5 Practical Steps to Achieve Early Retirement and Live the Life You Desire

The thought of retirement begins as a fuzzy promise waiting for you on a distant horizon. It transitions to a planning stage and encroaches on a time when you begin to wonder how much longer you have to wait before you can leave your workplace for the last time.

You’re not alone. The tantalizing thought of early retirement has gripped enough people to inspire the FIRE movement, an acronym for “financial independence, retire early,” that encourages living frugally during one’s working years to expedite retirement.

This is just one set of recommended strategies, however. Numerous institutions and professionals offer their own advice regarding early retirement goals and how to get there.

Upgrade Your Savings Strategy

Strategic saving is critical to achieving an early retirement. Fidelity Investments recommends saving 10 times your current annual earnings if your target retirement age is 67. That increases to 14 times your earnings if you want to shave five years off that goal and retire at age 62.

The FIRE movement recommends the 25x rule: saving 25 times what you anticipate your annual expenses will be in retirement. And therein lies the challenge. That’s a lot of savings, particularly if you want to achieve it in a shorter period of time.

Consider trimming some of your current lifestyle costs and moving the money to a retirement plan or plans now. John Hancock suggests taking a vacation every other year instead of every year if travel is your thing. Pay off as much debt as possible so you can eliminate some of those interest charges.

The federal government is on your side, at least to some extent. You can begin making “catch-up” contributions to your retirement savings plans to hurry things along when you reach age 50. You can contribute an extra $1,000 to an IRA in 2025, and this increases to $7,500 if you’re investing in the federal government’s Thrift Savings Plan or a 401(k), 403(b), or 457 plan.

Identify Your Target

Your savings calculations begin with how much money you’re likely to need to retire comfortably, and several factors come into play. Your anticipated lifestyle in retirement and how many years you’ll spend in retirement are two critical components if you’re planning to retire early. A “sustainable” withdrawal rate works out to about 3% of your retirement savings per year if you leave the workforce at age 62. This increases to a range of 4%–5% if you wait five more years until age 67. You can tweak the amount a little annually, however, to keep pace with inevitable inflation.

The FIRE movement suggests a retirement lifestyle that’s based on a 4% withdrawal from your savings in your first year of retirement. You would have to live on $40,000 that year if you saved $1 million.

Your Employer Is Your Friend

An employer-sponsored retirement plan, such as a 401(k), can be a great resource. You can contribute $23,500 per year to this type of plan as of 2025, plus that extra $7,500 catch-up contribution if you’re at least age 50.

Employers often make matching contributions to these plans as well, subject to some rules. You’ll want your own contributions to reach the necessary level to trigger a match, and you’ll want to make sure the timing of your exit date is right.

“Should you retire before the end of the year, you may also miss out on profit-sharing contributions or employer stock options that vest later,” said Myles J. McHale, accredited investment fiduciary (AIF) with Cannon Financial Institute. “Make sure you consult with your HR department. If you’re close to a vesting milestone such as five years for pension or profit-sharing plans, it might be worth delaying retirement until that milestone is reached.”

It’s also important to consider the tax implications of these withdrawals in your anticipated early-retirement budget. You can claim a tax deduction now for your contributions to traditional IRAs, but you’ll have to add taxes on those withdrawals to your retirement budget. You can’t claim a deduction for contributions to Roth IRAs, but these withdrawals are tax-free in retirement, and this can be a critical component in your retirement planning.

Consider a Side Hustle

Another consideration is that there’s work—and then there’s work. An early retirement doesn’t have to mean that you put your feet up and never take another productive step in your life. Establishing a not-too-demanding and even pleasurable side hustle can add a little to your income and ease that early retirement budget somewhat. It can offer other benefits too.

T. Rowe Price conducted a Retirement Saving & Spending Study that revealed that 45% of retirees chose to continue to spend some time working for emotional and social reasons. Their number rivaled that of retirees who did so to make ends meet, representing 48% of respondents.

“Do not focus solely on the financial components,” McHale said. “What will you do with your time now that every day is a weekend? You can consider consulting, teaching, volunteering, or seasonal work. Many retirees find joy in ‘next chapters’ that are often more fulfilling than their primary careers.”

Don’t Forget Healthcare Expenses

Early retirement isn’t just about being able to pay your mortgage and other living expenses without working for extra years to save enough. Health insurance should be factored into your plan as well.

You might be covered by a workplace plan that you’ll lose when you wave goodbye. Yes, you can sign up for Medicare at age 65, but there may be a better way to pay for those inevitable medical expenses, so they don’t take as much of a bite out of your retirement budget.

Health savings accounts (HSAs) often get overlooked, according to Whitney Stidom, vice president of consumer enablement at eHealth Inc.

“This account allows people to save pre-tax dollars for a range of qualified medical expenses, including deductibles, co-insurance, or even massage therapy if it’s deemed medically necessary,” she said. “People can keep the money in their HSA after retirement and draw from it to help offset the out-of-pocket expenses most beneficiaries face on Medicare.” 

You can contribute to an HSA with tax-free dollars as you would with contributions to a traditional IRA, but withdrawals for qualifying expenses are also tax-free.

Don’t Overlook the Downsides

The American retirement system is designed for those who have reached more advanced years, so taking the plunge early comes with some hiccups. Yes, the government has your back in several respects, but it draws a line at retiring too early. You’ll typically pay an IRS penalty of 10% if you take withdrawals from your retirement plan before you’ve reached age 59½, although the IRS does acknowledge some exceptions to this rule.

There’s also the Medicare consideration if you retire early and you’ve been covered by insurance through a workplace plan to which you’ll no longer have access. You generally can’t qualify for Medicare until you reach age 65, so you’ll have to pay for a health insurance alternative if you retire from your job before that time.

“Disability, divorce, and death of a loved one immediately come to mind when thinking about possible derailment issues,” McHale said. “You’ll want to make sure these potential events are recognized in your early retirement plan as well.”

The Bottom Line  

A comfortable retirement doesn’t come without a lot of planning and weighing a good many pros and cons and considerations. Retiring early means you have less time to prepare, but that doesn’t have to be a deterrent. Consult with a financial professional if you’re unsure of your options.