The word “retirement” can conjure plenty of different images depending on who you’re asking. Whether you see visions of Michael Jordan at the infamous press conference, picture your grandfather casting a fishing line into a babbling brook, or simply think of people enjoying their golden years by doing exactly what they want, the picture is still the same — retirement is living life on your own terms.

To create the life of your dreams, it’s crucial to build your financial independence before you leave the full-time workforce. Call it retirement planning — the goal is to save enough and prioritize for the years to come. That’s how early retirement can become a reality. 

What does early retirement mean today? 

Cast away those tired, old cliches of what traditional retirement looks like right now. Sure, some people may want to cash in for a Winnebago and hit all 50 states, but these days, retirement looks a tad more contemporary.

At the ripe age of 90, Hirumo Inada is a champion triathlete still competing in grueling Ironman competitions. The Stones are still rocking stadiums well into their late 70’s. Johanna Quaas broke the Guinness Record for oldest active gymnast at 86. Even Tony Hawk is blasting head-high frontside airs out of half-pipes at 54. The theme here? Not only are people living longer, but they’re actively pursuing their passions well into their golden years.

Early retirement today looks like, well, anything you want it to look like. Healthy lifestyles, increases in longevity, and strategic financial planning put people in the driver’s seat to live the lifestyle they’ve always dreamed. In many cases, people can spend up to a quarter of their lifetime retired.

Whether you want to remodel a chateau, get involved with local activism, follow your favorite band on tour, or just chill and relax, retiring early is definitely achievable.

What do you need to retire early?

It’s important to decide exactly when you want to retire and crunch a few numbers to see if that age is right for you. It’s feasible if you can sustain yourself, even if it’s before the federal retirement age when you can receive full Social Security benefits. 

Take a look at your expenses to see where you’re spending money and which bills will follow you into retirement age. You’ll still need to pay any bills associated with homeownership or renting (think utilities, internet, etc.), as well as the occasional medical bill. And don’t forget lifestyle purchases, like dinner, drinks, and travel. It’s helpful to get an idea of what you’re spending monthly to know what you’ll need in the future — and where you can curb your spending today to help you save!

To retire early, you’ll need to be able to support yourself before your Social Security benefits kick in. Saving is crucial to early retirement — consider what your needs are and determine the amount of money you’ll need to pursue the lifestyle you have in mind.

How can you build enough income to retire early?

When you start thinking about how long you might need that nest egg to last, the idea of early retirement can sound intimidating. But with careful planning, a commitment to saving, and maybe a few sacrifices along the way, you can start building a foundation for early retirement. The goal here is financial independence, so you can enjoy your freedom with the means to support yourself. 

These two questions will determine your retirement income. 

Savings

If you want to retire early, the best thing you can do is to save, save, save. Setting aside extra money today to replace your working salary in the future is a surefire way to move closer to retirement. Also, be sure to build up a short-term emergency fund so you don’t have to tap into your retirement to weather life’s surprises.

Take a close look at your budget and see how much you can set aside for your retirement — it could be more than you think. The best rule of thumb is to set aside 10-15% of your salary, but if you can stash away more, you’ll save up that much faster. Maximize your annual contributions to your 401(k) and IRA, and consider opening a savings account for your emergency fund. 

Social Security benefits

Social Security benefits offer retirement income for qualified individuals and their families based on their earnings. Partial payout can begin at 62 for early retirees, but you won’t receive your full benefits unless you wait until your full retirement age to claim that income. If you can hold out until you’re 70, you may be able to claim even more.

Retirement accounts (pensions, 401(k)s, IRAs & more)

Employer-funded retirement accounts are a great avenue to tap into — in some cases your employer will even match your contributions up to a certain amount. If you don’t have access to a retirement plan through your job, that’s fine too. You can still start your own tax-advantaged retirement account.

Want to learn more? Read IRAs, Roth IRAs, and 401(k)s Explained.

Pension

A pension pool is a type of employee benefit plan in which employees regularly contribute to a fund — in this case, a pool of money — which is paid out to employees after they retire. Pensions are becoming more and more scarce in the private sector, but they’re still common in government positions, teaching, and nursing. 

There are two major types of pension plans: the Defined-Benefit plan and the Defined-Contribution plan. In a Defined-Benefit plan, retirees receive a predetermined amount regardless of their performance or contribution. In a Defined-Contribution plan, the benefits depend on the amounts contributed by both the employee and the employer. 

401(k)s & 403(b)s

A 401(k) is a retirement savings plan that’s offered by employers throughout the United States. The name comes from the tax code that lays out the rules in the Internal Revenue Code (IRC). 

In a 401(k), an employer sets aside part of an employee’s income in an investment account — typically a mutual fund — for the employee’s retirement. The employer may also provide a contribution or even match the employee’s contributions. 

