How to Retire Early

1. Early Retirement is Possible: Declare Independence & Set Your Goal

We begin our book at the financial low point of our lives to make it clear that even from unpromising beginnings such as these it is possible to get back on track and retire early.

Start from anywhere. The authors began their journey with just $16.88 to their name, unemployed and worried about rent. Their story demonstrates that regardless of your current financial situation, consistent effort and a clear plan can lead to financial independence. They achieved early retirement in just 15 years, retiring at age 43 with nearly a million dollars.

Declare your intention. Just as the founding fathers declared independence before achieving it, you should declare your financial independence day. Pick a date 15 to 25 years in the future and visualize retiring then. This mental commitment is the first battle won in your campaign for financial freedom and provides a date to celebrate each year as you move closer.

Set a realistic goal. Aim for a timeframe that is attainable but not too distant to feel unreal, ideally 15 to 20 years, or up to 25 years if you have children. This timeframe allows the power of compounding to work significantly while keeping the goal close enough to stay motivated. Your specific goal will depend on your ambition, family situation, and income potential.

2. Invest in Yourself First

Investing in yourself first will almost certainly be the best investment you ever make.

Increase earning potential. If your current salary barely covers expenses, the quickest way to accelerate your path to early retirement is to increase your income. This might involve getting further education, retraining for a higher-paying field, or applying yourself more vigorously in your current job to earn raises and promotions. The authors' income jumped dramatically after one spouse retrained as a nurse.

Choose a practical career. Focus on careers that are in demand and pay well, even if they aren't your "dream job." A decent wage (e.g., $50,000+) provides the necessary surplus to invest significantly. Consider fields less likely to be automated and research career paths thoroughly before committing time and money to education.

Supercharge your work ethic. Once you have a solid career, work with purpose. See your job as a means to fund your early retirement goal. Taking on challenging assignments and increasing efficiency can lead to higher salaries, allowing you to invest larger amounts and reach your goal faster.

3. Get Out of High-Interest Debt

Your first priority should be to eliminate debt so you can start your investment program with a clean slate.

Eliminate costly debt. Before investing heavily for retirement (beyond getting a company 401k match), aggressively pay off high-interest debt like credit cards, car loans, and college loans. Paying off debt with a 17% interest rate is equivalent to a guaranteed 17% return on investment, which is likely higher than market returns.

Avoid minimum payments. Making only minimum payments on credit cards can trap you in debt for decades and cost you more in interest than the original amount borrowed. Use online calculators to see the true cost and time required for minimum payments versus accelerated payoff plans.

Set aggressive payoff goals. Decide on a realistic timeframe (e.g., 2-3 years) to become debt-free. Use debt payoff calculators to determine the monthly payment needed. This process builds the self-discipline required for consistent saving later and provides psychological relief.

4. Start Saving Early & Consistently

The earlier you can start saving for retirement the better, since it gives your investments more time to compound.

Harness compounding power. Compounding is earning interest on your interest, causing your money to grow exponentially over time. Starting early, even with small amounts, gives your investments decades to double and redouble, significantly boosting your nest egg with less effort from your own contributions.

Automate your investments. Put your savings on auto-pilot by setting up automatic deductions from your paycheck into your 401(k) and automatic transfers from your checking account to your investment accounts. This removes the temptation to spend the money and ensures consistent investing regardless of market conditions or your mood.

Pay yourself first. Treat your monthly investments like a non-negotiable bill, like your mortgage. Automating this process makes it easier to prioritize saving for your future before other expenses arise. Consistency, not the size of initial contributions, is key in the early years.

5. Determine Your Needs & Nest Egg

Actual living expenses in the present day give you a better take on what you’ll need down the road, once you have subtracted out the ones that no longer apply and have made appropriate adjustments for inflation.

Estimate retirement expenses. Don't use the flawed method of multiplying your current income by 70-80%. Instead, start with your current expenses and subtract costs you won't have in retirement (mortgage, saving for retirement/college, work-related costs). Then, add back estimates for inflation, taxes, and potentially higher healthcare costs.

Adjust for inflation. While national inflation (CPI) averages around 3%, conscious spending can keep your personal inflation rate lower (e.g., 2%). Factor this into your future expense estimates. High inflation poses a significant risk to retirees on a fixed income.

Calculate your nest egg. Use the "Rule of 25" (a variation of the 4% rule) to estimate the required nest egg size. Multiply your estimated annual retirement income needs by 25. For example, needing $50,000/year requires a $1.25 million nest egg ($50,000 x 25). This rule suggests you can safely withdraw 4% of your nest egg in the first year and adjust for inflation annually without depleting funds over 30 years.

6. Make & Track Your Investment Plan

Let your actual life dictate the numbers you plug into your spreadsheet, especially during the early years.

Create a master plan. Develop a detailed investment spreadsheet outlining yearly investment goals for taxable, 401(k), and Roth IRA accounts, and project their growth towards your target nest egg size by your desired retirement date. Use realistic annual return assumptions (e.g., 8-10% based on historical averages).

Track progress annually. At the end of each year, update your spreadsheet with actual investment amounts and market performance. Compare actual results against your plan to see if you are on track. This provides accountability and allows for necessary adjustments.

Adjust your plan as needed. If you are ahead of schedule due to higher income or market performance, consider retiring earlier or increasing your nest egg goal. If you are significantly behind, assess if your investment goals were too ambitious or if market downturns are the cause. Adjust by increasing future investments, extending your timeline, or planning to live on less in retirement.

