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Retiring early is a dream held by many, but few people understand what it takes to make it happen. Even worse, many people don’t realize how much money they’ll need to retire early, so they hold out hope when their chances are slim.

Still, it’s important to note that early retirement is absolutely achievable. With a commitment to saving a large percentage of your income and a willingness to sacrifice in order to get there, you could turn your dreams of early retirement into reality. But, how can you make it happen. And, how much money will you need?

How Much Do You Need?

The amount of money you need to retire depends on your own specific circumstances. However, asking yourself a few questions early can make planning for early retirement easier. For example, how early do you want to retire? And how long do you plan to live? Do you have any debt? Do you have any plans for retirement, like traveling or wintering in a warm weather climate? These are all things you need to take into consideration before working up a plan that makes financial sense.

Planning to live on 80% of your preretirement income during your golden years is one of the most commonly cited rules of thumb. Of course, your number could be more or less, depending on what kind of lifestyle you hope to live during your retirement. If your plans include a lot of traveling, perhaps your number will be closer to 90%. However, if you’re already comfortable with living below your means, your number could be much, much lower.

Working with a financial planner is the best way to determine how much money you’ll need during retirement. Of course, there are plenty of online retirement calculators that can help you get a good estimate as well.

5 Steps You Must Take to Retire Early

Even though most companies no longer offer their employees a pension plan, retiring early can still be a viable option for you. It is, however, extremely important to take the proper steps well in advance if you want to make your early retirement dream a reality. Regardless of whether you want to retire at 55 or 35, here are 5 things you’ll need to do in order get there.

1) Save Early, Save Often

If you’re planning on retiring early, you are going to need to start saving…well…yesterday. The earlier you start, the better your chances will be of retiring early. Not only will you accumulate money more quickly, you’ll also be able to take advantage of compounding interest far ahead of the rest of your peers. For example, if you save $100 a month in an index fund that brings in 10 percent annually, you’ll have a little over $225,000 saved in 30 years. If you wait just 5 years longer, you’ll gain another 66%, or about $155,000. Do that when you’re 20, and it can help you retire at 55. Do it at 30, and you’ll have to wait until 65 to see that type of return.

Obviously, how much you save and when you start will have a direct effect on whether or not you’ll be able to retire early. Save as much as you can, as often as you can, even if it is only 20 bucks. The more you save, the more you’ll have…and the sooner you can tell your boss “buh-bye.”

2) Increase Your Income

The best way to save more money is to make more money. Your income is the most effective wealth building tool that you have, so it only makes sense to try and make more. Provided you don’t fall into the trap of lifestyle inflation, making more money can help you retire much earlier than you probably realize.

That sounds great in theory, but you can’t just make more money by wishing it to be true. One way to increase your earning potential is to learn a new skill or obtain a new credential. Of course, starting your own side hustle is another great option. And, if all else fails, do great work at the job you already have…then ASK for a raise. Provide your boss with proof that you are worth it. The worst they can say is no!

3) Live (Well) Below Your Means

Learning to live below your means is a great way to stretch the dollars you already earn. By living below your means, you’ll be able to invest more money, accumulate wealth more quickly, and prepare yourself to live within a budget during your retirement years. When it comes to living below your means, there aren’t really any drawbacks.

However, if you’re going to retire early, you need to do better than just living within the confines of your paycheck. In other words, living off of 95% of your income just isn’t going to cut it. You need to live well below your means, perhaps spending only 50-60% of what you make. Look for ways to eliminate expenses like cutting cable TV or switching to a discount cell phone plan. If you can learn to live well below your salary now, you’ll be well suited to live far below what you need in retirement.

4) Eliminate Debt

If the best way to grow your wealth is to grow your income, the fastest way to destroy it is through debt. Owing money to other people is its own type of prison sentence. When you acquire debt, you’re forced to work longer and harder than you should just to pay the banker. Having money deducted right off the top of your monthly income makes it extremely difficult to save the kind of money you’ll need to get ahead, much less retire early.

If you are going to retire early, you absolutely can not be carrying around a pile of debt. To make your debts disappear, look for ways to eliminate your debt in a reasonable amount of time – and avoid taking on new debts. Don’t carry balances on your credit cards and refuse to finance items you can’t otherwise afford (like new cars). If you already have debt, pay it off as quickly as you can so you can put it behind you. Retiring at 55 is going to be a big stretch if you’re still making a $1,500 mortgage payment each month.

5) Save Until It Hurts

Saving 10% of your income is a great practice if you want to retire on time. But if your goal is to retire early, that 10% isn’t going to cut it. You’re going to have to start putting money away, and fast!

