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How To Retire Early

How To Retire Early
Candice Elliott Aug 28, 2018
Want to Earn Some Extra Money?

Even if you love your job, you look forward to being retired, and preferably before you’re 65. It’s entirely possible. We’ll show you how to retire early.

Live Longer Work Longer

Americans are living longer and working longer. The average age of retirement is just under 60, but people are increasingly working well into their 70s. Some of those people continue to work because they enjoy their job but for many others, working is an economic necessity.

Americans are not saving enough for retirement. Half of all Americans have nothing, NOTHING, saved for retirement. Add to that record amounts of household debt, and you can see why some people are working well beyond the traditional retirement age.

We know we don’t want to work for our entire lives and you probably don’t either. In fact, we don’t even want to wait until we’re 60, we want to retire early. It’s entirely possible, but it does take some sacrifice. If you want to retire early too, here’s what you need to do.

What Will Life Look Like?

None of us can predict the future, but if you want to retire early, you’re going to have to try. Start thinking about what you want your life to look like once you retire.

Will you continue to work in some capacity? Retirement doesn’t have to mean not working and bringing in any money at all; it just means you don’t have to work. You could work part-time, consult, or even invest in a business as an active partner.

Where would you like to live? If you’re no longer tied to your current location because of your job you can live anywhere, even abroad.

Many American retirees choose to live outside the U.S. in cities with a very low cost of living like Las Terrenas, Dominican Republic, Mazatlan, Mexico, Ambergris Caye, Belize, and Chiang Mai, Thailand.

The cost of living in all of these cities is under $2,200 a month, some much less than that.

If you had children and are an empty nester once retired, will you keep your family home or downgrade to something smaller?

Perhaps rather than buy another home you’d prefer to buy a condo or rent an apartment, so you don’t have to deal with so much maintenance and upkeep.

Make a Budget

We’re going to need our crystal ball again for this one. Make a mock budget of what you think your expenses in retirement will look like.

Your home and cars might be paid off; you’ll no longer be making contributions to a 401k, you won’t have work-related expenses like commuting, dry cleaning, and lunches (if you weren’t bringing your lunch which you should have been!).

On the other hand, you may have the additional expense of health insurance if your employer was paying for your coverage and you retire before you become eligible for Medicare, the age to qualify is 65 under most circumstances.

Calculate It

If we’re working toward a financial goal, it’s ideal to have a number, at least a ballpark number so we can see how we’re progressing. You can use a retirement calculator to see how much money you’ll need to retire at the age you’d prefer to retire at.

Again, a lot of speculation goes into these calculations, but it’s nice to have at least a rough idea of how much money you need to save in order to retire early.

Now that we’ve got a rough idea of how much money we’re going to need to retire early let’s work on reaching that number.

Pay Off Debt

Any debt you carry is going to inhibit your plans to retire early, especially high-interest credit card debt. Paying that off should be your first priority because no investment is going to give you a return that matches the interest you’re paying on those credit cards.

You have to have a plan of attack for credit card debt, just throwing money at each balance willy-nilly isn’t going to work. There are two good ways to pay off credit card debt.

The first is to list all debts by dollar amount, lowest to highest. Each month you pay as much as you can on the smallest debt while paying only the minimums on the others.

Once the first debt is paid, you take the amount you were paying towards it and apply it to the next debt on the list while continuing to pay only the minimums on the rest. You continue on this way until all of the cards are paid off.

The other method works exactly the same way but rather than listing your debts by dollar amount, you list them according to the interest rates, highest to lowest and pay the debt with the highest rate first.

The second method, paying off the highest interest debt first is the one that will save you the most money since you’ll end up paying less interest.

I actually prefer the first method though. Seeing a debt killed off completely is just so satisfying, and it’s good motivation to continue to work on getting all the debts paid.

If your highest interest debt balance is significant, it can feel like you aren’t making progress because even though you’ve been paying on it for a while, it’s still not gone. This can be discouraging.

You can switch from one method to the other. When I got into some pretty bad credit card debt years ago, that’s what I did.

I had debt spread over five credit cards and paid off the two with the smallest balances first. It made me feel so much better and lighter to see two of the five debts gone.

After that, I started paying off the remaining cards based on interest rate. It doesn’t matter which method you choose, choose whichever one you think you’ll stick to.

If your credit score is good enough, you might be eligible for a balance transfer credit card. These cards have a period of 0% APR for a set amount of time, usually between 6-18 months but once in a while you’ll get lucky and see a period as long as 24 months.

You transfer the balance from a high-interest credit card to the 0% interest card. During the introductory period, you can make a big dent in your debt because all of your payments are going toward the balance while accruing no additional interest.

Any balance that remains when the introductory period ends will be subject to the card’s standard rate so it’s important to get that balance down to zero before then.

Again, if your credit is good enough, you might consider a debt consolidation loan from a company like Lending Club. You borrow money at a lower interest rate than you’re paying on the cards and use the money to pay them off.

You still have debt, but you only have a single payment and a lower interest rate.

If you have student loan debt, refinancing with a company like LendKey can lower your interest rate which can save you thousands of dollars over time. The same is true of refinancing a mortgage.

You want to get the lowest interest rate you can on these loans but should you pay them off before you start investing?

No, you can conservatively expect a return of 7% a year on your investments, but student loan and mortgage rates are almost always lower than that so you can make more money investing than you’re paying out in interest on these loans.

