How to Retire at 50: A Step-by-Step Plan

Retiring at 50 is a dream for many, offering the promise of freedom and the opportunity to pursue passions without the constraints of a traditional work schedule. Achieving this goal requires careful planning, disciplined saving, and strategic investment. The journey begins with setting clear financial goals and understanding the lifestyle you envision for your retirement years. It’s crucial to assess your current financial situation, including savings, investments, and potential income sources. Building a robust retirement fund often involves maximizing contributions to retirement accounts, such as 401(k)s and IRAs and exploring other investment opportunities that align with your risk tolerance and financial objectives.

One of the smartest moves in planning for early retirement can be to work with a financial advisor.

1. Start With Your Overall Vision to Retire at 50

If you want to retire early, it’s important to first define what retirement means for you. The type of lifestyle you hope to pursue in early retirement can dictate how much money you’ll need.

For example, you may want to retire at 50 and spend the rest of your life traveling. To do that you might plan to sell your home and adopt a nomadic lifestyle. You wouldn’t have a mortgage payment each month but you’d still need money to pay for things like airfare and other travel expenses.

Or you might want to stick closer to home but start a business at age 50. In that scenario, you’d need to be sure the money you’ve saved so far is enough to provide a consistent income until your business becomes profitable.

2. Do the Retirement Math

Getting clear on what retiring at 50 might look like, both in terms of lifestyle and what it may cost, can help you shape your plan for saving and investing. And it’s important to have hard numbers to follow.

For example, a modest retirement is generally considered to mean living off 60% of your current income each year. But if you have a bigger vision for retirement, you may need 80% of your current income or more to make it happen.

Your life expectancy also plays a part. Someone who’s retiring at age 65 and expects to live until age 90 needs enough income to last 25 years. But if you’re retiring at 50 with the same life expectancy, your savings need to stretch at least twice as long.

There are various strategies you can use to minimize your tax liability. At the same time, the investment choices you make can influence how insulated your portfolio is against inflation. In terms of your retirement income withdrawal rate, 4% has long been the standard rule. However, if you’re planning to spend several decades in retirement, you may need to adjust your personal withdrawal rate to align with what you’ve saved.

3. Create an Aggressive Savings Plan

If you’re focused on how to retire at 50, time can be both your friend and your enemy. The sooner you begin saving and investing for retirement, the longer you have to capitalize on compounding interest in your portfolio. But no matter if you’re starting your savings plan at age 25 or age 35, you’ll need to take a proactive approach to build up a large enough cushion for early retirement.

The first place to start is your workplace retirement plan. If you have access to a 401(k) or similar plan, you can take advantage of free money if you’re eligible for an employer-matching contribution. Financial experts often recommend saving 10% to 15% of your income in a 401(k) but if you’re planning to retire at 50, you may need to step contributions up to 25% or even 50% of your income instead to reach your goal.

If you don’t have a 401(k) or you’re able to max yours out each year, an individual retirement account is a next link in the retirement savings chain. Whether to choose a traditional or Roth IRA depends on your tax situation now and where you expect to be in retirement. If you’re fairly confident you’ll be in a lower tax bracket in retirement, then it might make sense to contribute to a traditional IRA now to get the upfront deduction for contributions.

On the other hand, if you anticipate being in a higher tax bracket when you retire at age 50, then you may be better off with a Roth IRA which allows 100% tax-free distributions in retirement. A Roth IRA also allows you to avoid having to take required minimum distributions starting at age 72.

Keep in mind, however, that an early withdrawal penalty typically applies if you take money from a 401(k) or IRA before age 59.5. You’d also owe income tax on those distributions unless you qualify for an exception. So, you’ll likely need another source of income in the meantime if you’re retiring at 50.

Opening a taxable brokerage account can help to fill the gap. Brokerage accounts have no annual contribution limits you need to observe, which is a key difference from 401(k) plans or IRAs. But you will owe capital gains tax when you sell assets in your account at a profit. The more favorable long-term capital gains tax rate applies to assets you own for more than one year. Remember also that you can use tax-loss harvesting to offset capital gains against capital losses.