7. Invest Simply in Index Funds

With index funds you stop trying to beat the markets and instead simply keep up with them.

Keep it low-cost and simple. Invest primarily in low-cost, broadly diversified index funds rather than trying to pick individual stocks or actively managed funds. Index funds mirror market performance with minimal fees, which significantly impacts long-term returns compared to higher-fee alternatives.

Benefit from diversification. Index funds hold hundreds or thousands of individual stocks or bonds, spreading your risk across many companies and asset classes. This built-in diversification protects you if any single company performs poorly.

Choose core holdings. A simple portfolio can consist of just a few core index funds: an S&P 500 fund, an extended market fund (or a total U.S. stock market fund combining both), a total international stock fund, and a total bond market fund. Allocate percentages based on your risk tolerance and time horizon, generally favoring stocks in early years and increasing bonds closer to retirement.

8. Leverage Tax-Advantaged Accounts

Tax-advantaged accounts offer a carrot in the form of tax breaks to those who are willing to put aside a portion of their money today to prepare for their own future tomorrow.

Maximize 401(k) match. Always contribute enough to your employer's 401(k) to get the full company match – this is essentially free money and the first priority for investing. 401(k)s offer tax-deferred growth and reduce your current taxable income.

Utilize Roth IRAs. Roth IRAs allow your earnings to grow and be withdrawn tax-free in retirement, provided you meet age and time requirements. While contributions are after-tax, the tax-free growth and withdrawals make them powerful, especially for aggressive investments. There are no required minimum distributions at age 70½.

Allocate for early access. If retiring before age 59½, you'll need access to funds without penalty. This requires saving a significant portion in taxable accounts. A possible allocation for ultra-early retirees (30s-40s) is 50% tax-advantaged/50% taxable, shifting towards more tax-advantaged accounts the closer you are to 59½. Strategies like the Rule of 55 or SEPPs exist for accessing 401(k)/Traditional IRA funds early, but are complex.

9. Live Significantly Below Your Means

Learning to live below your means is absolutely crucial if you want to retire early and stay retired.

Widen the make-spend gap. Financial independence is achieved by consistently spending less than you earn and investing the difference. This requires a conscious effort to control spending and prioritize saving over consumerism.

Track your expenses. Understand where your money is going by tracking expenses for a period (e.g., 3 months). Categorize spending to identify blind spots and areas where cuts can be made. Tools like Mint or Quicken can simplify this process.

Adopt a simple lifestyle. Reject the pressure to "keep up with the Joneses." Find happiness in experiences and relationships rather than material possessions. Living simply reduces current expenses, allowing more savings, and also lowers your required retirement income, meaning you need a smaller nest egg.

10. Keep Major Expenses Low (Home & Car)

Making wise decisions in these two areas alone can make a big difference in whether or not you reach your early retirement goals.

Keep housing costs affordable. Aim for housing costs (mortgage, taxes, insurance) significantly below the conventional 28% of gross income rule (e.g., 20%). Buy a home you can comfortably afford today, not just in a hypothetical future with higher income. Consider a 15-year mortgage to pay it off before retirement, or make extra principal payments on a 30-year loan.

Leverage home equity wisely. Home ownership builds equity, a valuable asset. Consider downsizing in retirement to convert home equity into liquid funds (like a bond fund) that can generate income. The tax exclusion on primary home sale gains ($250k single/$500k couple) is a significant benefit.

Minimize car expenses. Cars are depreciating assets. Avoid buying new cars; opt for reliable used vehicles instead. Consider self-financing or paying cash to avoid interest. Explore options like sharing one car, using public transport, or living carless if feasible, especially in retirement.

11. Plan for Healthcare in Early Retirement

Without question the Affordable Care Act is a game changer for early retirees on a budget.

Affordable Care Act benefits. The ACA significantly improves healthcare access and affordability for early retirees before Medicare eligibility (age 65). Key benefits include guaranteed issue (no denial for pre-existing conditions), subsidized premiums and out-of-pocket expenses based on income (up to 400% of the federal poverty level), and free preventive services.

Manage income for subsidies. To qualify for premium and out-of-pocket subsidies, keep your annual household income below 400% of the federal poverty level (e.g., ~$62k for a couple in 2013). Crossing this threshold eliminates subsidies, drastically increasing costs. Premiums are capped on a sliding scale below this level and don't skyrocket with age.

Explore plan options & medical tourism. Health Insurance Exchanges offer tiered plans (Bronze, Silver, Gold, Platinum) with varying coverage and costs. Silver plans often offer a good balance and subsidized out-of-pocket limits. Additionally, medical tourism can provide significantly lower costs for certain procedures overseas, even after factoring in travel, offering a viable alternative or supplement to U.S. healthcare.

12. Balance Life, Enjoy Today, & Have Faith

If you only live for today you’ll be broke tomorrow, and if you only live for tomorrow you’ll be miserable today.

Maintain a balanced life portfolio. Early retirement is a marathon, not a sprint. Avoid extreme deprivation; balance saving for the future with enjoying the present. Figure out what you value most (e.g., travel, hobbies) and allocate funds to splurge in those areas while cutting back elsewhere.

Enjoy life along the way. Don't postpone all
[ERROR: Incomplete response]

Last updated: June 18, 2025