early retirement requires rigorous planning and budgeting.

Complex calculations include everything from lifestyle choices to healthcare uncertainties.

You may actually need to “live beneath your means” and invest the savings aggressively in order to retire early.


It’s a struggle for many to save up for retirement, period. But what if you want to retire early?

There may be multiple viable paths to early retirement, but most share a challenging starting point: you’re going to need a lot of money. How much depends on what age “early” means to you, what you want to do in retirement, and a host of other factors. The calculations for how much money you actually need to retire early can vary based on lifestyle, but some experts recommend planning to use 70% to 90% of your pre-retirement income as a gauge for what you'd need in retirement.1

Above all, you need a serious plan. Hitting the reset button might not be an option if you run into difficulties after you’re well into retirement.

What Is Early Retirement, Anyway?

Retirement is in the eyes of the beholder. In a survey from the Employee Benefit Research Institute (EBRI), nearly one in three Americans said that they expect that they'll never retire, or will retire after age 69.2 At the other end of the spectrum, there’s an entire movement dedicated to retiring early (even at the age of 30 or 40), which goes by the acronym FIRE (Financial Independence, Retire Early).3 Gallup pollsters have reported that the average American expects to retire at 66, though the actual retirement age is 61, on average, and that hasn’t changed much in recent years.4 

Early retirement is a choice for some and a necessity for others, with reasons including family priorities, health issues, layoffs, career dissatisfaction, and lifestyle. Some plan to “retire” from the rat race but keep working at a different pace—to the beat of their own drum on their own passion projects.3

 

Whatever drives you, it’s a good idea to be prepared.

How to Retire at the Age of 55 or Before? It’s Complicated

Early retirees may have to embrace a certain level of uncertainty given the shifting environment for social security, health insurance, long-term care, investments, taxes, and other weighty considerations.5,6

Social Security can be part of the consideration, but it's not guaranteed to be a replacement for your prior income.7 And, the earlier you take your benefits—say, at 62 rather than at 66—the less you will get, according to the Social Security Administration.8

Among other considerations, early retirees may need to cover their own healthcare until eligible for Medicare at 65,9 though their costs and access are subject to change. On top of that, many see supplemental healthcare insurance as another potential cost to factor in to their retirement plans.

 

Adding even more uncertainty, investment portfolios are subject to volatility. Plus, property taxes, capital gains taxes, and other taxes can be the source of unpleasant surprises.


There are also common traps to avoid, such as a tendency to overspend in the first years of retirement or ignoring your credit score as you whittle down your spending.10,11

Yes, retirement is complicated—and the earlier you retire, the more complicated it can be.

Planning for Early Retirement

All that said, the more money you have stockpiled for early retirement—and the more carefully you spend it once retired—the less these complications matter. Below are a few high-level considerations on how to retire early.

 

Establish your budget. You should set the stage with a mock retirement budget, estimating in detail what you think you will spend on food, home repair, and other need-to-haves and want-to-haves for the lifestyle of your choice.5 Model budgets and first-person accounts by early retirees are readily available online.

 

Avoid debt. If you're planning on retiring early, experts recommend avoiding things like home equity loans or high-interest credit cards if possible.6 The money you spend on these could be put towards your retirement fund. Cheaper alternatives, like a used car instead of a new one, can help put more money away for the future.

Reduce spending – significantly. To retire early, you may have to reduce your spending significantly to be able to invest sufficiently. That could mean anything from downsizing into a smaller home to moving into a less expensive community to dispensing with a whole lot of nonessentials.6

Maximize compound growth. Investing in 401ks, IRAs, and other tax-advantaged retirement funds as soon as you start your career can help to maximize compound growth as well as any employer matching funds.5 (But remember: withdrawing any of it early could result in financial penalties.12)

 

With an investment of $6,000 a year and 7% annual return on investment, a person could expect to earn more than $800,000 in 35 years, according to the U.S. Department of Labor.1

Planning for contingencies can help keep your early retirement from imploding. Figure out how much to set aside to replace big-ticket items, such as cars, or to pay for uninsured medical expenses. And take care if you decide to assign part of your investment portfolio, rather than savings, to cover the unexpected—for example, what could be the capital gains tax implications?

Finally, refresh your early retirement plan periodically, because facts change and you don’t want to find yourself missing your own retirement party by a couple years.

9 Tips on How to Retire Early

The Takeaway

At some point in nearly everyone’s career, early retirement may start sounding like a good idea. The question is how to retire early. If you’re serious about it, you’ll want to consider the pros and cons—and challenges and benefits—from every angle. Detailed planning and aggressive saving and investing might just get you over the line with time to spare.


Karen Lynch

Karen Lynch is a journalist who has covered global business, technology, finance, and related public policy issues for more than 30 years.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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