8 Moves to Help You Retire Early — Even if You Don’t Make Six Figures

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For some of us, 30 minutes seems too long to wait (especially if it’s lunchtime). But if you’re thinking about retirement when you’re in your 30s, you could be looking at another 30 years.

Or you could be in your first job out of college with tens of thousands of dollars of debt, searching up “how to retire early.” In that case, you might have 40 years to wait.

That’s because at 59½, you can start withdrawing from your retirement accounts without penalty*, and at 62 you can start taking partial Social Security.

But those days can seem far off, especially if you’re in a job you don’t love, have too many cities unchecked on your travel bucket list, and are closer to the potential end of your life than the beginning.

If you’ve decided you don’t want to wait until your 60s to retire but don’t think you make enough to retire early, then keep reading.

Do You Need a Six-Figure Income to Retire Early?

TL;DR answer: No.

Long answer: The equation for early retirement isn’t just mathematical. If you can commit to learning some basic personal finance concepts, changing behaviors and putting a little extra work in now, you can retire early — even if you don’t make a lot of money.

But that doesn’t mean you can retire early on any lifestyle.

The average household pre-tax income was around $87,500 in 2021, and the average American household spent around $67,000 in 2019, according to the Bureau of Labor Statistics.

That spending includes expenses you might not have in retirement, like pension contributions, but excludes income tax — which you still have to pay on most retirement account withdrawals.

So at first glance, it is a reasonable amount to base retirement calculations on.

But if you want to live off of $60,000 for 40 years, you’d have to save almost $2 million before retirement. Which, if you have 20 years to save, would require you to contribute over $2,000 a month to retirement. That’s feasible for some, but not for all.

Early Retirement Factors

There are a few huge factors that will change your spending in your retirement that you can control or plan for, especially if you retire early. Most factors, more likely than not, will decrease your spending much more than during your very active working years. Here’s a quick rundown of these factors:

  • Housing: You will either (hopefully) own a home, or be able to move somewhere very cheap.
  • Transportation: You won’t have to drive to work and run errands every day, but we’ve all seen plenty of older people who buy Ferraris and Lamborghinis. This one is in your control.
  • Food: You will likely eat less the older you get, but if you stay active you will likely eat the same or more. And you may likely find the time to spend cooking everything you like, therefore saving money. So again, this is in your control.
  • Healthcare : As it is now, this one will almost definitely become more expensive, especially if you have health issues.
  • Entertainment: You will most likely spend more money on trips, but you may re-discover your local library, and find out how much your it has available for free. So it’s a toss-up that is in your control.
  • Taxes: It might come as a surprise to you that the amount of tax you have to pay is actually in your control. And no, it does not involve not paying your taxes.
  • Inflation: Inflation itself will make everything more expensive as time goes on. But you may find in time that you need fewer things to live so you spend less overall.

8 Steps to Take Now If You Want to Retire Early

If you want to retire before 66 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 use as a starting point to set your retirement planning up for greater success and earlier achievement.

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. Make educated guesses as to how much you’ll travel, whether you’ll have a mortgage, what your health care could cost, and what the cost of living in your dream retirement location might be. Consider the huge factors above to figure out your expenses better.

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

Since you’re wondering how to retire early, you’ve officially committed to never missing a monthly retirement account contribution again. Congratulations!

But that means you can no longer plan your retirement contributions around what you have left at the end of the month. You have to make them a priority, and the easiest way to do that is to automate your contributions.

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?

That’s fine.

Work up to it. 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.

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Tina Russell / The Penny Hoarder

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!

You may spend $60,000 annually now, but what if you could live on $50,000 per year, or $40,000? That would significantly decrease the amount you’d need to save to retire early.

This goes directly back to the couple of huge factors to consider when controlling your retirement plan (housing, transportation, food, healthcare, entertainment, taxes)

Some ideas to save:

  • Get a roommate or rent a room out on Airbnb.
  • Buy an affordable used car you can pay off in less than two years.
  • Cook at home more to save buckets of money.

Adopting these few lifestyle changes can make a bigger difference than a lot of little cost-cutting moves combined  since they target the three largest expenses in your life.

