How To Retire Early

by RJ

in Investing

Wondering, how to retire early? It’s not as hard as many believe.

This post provides tips to retiring early; reviews how much you need to retire, and explains why it’s not impossible.

Let’s begin with a few tips…

Decide Now To Retire Early

You need to start saving today, if you wish to retire early.

If you wait until you win the lottery or get lucky with a few penny stocks, you’re going to be waiting until you’re 80 to retire early.

If you decide today to retire early now, you can do so in less than 20 years.

Don’t Limit yourself to the Amount of Income You Can Save

There are no rules explaining that you can’t save 50% of your income. When it comes to retiring early, you have to think outside of the box.

Learn About Investing

You’re going to need a better understanding of investing as someone who is in the accumulation stage.

Here’s a few articles that can help you get started:

Have a High Risk Tolerance

Once you hit retirement, you could have to live off your investments for 40-50 years. Unless you plan to accumulate millions of dollars, you’re not going to be able to live off interest from your CD’s and money market funds. Even though you’re retired, your investments still need to provide growth, which requires risk.

Understand SEPP

Just because you plan to retire before the age of 59 1/2 doesn’t mean you can’t invest in your 401K. As long as you take equal payments, you can withdraw from your 401K and IRA before the age of 59 1/2.

Understand Insurance

Since you no longer have a job, you’re going to need a long-term answer for health insurance. Also, you need to plan for other risks such as long-term care.

Plan for Inflation

If you don’t have inflation protection in your plan, you will fail. Plan for inflation between 3-4% a year.

Social Security

Who knows what social security will be once we Gen Y’ers hit our sixties. Chances are we can expect to receive something. We just don’t know how much and when. It’s easier to think of social security as a bonus.

Don’t Eliminate The Chance to Return to Work

There is nothing wrong with returning to part-time work. Even if it’s ten years down the road. A part-time job can help preserve principal in your investments.

Don’t Plan on Dying Young

Plan on living until your 90 to 95. Even if you don’t think you will live that long, you still need to have money in case you do.

How To Retire Early

Step # 1 – Determine Your Ideal Living Expenses

In his book, Stumbling Upon Happiness, Dan Gilbert explains that once you reach $40,000, any farther increase in income has little effect on overall happiness.

For this example I’m going to use $50,000 as living expenses. Since you’re not retiring today, but in the future, it’s best to factor in inflation into Dan Gilbert’s $40,000 limit.

If $50,000, adjusted to inflation each year, sounds like too little or too much, you can adjust this number.

Step # 2 – How Much Do You Need To Retire Early – Use FireCalc

One of my favorite financial calculators on the Internet is

There is a place on the homepage to insert:

  • Spending – Average expenses per year
  • Portfolio – Total size of your portfolio
  • Years – Number of years to retirement

Once you hit submit, Firecalc will run a simulation to determine the chances of success, your portfolio staying above $0 for X amount of years, or failure, your portfolio going below $0.

This calculator is exactly what you need to determine how much money you need to accumulate to live off of for X amount of years.

Here are the assumptions I’m going to make for this example:

  • Spending – $50,000 a year (increased each year for inflation)
  • Portfolio = $1,500,000
  • Years in Retirement = 50
  • Stocks = 10% rate of return
  • Fixed Income = 4% rate of return
  • Inflation = 3% a year


  • 75% Stocks
  • 25% Bonds

The Results

Taken directly from the website:

“FIRECalc looked at the 89 possible 50 year periods in the available data, starting with a portfolio of $1,500,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 89 cycles. The lowest and highest portfolio balance throughout your retirement was $508,841 to $29,885,372, with an average of $8,567,219. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)”

Step # 3 – Saving For Early Retirement

You don’t have to win the lottery to have $1,500,000 in 15 or 20 years. If you can think outside the box just a little, there are numerous ways you can get there.

Start by maximizing your 401K and IRA. Work on saving even more of your income. Stay out of debt at all costs.

Learn all you can about the field you’re currently in. Find out what the top 5% of earners are doing, and execute.

Last, focus on creating assets, like a side business, that you can sell one day for a big payoff.

Don’t forget, that if you can manage to decrease your expenses below $50,000 a year, early retirement becomes a lot easier.

The key is to decide now, make a plan, then execute that plan.

Case Studies and Resources

Example of a couple who retired off of $500,000
Extremely helpful website for any considering retiring early

Related Posts on Gen Y Wealth


Ken rants and raves for changeNo Gravatar March 4, 2010 at 8:31 am

Some very good advice RJ. I like Step # 3 – Saving For Early Retirement. Some wise investor once said; “the best investment you can make is to save the money in the first place.” Having a good saving regimen is very satisfying along the way too, versus going into unnecessary debt.
.-= Ken rants and raves for change´s last blog ..Consumer Complaints Frustrate =-.

RJNo Gravatar March 4, 2010 at 11:23 am

Thanks Ken.

The hardest part sometimes is starting.

This is something I’m struggling with right now in terms of giving. Eventually, I want to give up to 10% of my income. However, since I didn’t start the habit when I first earned money, it’s difficult. I will eventually get there, but I’m going so at the pace of 1% each year.

ZivNo Gravatar March 6, 2010 at 12:43 am

Retiring early is a wish of many people.
If you don’t plan your career and financial issues, you can’t make it.
“People with clear, written goals, accomplish far more in a shorter period of time than people without them could ever imagine.”
.-= Ziv´s last blog ..Reference Checking: References Questions – Reference Check Form =-.

KenNo Gravatar March 6, 2010 at 9:19 am

Interesting post. You identified the key issues and gave a good sample. I’m gonna give that calculator a visit. “thinking outside the box” is a good suggestion.
.-= Ken´s last blog ..Weekend Roundup =-.

Khon Kaen RetirementNo Gravatar October 12, 2010 at 2:07 am

Sock away evrey penny you can into your Thrift Savings Plan (TSP) for US government and military or your 401k or any other defined benefits plan. Don’t touch. Just keep putting in, get the company match, and watch it grow.

Then – do like I did. Pack up all your stuff and move to Thailand to live happily ever after.

Comments on this entry are closed.

Previous post:

Next post: