How to Retire Early? (Retire by ’30s or ’40s)

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Are you eager to know how to retire early? Well, consider Mr. X started working at the age of 25 years, and over the years, he has been promoted to different positions with a rise in his salary. He has been contended with this working life, alternatively feeling the pressure and stress of the job throughout life.

With marriage and kids, the expenses increased along with responsibilities. Managing personal expenses to education to savings, most of his life just goes by earning and meeting the needs of his and his family till the time of his retirement age- 60 to 65 years.

Quite the archetypal story of every common man?

Now, time has changed. No more are they ready to live under pressure or lead a stressful life of a quintessential 9-5 desk job. They are looking for a liberal life and work at their own terms. They aim for work-life balance.

Millennials are now embracing and joining the club called FIRE – an acronym for Financial Independence. Retire Early. They have redefined retirement and the rules of retirement. Soon retiring at 30 or 40 is the new fad, not only to retire completely from work but also to live freely by not succumbing to the pressure of a 9-5 routine.

So the new question is, ”How to retire early ?” It may look impossible but is doable. To make it true, a lot of commitment, dedication, and willingness is needed to make the required changes in order to achieve the set goal.

To make it a reality, you need to make plans for early retirement. You will have to provide answers to the obvious questions, how much money will you need to save for retirement? Why do you want to retire? Where will you park your money to meet your retirement goal? Let’s decode answers for these and a few other questions step by step.

Some follow “LEAN FIRE” (being extreme frugal) and others “FAT FIRE” (maintaining a standard of living while saving and investing), and few work part-time at places for the company’s health insurance. There other meanings of FIRE that you can read about here.

There are a few jargons in FIRE club parlance like to be ‘firing’ means to cut down expenses in order to save more and invest in income-generating instruments to support oneself. To have ‘fired’ means you have achieved your goal.

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Why Retire Early?

To each, it’s own, but in general, it is to gain independence from the slavery of 9-5 work or running out of the rat race that has made life more hectic and stressful with minimal space for peace.

retire early

Stop relying on jobs and have freedom, to switch jobs, take a sabbatical, or look after your family or do whatever you wish for or like to do. Some may even want to work on their own terms post-retirement and have even if a small source of income.

But, if you are looking to laze around for 50-60 years doing nothing or only travel the world, you will need more money than saving.

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How much to save to plan an early retirement?

Generally, the rule of thumb for retirement savers is to replace 80 percent of their pre-retirement income. This replacement income is a target amount set to lead the same comfortable life during retirement.

However, this benchmark is a guideline and may vary to different income groups people. The lower the income, the higher the replacement rate. Also, this benchmark won’t be as effective to early retirees as compared to traditional retirees of 60-65.

Social Security Benefits

Retirement income source Social Security will not be available at least until the age of 62 years. The actual benefits in case of early retirement go down due to short work history. Social Security benefits are meant for retirements and are calculated on average of indexed monthly earnings of 35 years in which you earned the most taxable income.


Some pensions offer larger benefits initially and then go down after Social Security benefits begin. Therefore, before early retirement, do the necessary checks with the HR to fully understand pension and health benefits.

How much to save to retire early by 40?

The most dreaded question most frequently searched is either you are on your way to achieving the financial goal, or you have still not worked enough towards it. The latter is true most of the time.

To calculate how much you need to retire early, Multiply your estimated annual expenses during retirement with 25. This will help you to arrive at the required number to become an early retiree.

The retirement savings ‘rule of thumb’ by William Bengen is 4%. As per him, you can withdraw 4 % of your annual retirement savings and still lead a comfortable life. Again, to mention this is just a benchmark and varies from person to person.

It is just a withdrawal guideline because it ultimately depends on how much you spend and that dictates how much you need. It guides you with a number that says you can withdraw an ‘x’ amount and will sustain without running out of money.

For example, you need $40,000 to be withdrawn from your investments to meet annual expenses and not run out of money post-withdrawal. Therefore, you will need to save appx. 1 million dollars at the desired retirement age.

A 25-year-old is earning $50,000 per year and saves half of the income for 15 years with a 7% rate of return. Her money will grow over $6,28,000 on $25,000 invested every year.

The 4% rule of thumb is just a guideline, and many are still comfortable with a lower withdrawal rate. This will help to maintain the retirement nest egg throughout the retirement days.

Also, the future can be uncertain if ever the retirement corpus is reduced due to unforeseen situations, there should always be flexibility and back up in the form of cash or other investment tools.

How to prepare your finances to retire early?


Spend less than your income and save more than your expenses. Common sense says, Income > Expenses, Savings > Expenses.

Your lifestyle choices determine your ability to save and realize your dreams to retire early by 40. You have to make small changes in habits and lifestyle, giving more importance to your future experiences than materialistic things.

The biggest saving would be in a house or a car. Living in a low-cost area and riding an old car or even a cycle can save a lot of money. Replace the gym with running, cut the cable instead watch online or going less to restaurants instead have a home-cooked meal.

Basically, you need to embrace minimalism and frugality and cut down on unnecessary expenditures and learn how to save money in the long run.

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Earn More

Chris Reining, an early retiree at 40, says that your job is just a part of your work and you would need to earn more money where you can live on half of the salary and sock away the remaining. So, you need to focus more on your career to not miss the earning opportunity.