If you have a high deductible health plan at work, you may supplement your savings with a health savings account (HSA). HSAs offer a triple tax benefit in that contributions are tax-deductible, they grow on a tax-deferred basis and withdrawals for qualified medical expenses are 100% tax-free. Investing money in an HSA can help you plan ahead for healthcare costs in early retirement and beyond.

4. Invest Strategically

There are different rules of thumb you can use to invest. For example, you might choose a 60/40 portfolio allocation or subtract your age from 120 to determine the mix of stocks versus bonds you should own. But those rules don’t necessarily apply when you’re trying to retire at age 50.

Just as you’ll need to be aggressive about saving more of your income, you may need to take a different approach with your investments. That means focusing on investments that will generate growth in the years leading up to early retirement, with a shift toward income-producing investments later.

Figuring out the ideal investment strategy for early retirement can be challenging and you may want to talk with a financial advisor about where to put your money. Your financial advisor can also look at your overall early retirement plan to help you find any potential weak spots that need to be addressed.

5. Plan for Contingencies

When you’re investing or trying to save enough money for early retirement, not everything is likely going to go the way you plan. You’ll want to build out contingency plans and be adaptable to make sure you save enough money. Here are some questions that retiring early might bring up:

How will I pay for health insurance until I’m eligible for Medicare?
Should I take Social Security benefits early or wait for full retirement age?
Will I be able to retire early and help my kids pay for college?
Should my spouse retire early too?
Will I still be paying off debt in early retirement?
How many income streams will I have?
Is working part-time a possibility?
How will I pay for long-term care if it becomes necessary?
Do I have enough life insurance if something happens to me?

Asking these kinds of questions can help make your early retirement plan more comprehensive. For example, Medicare coverage doesn’t begin until age 65, leaving you with a 15-year window in which you’d need to cover your own healthcare expenses. If retiring early means leaving your employer-sponsored health insurance behind you’d have to decide whether it makes sense to purchase your own coverage and how much that may cost.

Long-term care is something else to consider if you want to retire at 50. While you may not need it until you’re in your 70s, 80s or beyond, it’s important to plan for it while you’re still young and healthy. Purchasing a long-term care insurance policy or a hybrid life insurance policy that includes a long-term care rider are two options you might consider to avoid having to spend down your assets in retirement.

6. Enlist the Help of a Financial Advisor

Retiring at 50 requires precise financial planning, and a skilled financial advisor can be instrumental in helping you achieve this goal. While you may be adept at budgeting and investing, a professional brings expertise in tax strategies, asset allocation, risk management, and long-term financial sustainability.

A financial advisor will first assess your current financial situation, considering your income, expenses, investments, and debt. They’ll help you develop a customized retirement plan, factoring in inflation, healthcare costs and potential market fluctuations. With their guidance, you can optimize your savings through tax-advantaged accounts like a 401(k), Roth IRA or taxable investment portfolios, ensuring a steady income stream post-retirement.

Advisors also help navigate complex financial decisions, such as when to start drawing from retirement accounts, how to minimize taxes on withdrawals, and how to structure passive income sources. Additionally, they can provide accountability, helping you stay disciplined with your savings and investment goals.

Bottom Line

There’s no magic formula for how to retire at 50. In reality, it takes careful planning and a committed effort to save and invest. You should be aware that early retirement means creating a contingency plan for things like health care, Social Security benefits and tax management. If it’s something you’re interested in, evaluate your current financial situation to determine whether it’s an achievable goal. Then, focus on how you can put your savings plan into action.

Tips on Retiring

Consider talking to a professional financial advisor about what early retirement means and what you need to do to get there. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals get started now.
Using a retirement calculator can help you determine how much you need to save, based on your life expectancy, current income and desired income in retirement. It’s also important to include taxes, inflation and your withdrawal rate in your calculations.