How to Retire Early: A Comprehensive Guide

If you’re interested in how to retire early, you’ll need a plan. Not only do you have to earn enough money to put aside for an early retirement, but you have to make sure you know exactly what you’ll need for healthcare, housing and potentially long-term care as you age. You also have to be disciplined about budgeting so you can save enough money for retirement. Here’s how to build your early retirement plan.

For more help with planning for an early retirement, consider enlisting the help of a financial advisor.

Figure Out What You Need

The first and most crucial step to retiring early: know what you’ll need in retirement. A common rule of thumb says to have 70% to 80% of your preretirement income set aside for each year you plan to spend in retirement. For example, if you make $100,000 a year now, you’ll need $70,000 to $80,000 per year to cover retirement expenses. 

A retirement calculator can help you narrow down a target number. You can estimate how much you’ll need to retire at different ages, based on your estimated yearly expenses and other financial factors. 

For example, say you’re 30 years old now and make $100,000 a year. You save $25,000 toward retirement and earn an average annual return of 8%. If you stick with that same plan, you could retire early at age 52 with $1.8 million saved. That assumes you plan to spend $70,000 a year in retirement. 

But how long will that last? If you retire at 52 and live until age 90, drawing down 4% of your portfolio annually, you shouldn’t run out of money. Your preferred lifestyle in early retirement, your investment performance, your health, inflation and when you begin taking Social Security benefits can all influence how long your savings will stick around.

Make a Budget and Stick to It

Once you have a set number in mind, break that goal down. Figure out how much you need to save money in your 401(k) or an IRA to meet your goal. Then, work that amount into your monthly budget. 

Here’s how to make an early retirement budget plan:

• Add up all your income, including your regular paychecks, money from side hustles or gig work and any other amounts you receive regularly
• Make a list of your essential expenses, including housing, food and utilities
• Make a second list of nonessentials, like dining out, new clothes or travel
• Subtract your spending from your income

Ideally, you have a positive number at the end of this. That’s the money you can automatically commit to early retirement savings. 

If it’s smaller than you’d like or negative, review each line item in your budget. Ask yourself which expenses you can cut so you have more money to save. You’ll likely need to make some trade-offs to make it work, but consider what you stand to gain from retiring early by letting go of expenses that don’t matter.

Invest Strategically

Where should you put the money you save for early retirement? Tax-advantaged accounts are an obvious choice, but you may also consider other options, like high-yield savings accounts or CDs. As you weigh the possibilities, consider growth potential, tax benefits and liquidity. 

• A workplace plan like a 401(k) lets you deduct contributions from your taxable income. You can get free money for retirement if your plan has an employer match program. 
• An individual retirement account (IRA) lets you contribute money on a pre-tax or after-tax basis. You can save in an IRA alongside your retirement plan at work, or in place of a 401(k) if you don’t have one. 
• High-yield savings accounts and CDs can pay interest on deposits, but they don’t offer any tax breaks. However, it’s easier to tap into your savings from these accounts in a pinch, since early withdrawals from a 401(k) or IRA can trigger tax penalties.

If you’re leaving toward an IRA, weigh the benefits of a traditional vs. Roth option.A traditional IRA uses pre-tax dollars, while a Roth IRA is funded after taxes. With a traditional IRA, you’ll have to pay taxes when you take qualified distributions in retirement, while dispersals from a Roth IRA are not taxed. If you think your tax bracket is higher now, use a traditional IRA; if you don’t, consider a Roth.

Don’t Forget to Account for Healthcare

Health care is one of the biggest costs in retirement, and it becomes even more challenging if you retire before age 65. Medicare coverage doesn’t begin until that age, which means early retirees may face a gap of several years or even decades without government support. Planning for how you’ll cover that gap is essential if you want your retirement savings to last.

Several options exist for health coverage before Medicare. You could:

• Purchase insurance through the health insurance marketplace. These plans cover preexisting conditions, and subsidies can lower premiums if your taxable income is below certain thresholds. For higher-income retirees, however, premiums can easily run into the thousands per month for a couple. 
• Get COBRA coverage. COBRA allows you to stay on your employer’s plan for up to 18 months after leaving work. You maintain the same coverage you had while employed but you pay the full premium plus administrative fees, making it expensive but useful for short-term needs.
• Look into private coverage. Private insurance purchased directly from an insurer or broker may also fill the gap, though coverage and costs vary. Your options for coverage may be limited by state regulations. 
• Join your spouse’s plan. If your spouse continues working, joining their employer-sponsored health plan is often the most cost-effective route. You can have them talk to their benefits coordinator about your eligibility to join. 

Some early retirees also rely on health savings accounts (HSAs) to help offset costs. Money contributed during your working years grows tax-free and can be withdrawn tax-free for qualified medical expenses at any age. A well-funded HSA can cover premiums, deductibles, and prescriptions during the years before Medicare kicks in. Building up an HSA while you’re still working can make the transition to early retirement smoother.

