How to Retire Early And Live Life On Your Terms

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Couple Holding Hands on Lawn Chair at the Beach

We’ve all seen the great stories of people like Mr. Money Mustache and Jacob from Early Retirement Extreme. Both of these people retired from full-time work in their 30s.

Even if you cannot retire as early as age 30, you might be able to retire earlier. Today’s national average retirement age is currently 65 for men and 63 for women.

You can follow these suggestions to make an early retirement plan.

If you like the thought of being able to at least have the option of retiring early, then this post is for you.

Whether retirement is five years early or 35 years early, the ability to retire when you want brings an immense amount of personal and financial freedom in nearly all areas of life.

Here is a financial road map you can follow if you seriously desire the ability to retire early.

What Does It Mean to Retire Early?

Early retirement simply means you no longer have to work a full-time job to pay the bills.

You have the financial freedom to not work for several months or years without earning a full-time or part-time income.

A Road Map to Early Retirement

The road map to achieving the ability to retire early isn’t difficult. But retiring early does require the willingness to commit to a serious financial plan.

People often blow all chance of early retirement simply because they are unwilling to make the necessary yet simple steps to get them where they need to be financially for early retirement.

Instead, people pursue a “You Only Live Once” (YOLO) lifestyle instead of planning on how to save one million dollars.

By choosing to follow the steps below, you can achieve a firm financial foundation.

Make an Early Retirement Plan

By making an early retirement plan, I mean sitting down and evaluating your current financial situation.

Consider some of these financial factors: 

  • Annual income
  • Monthly expenses
  • Personal savings rate
  • Debt-to-income ratio
  • Liquid net worth
  • Total net worth
  • Current retirement account balances

The easiest way to do this is to track these key financial metrics is by using a tool like Empower. This free financial app can track your net worth and investment performance. It also has a free retirement planner tool.

Use a Retirement Calculator

After evaluating your financial situation, plug your current retirement goals into a retirement calculator. This calculator recommends how much money you should save each money to reach your desired retirement age.

Reduce Current Expenses

If you need to increase your monthly savings to achieve your early retirement plan, look for ways to decrease expenses. Then, save or invest the savings.

Some expenses you can reduce, include: 

  • Debt payments
  • Subscription services
  • Outdated phone or cable TV plans

If you’re already achieving your monthly savings goal, keeping monthly spending to a minimum is a good idea.

First, you can save more than your target amount to retire sooner or have more cash if your future expenses are higher than anticipated.

Even in early retirement, you may no longer earn a full-time income but will likely have a side job. Fewer expenses extend your life savings so you may not have to re-enter the workforce to replenish your savings.

Track Spending

Making a plan is one part of working toward early retirement. You must also track your progress to see if your plan is working.

A budget app can help you track expenses and your savings rate. Look at the monthly reports to see where you excel and which areas can improve.

Pay Off Debt or Save for Retirement?

If you have high-interest debt, you should focus on getting out of debt quickly.

Credit card and personal loan interest rates are higher than most annual investment returns.

But if your income allows, try paying off debt and saving for retirement at the same time.

As you pay off high-interest debt, consider investing the interest savings.

Calculate Annual Retirement Expenses

Knowing how much to save for retirement mostly depends on your projected annual retirement costs.

There are also two “rules” you can follow that can make your calculations easier.

Rule of 25

The “Rule of 25” is a quick calculation to decide how much total money you need to save. You can estimate your annual expenses and multiply by 25.

For example, you will need to save $1 million if your annual retirement expenses are $40,000.

You see, 40,000 times 25 equals 1 million.

4% Rule

Another early retirement rule to follow is the “4% rule.” This rule calculates your annual withdrawal rate.

The consensus is that you can withdraw 4% of your retirement savings and not outlive your money.

For example, with a $1 million savings, you can withdraw $40,000 and follow the 4% rule.

You may follow the Rule of 25 and the 4% rule to decide if you are ready to retire. But most early retirees continue to work part-time while pursuing their passions to earn extra income.

Research Investment Options

Saving and investing for early retirement is different than regular retirement.