You might think saving 50% of your income seems ridiculous, even impossible. If you want to retire early, you should start shooting to save more than you ever thought imaginable…and you should do it right now. By saving early, increasing your income, living well below your means, and eliminating debt, you may just find that saving 50% of your income isn’t all that tough. Heck, even if you can save 30% of your income, you’ll be able to retire far ahead of the 10% crowd. By following the steps outlined above and making saving a priority, you’ll be handing in your retirement papers before you know it.

You Can Retire Early

Retiring early isn’t easy. It takes careful planning, a little sacrifice, and a lot of hard work. But just like anything else, if you want to get ahead, you are the only one who can make it happen. Stick with your plan, make the necessary sacrifices, and your dreams of early retirement can become a reality.

Author Bio

Total Articles: 24
Greg Johnson is a writer and entrepreneur who leveraged his online business to quit his 9-5 job, spend more time with his family, and travel the world. As a money nerd, he focuses most of his writing on topics that relate to budgeting, frugality, and investing. With his wife Holly, Greg co-owns two websites – Club Thrifty and Travel Blue Book. Find him on Pinterest and Twitter @ClubThrifty.

Article comments

Money Beagle says:

Based on a variety of factors, I’m of the opinion that I will not have much chance at retiring early. Pensions are non-existent, and my wife and I decided that she will stay home while our kids are young, so while we save nicely for retirement, there’s not enough there to believe that retiring early is feasible.

Everyone wants to retire early but there aren’t a lot of people that are willing to put in the effort to get there. If you want to retire early, it is difficult to live the American consumption lifestyle and still save enough to retire early and support that life. Everyone thinks that it will be easier to live on less when they retire but I would take a guess few actually do voluntarily.

Greg Johnson says:

I think that is it: you have to be willing to give up your consumption. Most people don’t want to make any trade-offs.

Tough Love says:

Sure retiring early is possible …. virtually ALL Public Sector workers do it …. and very handsomely to boot …… and all on the backs of the betrayed and beleaguered Private Sector Taxpayers.

public sector guy says:

My wife and I are public sector workers and we will be retiring early! On the backs of taxpayers? Nope. Our employers contribute 25% of our salaries to the pension system, NOT from taxes, but by paying salaries far below the private sector jobs we could have. Think of it as forced savings, something the whiners don’t seem to grasp.

We also both contribute the maximum to our 457 and 403b plans (similar to private sector 401k plans). We also max out our Roth IRAs and me, being over 50, contributes the extra allowed by law.

We have no children, by choice. You know what that means? We pay a heck of alot more income tax than most families pay. We pay more taxes to subsidize families with children who use far more public resources than we do.

First cars out of college had loans. Never had a car loan since then. Always pay cash for everything.

We’ll be retiring in two years at ages 50 and 52. No kids, hardly a sacrafice! We are two, professionals, hard working, high saving and living WAY below our means. Children, expensive, new cars and large houses (for “the kids”) are for chumps. If you’re lucky, maybe one child will somehow become self sufficient, but don’t count on it.

My own boss who makes double what I earn (and gets the same pension plan as I do), has 4 kids, a stay at home wife and pays 10% to “the church” and lives paycheck to paycheck. Retirement isn’t on his radar. He has never contributed to a retirement plan because there’s nothing left after being a daddy, husband and church member. Oh…and he has to work a second job teaching at the local community college to help pay for this lifestyle. I wonder what else someone *could* do with 10% of his gross pay.

So, there you have it. Pension yes. Paid for by taxes, not really…it’s paid for by working for low salary. If you want a public sector job, get one….there are plenty. Just be prepared to live on alot less than you get now.

John Zoe says:

The objective should NOT be to retire early. Your only objective should be to live comfortably when you do retire ASSUMING that there will be NO Social Security income available (i.e. that SS vanishes tomorrow morning). Until you are able to to do this, you should keep on working and SAVING until you can. Keep in mind that if Congress does not modify the SS system in some fashion, in either 2034 or 2035 the benefits you received in the prior year will be REDUCED by approximately 25% going forward. How many reading this are planning their retirement based on this scenario happening? If not, you are headed for trouble. And depending on the U.S. Congress to do anything other than look after the reflection in the mirror (certainly NOT the people who elected them) is a fool’s game that you will end up losing. After all, Congress voted themselves a ‘cushy pension’ WITHOUT taxpayer approval and it is be funded by YOUR tax dollars. How many reading this are aware of this fact? And yes, this is the truth.