It’s also important to consider long-term health needs, not just immediate coverage. Even once you qualify for Medicare, out-of-pocket costs, supplemental insurance, and long-term care remain major expenses. Planning for long-term care, whether through insurance or other resources, helps protect both your retirement income and your family from the financial strain of extended medical support later in life.

Remember Social Security

Social Security can provide a base layer of income in retirement, even if it won’t cover all of your expenses. The earliest you can claim benefits is age 62, but doing so comes with a permanent reduction in your monthly check. For example, if your full retirement age (FRA) is 67 and you claim at 62, your benefit will be cut by about 30%. This lower amount lasts for the rest of your life, so the decision to claim early carries long-term consequences.

Waiting until your FRA ensures you receive your full benefit, but delaying past that age can make a big difference. For every year you postpone claiming between FRA and 70, your benefit grows by 8% through what are called “delayed retirement credits.” If your FRA benefit is $2,000 per month, waiting until 70 could raise it to about $2,480 — a permanent increase of nearly 25%. That higher monthly payment also grows with cost-of-living adjustments, making it a powerful hedge against inflation over a long retirement.

For early retirees, this creates a gap: you may need to live off personal savings, retirement accounts, or part-time income before Social Security starts. While that can feel like a strain, using savings in your 60s to unlock higher guaranteed income later often pays off if you live into your 80s or 90s. Delaying Social Security essentially acts like purchasing more lifetime annuity income, but without the insurance company fees.

Delaying can also be valuable for married couples. The higher-earning spouse who waits until 70 provides not just a larger personal benefit, but also a larger survivor benefit for the other spouse if they outlive them. For couples, this strategy can help secure a steadier income stream for the household’s longest-living partner.

In short, Social Security is not just about when you retire but about how long you expect to live and what other resources you can draw on in the meantime. Factoring in the benefits of delaying to 70, while balancing them against your savings, health, and lifestyle goals, can be one of the most important decisions in your retirement plan.

Accessing Retirement Accounts Before Age 59½

Retiring in your 40s or 50s leaves a gap before you can freely access most retirement accounts. Withdrawals from a 401(k) or traditional IRA before age 59½ usually trigger income tax plus a 10% penalty. There are some exceptions, but they’re limited; taking money from your plan early could result in a big tax bill and drain your savings faster than expected.

A Roth IRA gives more flexibility. Contributions can be withdrawn at any time without penalty since they were made with after-tax dollars. Earnings in the account are still restricted until retirement age, but access to contributions creates an early source of funds.

The IRS also provides specific ways to withdraw without penalty. 

• Under the 72(t) rule, you can set up a series of equal periodic payments from an IRA. Once started, the payments must continue for at least five years or until age 59½. 
• The “Rule of 55” applies to employer 401(k) plans, allowing withdrawals without penalty if you separate from service in the year you turn 55 or later.

Many early retirees rely on taxable brokerage accounts as a bridge. Money in these accounts can be withdrawn at any time, and long-term capital gains often face lower tax rates than ordinary income. Building this pool of accessible assets gives flexibility during the years before retirement accounts are fully available.

Tax Benefits for Early Retirees

Leaving work before the traditional retirement age can create years where your taxable income is much lower than during your career. Those gap years, often between your mid-50s and the time Social Security or required minimum distributions (RMDs) begin, allow you to manage taxes more deliberately. By choosing when and how much to withdraw from accounts, you can stay in lower brackets and reduce your lifetime tax bill.

One major strategy is using those low-income years for Roth conversions. Moving money from a traditional IRA or 401(k) into a Roth IRA means paying tax now, but future withdrawals are tax-free. Early retirees often find themselves in the 10% or 12% bracket for a few years, making it cheaper to do conversions than after age 73, when RMDs force taxable withdrawals.

Since early retirees control the timing of withdrawals, they can shape their taxable income to qualify for benefits tied to income thresholds. Careful planning may allow them to take advantage of Affordable Care Act subsidies, avoid higher Medicare premiums later in life or minimize capital gains taxes by staying under the 0% bracket. You can also explore various tax deductions or tax credits. 

Deductions lower your taxable income for the year, while credits reduce your tax liability on a dollar-for-dollar basis. Deducting student loan interest or mortgage interest, or claiming child-related tax credits could help to shrink what you owe in early retirement. These opportunities make tax planning just as important as investment planning for anyone aiming to stop working early.

Bottom Line

Retiring early is possible, but it takes a good amount of planning and dedication. You need to figure out how much money you’ll need and then you need to save it. To get there, you’ll need to stick to a budget and make sure you aren’t forgetting any possible expenses.

Retirement Planning Tips

• A financial advisor can help you prepare for an early retirement. 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.
• Want to see how much your 401(k) will be worth when you retire? Use SmartAsset’s free calculator.

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