For example, you may decide not to invest only in tax-advantaged retirement accounts.


Retirement investments in a 401k, traditional IRA, Roth IRA and similar accounts can support you after age 59 1/2.

But if you withdraw from retirement accounts before age 59 1/2, you will most likely pay a 10% early redemption penalty.

It’s a good idea to diversify your investments between retirement and non-retirement accounts.

You can access your investments in a taxable account penalty-free. But you may still owe taxes on any investment gains.

Consider using an online broker with many investment options and low or no fees to invest. The best online brokers offer taxable and retirement accounts.

Invest in Income-Producing Assets

Investing in income-producing assets can generate enough cash flow to replace your work income.

This cash flow can help you afford early retirement when you have a relatively small account balance.

Another benefit of earning dividends and recurring income is that you can use the passive income to pay your bills.

You don’t want to sell your investment principal unless necessary so you can continue earning compound interest.

Some ideas for non-retirement, income-producing investments can include:

Determine Risk Tolerance

It’s important to research both your retirement and non-retirement investment options carefully as you formulate your early retirement plan.

Determine your risk tolerance and asset allocation as if you retire at the average age.

High-risk investments can help grow the wealth that you need to retire early.

However, consider shifting to lower-risk investments as early retirement gets closer. You don’t want to lose money and delay retirement at the last minute due to a risky portfolio.

One early retirement investment strategy is to invest like a Boglehead. By investing in low-fee index funds, you can have more cash to invest. There are different portfolio strategies you can use to model your asset allocation.

Use Tax-Efficient Investing

Early retirement doesn’t mean you should neglect tax-advantaged retirement accounts.

Consider investing with a Roth IRA. You pay income taxes on your contribution upfront but don’t pay taxes on withdrawals in retirement.

A traditional IRA, on the other hand, grows tax-deferred. You pay income taxes on the withdrawal amount in retirement. This extra cost reduces your total retirement savings.

Use High-Yield Savings Accounts

Investing in stocks and income-producing assets are not the only ways to earn passive income.

You can also place your non-invested cash in a high-yield savings account. These accounts earn more interest than brick-and-mortar banks.

Due to the historically low interest rates, you won’t be able to live off of the interest alone. But your non-invested cash can earn the best interest rates and have FDIC insurance.

Speak with a Financial Advisor

Also, consider speaking with a financial advisor to get personalized advice. Regularly speaking with a financial advisor can be well worth your time if their guidance helps you retire early.

Learn the Art of Living Simply

Those who retire early (and stay retired early) aren’t generally accustomed to a life filled with lavish material items. Instead, they’ve learned the importance of value-based spending and the art of living simply.

Mr. Money Mustache, for instance, supports himself, his wife and their son off of a mere $25,000 a year in income. They also have no debt and aren’t drawn in by the lure of today’s material world.

Their $2,000+ a month income even affords the Mustache family to travel each year.

Learning to live frugally can help you need less money to retire on.

Persist in the Execution of Your Plan

Most people make early retirement plans but lose steam in their quest to achieve the ability to retire early.

I get it. It can be tough saving a majority of your income when your friends and family don’t. Most people follow the YOLO mindset.

But remember this. Ten years from now, when you can have a net worth of over a million dollars and be debt-free.

Your YOLO friends and family members will likely be struggling with the same debts and money problems they have today.

Visting some of the best early retirement blogs can inspire you to keep saving. Connecting with others seeking early retirement can help too.

How to Stay Motivated for Retirement

There are several ways to motivate yourself to keep investing for early retirement.

Here are some motivation suggestions:

  • Post charts on the wall
  • Keep a picture of a “motivation goal”
  • Form a group of like-minded people
  • Use positive affirmations

Thinking positive thoughts can help you keep the motivation levels high.


When you first start considering a dream of retiring early, the numbers may seem impossible to reach.

However, if you choose to follow the steps above on a consistent basis, you will indeed accumulate the wealth you need to put yourself in a position to retire early.

Every step you take toward financial success puts you one step closer to having financial freedom. Then, you can retire on your terms.