If you’ve ever looked up “how to retire early,” you’re not alone. If you’re wondering how to retire early, but your income doesn’t allow you to invest thousands of dollars a month, we’ve got eight simple — though not necessarily easy — steps you can take.
1. Write Down Your Goals for Retirement
Before you start, figure out when and how you want to retire early. Create a projected annual budget for your first year in retirement. Then look at your current budget, and adjust your expenses to determine how much money you’ll need to withdraw from your accounts that first year. It won’t be 100% accurate, but it’ll give you a goal to shoot for in your savings. Once you’ve decided what you need every month, you can plug that into a retirement calculator to see how much you need to save every year and for how long.
2. Automate, Automate, Automate
The easiest way to make monthly retirement contribitons is to automate them. Because you’ve already figured out how much you need to have saved, you can figure out how much you’ll need to contribute from each paycheck and set it up as an automatic transaction. Is that amount too big for you right now, start with an amount that seems a little uncomfortable and increase it by 1% a month until you get to your goal. You’ll eventually get used to living without that money.
3. Lower Your Living Expenses
Depending on how you’re living, your initial calculations may have said you need upwards of a $2 million nest egg to retire early. Want to know how to lower that number? Lower the amount you’ll need to live on in retirement! Adopting a few lifestyle changes — like getting a roommate, buying an affordable used car, or cooking at home more — can make a bigger difference than a lot of little cost-cutting moves combined because they target the three largest expenses in your life. And if you start cutting your expenses today, you’ll free up money to invest. Double win.
4. Increase Your Income Now
You might’ve cut every expense possible and you’re still unable to see how to retire early. At that point, to increase your savings rate, you probably need to increase the amount of money coming in. If you’re working with a lower income and you can’t focus on investing now, you’ll have to save significantly more over time to reach your goals. Ask for a raise or promotion now, spend a year doing a side hustle or find another way to help meet your goal as soon as possible.
5. Pay Off Debt
Any kind of debt will eat away at your returns over time, but especially any debt with interest rates of 6% or more. Focus on paying these debts off above saving for retirement. There’s also a huge benefit if you look at it from a different perspective. For debt with interest of 6%, for every dollar you pay to that debt, you are making 106%. That’s because it frees up one whole dollar — 100% — plus the 6% interest which would have been stacked on top of it. Removing as much debt as you can from yourself not only often feels better, it makes it far easier to retire early.
6. Optimize Your Retirement Accounts
A lot of people think they need to optimize (or set up accounts for the greatest profitability) before they start investing for retirement. If you want to retire early, focus on saving first, then learn what will make your savings work harder for you. When you’re ready to start optimizing your portfolio, you’ll find it’s not as hard as you might think.
7. Start a Business
A lot of early retirees don’t think about starting a business, but doing so serves two purposes. First, if you retire at 50 or 55, you’ll want to stay active mentally and physically. Second, a business can help you retire earlier than planned. If you do it right, you can rely on extra income from your business (instead of investments) to be your retirement income. Whatever business you want to launch, start part time while you’re still working full time so the business has time to grow, and you can invest money into it gradually.
8. Do Your Best to Stay Healthy
A major factor when considering how to retire early is the cost of health care. Medicare isn’t available until age 65, so many early retirees have to consider non-subsidized health care. Premiums for family coverage without a government subsidy average a whopping $1,398 per month for an average $8,620 deductible. That can derail the best-made retirement plans. The leading causes of health-related death are heart disease, cancer and respiratory diseases. Exercising, avoiding smoking and seeing a doctor yearly for a physical and bloodwork will go a long way in cutting down your health care and life insurance costs over time.
Dive Deeper Into Early Retirement
Finding additional income streams, making lifestyle changes and committing to better money habits aren’t quick fixes, but working to save those extra dollars now can help put you on the path to retire early. Think you’ve got what it takes? Head over to The SS to dive deeper into early retirement factors like housing, health care and taxes to understand more on how you can adjust your lifestyle for just that.