Also, the more you contribute to your 401(k) — or comparable plan — and HSA (Health Savings Account) each year, the less money you owe in taxes!

You can play around with how much your savings will speed up your retirement by using the “multiply by 25” rule. This rule basically states that once you know the amount you need to live off of yearly in retirement (including contributions to an emergency fund for unexpected costs), multiply that by 25.

That is your financial independence number — the number that allows you to retire early and live off of until you expire.

This rule of thumb is based on the assumption that your retirement will last 30 years, so if you want to retire at 35, you’ll need to adjust those figures if you plan to live past 65.

Using the Rule of 25, if you want to withdraw $60,000 every year from your retirement fund without touching the principal, then you’ll theoretically need $60,000 x 25, which is $1.5 million in today’s dollars.

But if you can cut your expenses to $45,000 per year, you’ll reach financial independence once you hit $1.125 million. That’s $375,000 less! That could be an entire decade of savings and compound interest saved!

If you start cutting your expenses today, you’ll free up money to invest as well. 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, you can’t afford to wait for raises and promotions to gradually increase your paycheck. If you don’t focus on investing now, you’ll have to save significantly more over time to reach your goals.

Here’s an example of the total you’ll need to invest to reach roughly $113,000 by age 55 with zero dollars of initial investment, as calculated on the Securities and Exchange Commission Compound Interest Calculator.

Age Started Monthly Contribution Total Contributed at Age 55 Balance With 7% Annual Return

















As you can see, this is going to take a lot of money. But don’t get discouraged, especially if you are not looking to retire by the age of 35. It’s not easy, but it is possible.

So if lack of income is keeping you from making your monthly contribution goals, ask for a raise or promotion, spend a year doing a side hustle or find another way to help you meet your goal as soon as possible.

5. Pay Off Debt

The market has historically returned 9-11% on investments. When we adjust for inflation, that becomes 6-8%. Alternately, a credit card averages 19.2% interest.

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. Let’s debunk the myth right now: Saving comes first, optimizing comes second.

Let’s debunk the myth right now: Saving comes first, optimizing comes second.

People aren’t putting off retirement because they don’t have a perfectly balanced portfolio, the fees are too high or they can’t find a good financial planner. They don’t retire because they haven’t saved enough money.

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 might think.

Here are a few ways to optimize your retirement savings:

  1. Get your employer’s 401(k) match.

  2. Open a Roth or traditional IRA (or both!).

  3. Take advantage of the Roth IRA if you’re in a low tax bracket.

  4. Opt for low-cost mutual funds with fees of 1% or lower.

  5. Roll over your old 401(k)s into an IRA to consolidate accounts.

  6. Avoid taking early withdrawals or 401(k) loans.

  7. If you hire a financial advisor, make sure he or she is a Certified Financial Planner with a fiduciary responsibility, which means they are legally obligated to act in your best interest. Otherwise, they may try to sell you funds that are in their best interest.

Think about diversifying your investments beyond the stock market, too. Investing in real estate or starting your own business isn’t quite as easy as socking money away, but they’re good ways to add a safeguard to your retirement plan.

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.

Many retirees will use their years of professional experience to open consulting firms, coaching businesses or other passion projects. Or you can start something totally different than your lifelong gig.

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.

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Tina Russell / The Penny Hoarder

8. Do Your Best to Stay Healthy

A major factor to consider in retirement at any age is the cost of healthcare.

Medicare isn’t available until 65, so many early retirees have to consider non-subsidized healthcare. 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.

There’s no way to control the unexpected, but you can do your best to control long-term health risks. The leading causes of health-related death are heart disease, cancer and respiratory diseases. Exercising and eating healthy will go a long way in cutting down your healthcare and life insurance costs over time.

What’s cheaper, $30 a month and an hour at the gym? Or $1,398 a month for health insurance that will increase over time? And if you’re super frugal and looking to retire early, walking around outside for an hour is free!

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.

Jen Smith is a former staff writer at The Penny Hoarder. Freelancer Dennis Lynch contributed to this report.