Also, there are many side hustles that can help you earn extra money like freelancing, Airbnb, or doing simple tasks or gigs online. More money earned will help in saving more and go towards retirement.

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Do not put all your money in the savings account which doesn’t give high returns, There are various options to invest to earn the benefit of compounding.

Invest as much as possible in 401(k), Individual Retirement Accounts(IRA), and other taxable instruments give tax diversification.

The employer-sponsored 401(k), invest and match your employers’ contribution. The maximum contribution is $18,500 in 401(k). You may also contribute to a Roth IRA, for after-tax contributions up to $5,500. The earnings and withdrawals after age 59½ are tax-free.

Investment in stock markets for the long term can give a higher return in the future. Consider investing in index funds and also remember that brokerage fees shouldn’t exceed the rate of return.

You can expect a return of 80 percent over 20 years. For conservatives, you can diversify your portfolio with stock (60%) and bond (40%) mix. You should try to maintain a reserve of cash for two to three years to face any unknown health situation in case of limited withdrawals if stocks are down.

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Debt Repayment

It is better to pay off all debts before retiring early. If not possible to eliminate completely then pay off high-interest rate debts first and maintain low payment debt obligation.

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Common Concerns to Retire Early


Healthcare in the U.S is very expensive. The most common concern is about healthcare and the higher medical cost after retiring. Many FIRE followers bought family coverage where members share medical expenses.

From healthcare cooperative like Liberty Healthshare. Carl Jensen, an early retiree, and software engineer bought coverage from the Affordable Care Act Exchange paying $700 per month for his family of four. A.C.A plans are subsidized.

Some FIRE followers and early retirees also opt for medical tourism for small healthcare problems.

Children Education

Many FIRE parents like Mr.Jenson, Mr.Adeney with a pen name Mr. Money Mustache are building new and modern styles of parenting and higher education. They believe when the children will grow up they will have to earn and save money for their education costs similar to the old school ways.

Mr.Adeney retired by 30 believes that like earlier generations, one can take a smaller loan for education. His young son is attending a lower-tuition in-state school.

Another follower of FIRE principles, Scott Rieckens is a parent to a 3-year-old who believes it is not possible to predict the job or education status in the next 15 years with the automation, robotics, A.I, online courses coming into the picture.

However, he also shares the same opinion as other FIRE parents, that his child would work during high school and college and save for her educational costs along with additional assistance from them.

Economic Crisis

Many who wish to retire early by 40, has a concern and worry about the unstable markets and economic situation. Investing their savings in stocks for a future higher value and acting as their retirement fund for the next 25 years, economic crisis news making around makes many wary on how to make early retirement plans.

Ed ditto blogger of Early Retirement Dude, faced the 2007 financial crisis and he and his wife lost 48% of their savings. As he mentions on his blog, it taught him 2 major lessons:

a. Keep cash in hand for at least 6 months to 1 year.

b. Do not panic sell (in the turbulent market).

During the crisis, he had a paid-for house and enough cash to cover roughly 15 months’ worth of expenses in a money market account which rescued him from not selling his portfolio into the bombing markets.

economic crisis
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He also mentioned, that due to his broker’s wise advice and the reminder of him being a ‘buy-and-hold guy,’ he refrained from selling his portfolio completely in late 2008. His net worth

By the end of 2017, the total was $2.4m and surpassed his pre-crash value after drawing annual expenses.

He writes that whenever the next crisis hits upon, he will always keep cash in hand and never sell off his portfolio even though accumulation losses on paper.

Is $1 million sufficient for another 25 to 30 years of retirement?

A million-dollar question involving millions for survival in the retirement years. The rule of thumb of a 4 % withdrawal rate is the guideline, many of the early retirees follow. As explained earlier the working of withdrawal rate and the amount of $40,000 is increased only if inflation increases.

However, there is a lot of debate on the withdrawal rate of safety and accuracy. But an early retiree Mr. Jason long who writes a blog sharing his financial and retirement life says they have a withdrawal rate of 3%.

He is a former pharmacist tired of his job and sought early retirement. He stays in rural Tennessee where he bought a 28-acre tract currently worth $150,000 for only $85,000 and build his own house and did the design.

The main advantage of staying in Tennessee is no tax to be paid. He wrote that knowing the tax code makes an enormous financial difference.

The best way to maintain a nest egg of retirement is to be frugal and spend money wisely.

Final Words

Many folks who have minimum wages and loans to pay off might find it difficult to retire early and adapt to the FIRE principles. A lot of financial and lifestyle commitment requires you to retire by 40 and make a plan for early retirement.

Many early retirees have found independence from their job and freedom to live on their own terms. They might have retired from the full-time job but do dedicate a part of their time to blogging and maintaining their website sharing their post-retirement lifestyle and financial journey lucidly.



When can I retire?

There is no specific age when one can retire, and the person can work for as long as they want. Most retire at 60, but it entirely depends on the individual, as some also retire in their 40s.

How much money do I need to retire?

The amount depends on various factors such as Healthcare, Education, and Expenses. A person should have a reasonable calculation of all this and save up accordingly before retiring.

Should I pay all my debts before retiring?

This completely varies from person to person. Some of them save up extra money for these debts to pay them post-retirement, while some pay the debts off before retiring and then retire,