And because time is the most significant factor in how much money your investments make, the longer your money is invested, the more it grows, you don’t want to lose the years it would take you to pay off your student loans and mortgage completely.

That said, you don’t want to carry even low-interest debts like student loan and mortgage into retirement.

Investing should be your first priority, but as you get closer to retirement, you need to shift your attention to getting any remaining debt paid off. You can use the same methods we used to pay off the credit cards on your remaining debts.


If you have a $1,000 or three-month emergency fund, well done! Most people don’t. But if you want to retire early, you need to bring your emergency fund up to six months worth of current living expenses.

Why six months? Because you’ve worked hard to pay off your debt and not getting into debt again will help you reach your early retirement goal.

If you don’t have money on hand for something like a medical expense or home repair, you have to go into debt, probably credit card debt, to pay for it.

And by expenses, we mean just the essentials like housing, groceries, utilities, etc.

When you’re figuring out the number for six months of expenses, you don’t need to add things like cable, clothes, and gym memberships. If you had to eliminate those expenses, you could.


There is no way around it; if you want to retire early, even retire at all, you’re going to have to invest. And the standard advice about saving 15-20% of your income each year isn’t going to be enough.

If you want to retire by age 50 with a million dollars and you earn $40,000 a year, you need to save 34.6% of your income. If you earn $60,000, that number is 23%.

And you can’t leave that money sitting in your checking or savings account where it doesn’t even earn enough interest to meet inflation, never mind actually grow. We keep our emergency fund in a checking or savings account, but the rest of our money has to be invested.

The best vehicles to invest retirement money are tax-advantaged accounts like 401ks and IRAs. There are limits though, for 2018, you can only invest up to $18,500 in a 401k and $5,500 in an IRA. Your primary investing goal should be to max out those accounts.

Keep in mind that ideally, you won’t access money in those retirement accounts until you’re aged 59 1/2. If you withdraw money from them before that age, you’ll be penalized. So while these accounts are an essential part of your retirement plan, they shouldn’t be part of your early retirement plan.

Once you’ve maxed out your retirement accounts, you can contribute to a robo-advisor like Acorns or Betterment. You can set up automatic monthly deposits, so the money gets invested before you have a chance to spend it.

Earn More

As we saw, if you want to retire early, you have to save a pretty big chunk of your income. But the more you make, the smaller the percentage you have to save. Making $60,000 rather than $40,000 means you only have to save 23% compared to 34.6%, a huge difference.

And at some point, we run out of ways to save money, everyone, no matter how frugal we are, all have to pay for things like a place to live, food to eat, and clothes to wear. Although, most of us can spend a lot less on these things than we currently are. So we need to earn more money.

Ask for a raise but go to your boss armed with a list of reasons you deserve one. Even if you get a raise though, the average raise is just about 3% which isn’t very much. Better than a raise at your current job is the bump in pay when you change jobs.

This will increase your salary by an average of just over 14%, which will go a long way toward helping you reach early retirement.

Always keep your resume up to date and always be on the lookout for a better opportunity than the one you currently have. When you do get a raise whether it’s at your current job or from changing jobs, put nearly all of it into your investments.

If every time your income increases, so do your expenses, it’s going to cancel out any progress you might have made towards your early retirement goal.

If you’re dreaming of being able to retire early, probably the last thing you want to do is to take on a second job, but it’s a sacrifice worth making.

And because there are so many ways to make money that don’t require the set hours of a traditional part-time job, there is no reason that everyone can’t be making at least a little extra money each month.

For some of them, you don’t even have to leave home.

Answer surveys in your downtime, teach English to Chinese children with QKids, drive for Uber or Lyft, get a virtual assistant gig on a freelancer’s site like Guru or Upwork. Every extra dollar you earn gets you closer to your goal.


Medical expenses are likely going to be your most significant expense during retirement, at least until you hit 65 and become eligible for Medicare, and maybe even then.

You may be able to continue the health coverage you had with your employer through COBRA, but it’s expensive. Ideally, you could get coverage under a still-working spouse or partner’s plan but obviously not if he or she plans to retire early as well.

That leaves you to buy insurance on the open market which is not cheap. Working with an agent, particularly one who specializes in health insurance for retirees, is safer than trying to navigate the insurance minefield on your own.

These agents will do an assessment based on things like your current doctors, any existing health issues, your family medical history, and which if any medications you’re taking and will make suggestions for the best policy based on these factors.

Retirement is Different

When we think of retirement, we often think of white-haired grandparents sitting in a condo in Florida, playing golf, and not doing much else. But as people live longer and live healthier, we have a new vision of retirement.

We will (hopefully) be retired for a few decades, and that is a long time to fill with not much.

When we retire early, we can fill our time with family, travel, hobbies, or even a second career.

We all know someone who always wanted to be a musician or an artist or a teacher but made a career of something else because those things don’t pay especially well.

Early retirement can be the time when we take up that longed for career now that money is no longer our primary concern.

Early retirement can also be a great time to do volunteer work that you didn’t have time for while you were working. Early retirement can be whatever you want it to be.

The ultimate freedom is not having to go to work every day but still having enough money to live. Sounds great right? Why would anyone wait until 65 to have that?

Now you don’t have to. Follow these steps, and you can retire well before your hair is white and a condo in Florida starts to sound appealing!

Candice Elliott

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