Similar to a 401(k), the 403(b) plan, also known as a Tax-Sheltered Annuity plan, is a retirement plan offered by public school districts and certain 501(c)3 tax-exempt organizations. As with the 401(k), the 403(b) plan lets employees make contributions to a retirement account.

Most 401(k)s and 403(b)s are “traditional” retirement accounts, in which the employee’s contributions are pre-tax contributions — that money doesn’t count as income for tax purposes until they withdraw it during their retirement. In a Roth 401(k) or a Roth 403(b), the employee pays taxes on their full paycheck, including anything they contribute to their retirement account, which means they can withdraw that money in retirement tax free.

With both 401(k) and 403(b) plans, you should consider rolling your balances over to personal accounts if-and-when you leave your employer. Also, be prepared to pay a hefty withdrawal fee if you need to access your savings before you reach 59 ½ years of age. 

Personal retirement accounts

The most common personal retirement accounts are Individual Retirement Accounts (IRAs). These enjoy many of the same tax advantages as 401k(s) and 403(b)s, and there are also both traditional IRAs and Roth IRAs, which affect when you pay taxes on that income. Roth IRA contributions are not tax-deductible, but withdrawals are tax-free and you don’t have to pay capital gains tax either — a great option for investors who are still a long way from retirement age. 

A nice little nest egg

Maxing out your 401(k) and IRA contributions is a terrific goal to strive for, especially if you want to retire early. The IRS limits the annual amount you can contribute to these accounts — and those limits change year by year.

Once you’re maximizing those contributions, consider opening a personal brokerage account or branch out into other private investments, such as real estate.

Diversify your portfolio, build your nest egg, and retire when you reach your goal.

So, can you retire early?

For most people, the prospect of quitting the daily grind sounds pretty great. What do you think — are you ready to retire? Let’s take a look and see if you can sustain yourself!

Calculate your net worth

Being able to see and track your financial position is incredibly important as you move into retirement. That’s why Quicken offers a complete picture of your net worth, including all your assets and liabilities in one place.

Test a few different retirement ages

There’s no “one-size-fits-all” retirement age. To figure out when you can reasonably expect to meet your retirement goals, start with Quicken’s free online retirement calculator. 

Be sure to include any non-cash assets, and think carefully about your withdrawal rate (the rule of thumb is 4-5% in your first year). 

Save, save, save… did we mention save?

If you’ve gotten this far, you might be sensing a theme here.

Want to retire? Want to retire early? Save your money. Cut down on frivolous spending. Be realistic about your living expenses.

Save, save, save.

Create a budget

Budgeting is crucial — it keeps you aware of where your money is coming and going and helps you set money aside for retirement savings and investments. 

Use Simplifi or Quicken to plan your monthly budget, set savings goals, and project your investment earnings to plan for your future. 

Inflation throwing off your budget? Quicken can help.

Balance your investment portfolio

As you build your nest egg, remember to hedge against changes in interest rates and inflation. You’ll also want to keep something in short-term savings as an emergency fund to help protect your longer-term investments. Consider working with a financial planner to find the right mix for your personal situation.

Research health insurance

As the old saying goes, health is wealth. If you decide to retire early, keep in mind that Medicare won’t (usually) kick in until you’re 65. Do some research into your health care options, and remember that cheaper premiums tend to come with high deductibles. You might also want to weigh your options for disability insurance and long-term care insurance.

Get back to work…

Part-time, that is! Many retirees struggle with a lack of structure in their lives. A good way to remedy this (as well as provide a little extra spending money) is to work part-time.

Whether you pick up a gig ridesharing, try your hand at real estate, or even try bartending, a part-time job can provide a sense of accountability and accomplishment, while helping you live more comfortably. 

Need some ideas on how to make money part-time? Try these.

Work with a financial planner

A certified financial planner (CFP) is a fantastic way to receive professional counseling and investment advice. A financial advisor can help you determine how much you’ll need to retire and can guide you on investment strategies to help you reach financial freedom. 

The FIRE Movement

FIRE stands for financial independence retire early. This is a particular strategy in which early retirees keep an extremely high savings rate from a young age, helping them to maximize their nest egg. 

A big part of this philosophy is frugality and a minimalist lifestyle. Many adherents move to areas where the cost of living is low. They may also give up vehicle ownership for cheaper modes of transport, like biking or even skateboarding. The FIRE Movement enthusiasts keep their personal finances in check and maximize their savings for retirement. 

Is it time to retire?

The right time to retire is a highly individual decision. It depends on how you want to live your life, what you want to do with your retirement years, and how much you have saved. It also depends on how much risk you’re willing to accept, especially in times of high inflation.

The best thing you can do if you’re thinking about retiring early is to take a close look at your finances, consider your goals, and make a plan. The sooner you start, the sooner you’ll get there. If you want to take the first step today, Quicken can help.