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Here's how to retire at 45.

Retiring at 45 might sound impossible, but it could be a realistic goal so long as you have the right plan in place. An early retirement means more time to pursue hobbies or passion projects, travel the world, volunteer or simply connect with friends and family. It’s what the Financial Independence / Retire Early movement is all about. But what does it actually take to retire at 45? This step-by-step guide can help you retire early without  planning for an early retirement.

Step 1: Rethink Your Lifestyle

Graduating to your golden years by age 45 means the usual retirement saving and investing rules don’t apply. Unless you’re raking in millions every year, you’ll probably have to adjust your lifestyle. That means rethinking how you live, spend, save and invest now so you can live, spend, save and invest the way you want to when you retire.

Start with a thorough budget review and identify any nonessential spending. Eliminating any non-mortgage debt, such as student loans, credit cards and car loans, helps too. Planning for early retirement may also require forgoing some of the “luxuries” you’re used to, such as eating out or engaging in hobbies.

Cutting these seemingly small expenses could make a big difference in reaching your goal. Ultimately, you’ll have to save more aggressively and invest more tactfully to retire early. After all, the money you squirrel away by 45 will have to sustain you for the rest of your life.

Step 2: Get Clear on Your Retirement Vision

Here's how to retire at 45.

Next, define what retirement means to you. Again, that may involve traveling, exploring new hobbies, starting a business or even going back to school. The possibilities are limitless. But you’ll have to understand how much your vision will cost to develop a plan to get there.

Creating an estimated retirement budget will help you avoid shortfalls. Include all your basic living expenses. Then, add in other costs that you may have to adjust for as you get older, such as paying for your children’s education or rising health care expenses. A retirement calculator can help you determine how much you need to reach your goal.

Step 3: Accelerate Your Income

Most people enter their peak earning years once they hit their 40s and 50s. If you’re planning to be retired by then, you may need to pick up the pace with your earnings now.

There are different ways to approach this. You could ask for a promotion or raise at your current job or take on a part-time job. If those aren’t in the cards you could start a side hustle or a small business as a way to increase your earnings. The higher your income, the more you can sock away for an early retirement. Your annual earnings also play into the length of time you’ll need to save and invest to meet your living expenses after 45.

And rather than living more lavishly as you earn a higher salary, focus on increasing contributions to your retirement accounts. You won’t miss the money in your paychecks since you’re already accustomed to living on less.

Step 4: Invest Strategically

Most investing experts agree that the younger you are, the more risk you can afford to take on. Theoretically, if the market tanks in your 20s or 30s, your portfolio would still have several decades to recover before you need to access the funds. Retiring early adds a wrinkle to that logic. If you know you want to retire by 45, you may want to take a more conservative approach so as not to jeopardize your plan.

When adding investments to your portfolio, be sure to diversify. Also, factor in the fees you’re paying for each investment. Fees can nibble away at your returns over time so you should minimize fees wherever possible.

Step 5: Manage Your Tax Liability 

Investing for early retirement also means periodic rebalancing so you stay on track with your performance goals and tax loss harvesting. Loss harvesting means selling an asset that’s declined in value to counter the capital gains tax you might pay on a different investment that’s performed well.

You should also take advantage of tax-advantaged accounts. With traditional 401(k) plans and IRAs, your contributions are generally tax-deductible and withdrawals are taxed in retirement at your ordinary income tax rate. Roth IRA contributions, on the other hand, aren’t deductible. But you can make Roth IRA withdrawals tax-free beginning at age 59 1/2. Contributions to a Health Savings Account are tax-deductible and withdrawals are tax-free when they’re used for qualified health care expenses.

Step 6: Plan for the Gap

Retiring at 45 has its perks but there is one major drawback: taking money from tax-advantaged plans prior to age 59 1/2 could result in a 10% early withdrawal penalty. You may also face income taxes on the funds you withdraw.

Early withdrawals from a Roth IRA are an exception. You can withdraw your original contributions tax- and penalty-free at any time if your account has been open at least five years. But if you’ve been saving in a traditional IRA rather than a Roth, you’ll need another way to cover expenses.

Ideally, you have income-producing assets in your portfolio that you can draw from each month. You could also establish a taxable brokerage account, draw on cash savings or generate supplemental income through rental property investments.

Tips for Achieving Early Retirement

Here's how to retire at 45.

  • If you’re struggling with any of the above steps, you may want to consider working with a financial advisor. They will assess your current situation and help you determine what you need to do to retire by 45. SmartAsset’s free tool matches you with suitable financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Remember that timing matters. Someone who is beginning to save for retirement at age 25 may find it easier to retire by 45 versus someone who waits until 30 or 35 to get started. The best time to amp up your retirement strategy is always as soon as possible.
  • Be sure to factor Social Security benefits into your retirement income – and think about the right time to begin taking them. Technically, you could claim benefits starting at age 62 but delaying benefits beyond your normal retirement age could increase your benefit amount. A Social Security calculator will estimate how much you can expect to receive in retirement benefits.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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