The Roadmap for How to Retire Early

The Roadmap for How to Retire Early

Your clear path to escaping the rat race.

The Roadmap for How to Retire Early

    If you’re between the ages of 25 to 40, retirement may seem like it’s light years away.

    After all, if you’re on the typical track to retirement as a millennial, you have at least a couple of decades worth of your career ahead of you. You may even be just starting out in your career, but while you may think you’re inching toward the day you wave goodbye to work, the reality is that your relaxing post-career years may be much closer than you’d think.

    Early retirement is an option for anyone who wants to pursue it, and that’s a good thing.

    Chances are good that you already know that, though. As a whole, the millennial generation is well aware of the need for a work-life balance—more so than previous generations, anyway—and your generation tends to appreciate their freedom.

    That’s part of why the idea of walking away from a 9-5 job is exciting for this generation, and it should be! It offers the ultimate freedom. Who wouldn’t want to spend less time worrying about making money and more time pursuing their interests?

    On the other hand, while millennials are well aware of the need for a work-life balance, they are also led to believe that they’ll need to retire later than other generations typically did. This is, in major part, because millennials are told they can’t rely on the Social Security system to fund their twilight years.

    While concerns about the Social Security system running out of money within the next two decades are valid, this ongoing issue doesn’t put early retirement out of reach for millennials. There are simple ways you can maximize your chances of getting to the point of the ultimate work-life balance.

    Ready to get started on this journey? Here’s the roadmap for your journey to financial independence and early retirement.

    Think: Plan for Success

    Retiring early requires you to do some planning well in advance. After all, the goal is to save enough cash to make retirement happen earlier than normal and sustainable enough to last through your twilight years.

    That all starts with getting into the right frame of mind.

    Change Your Mindset

    Retiring early requires determination, sacrifice, focus, and planning. It’s normal to want to live for the moment, but you’ll have plenty of time to do that when you’re footloose and fancy free during early retirement.

    If you want to achieve that goal early, you’ll need to overhaul your thinking and shift your mindset to focus on the long term.

    This applies to your spending strategy and your investment strategy.

    If financial independence is your goal, you're going to need a high risk tolerance, because you're bound to encounter some ups and downs with your investments. Selling stocks or assets off at the moment that there's a dip could set you back considerably. But if you accept the fluctuations as part of the deal—it will be much more tolerable.

    You’ll also need to get mentally prepared to save rather than spend. Instead of opting for that impulse purchase or that great deal on the item you don’t actually need, you’ll want to start training your brain to recognize that there's an opportunity cost for every dollar you spend.

    Editor's note: The last thing we're here to do is be judgmental of your spending habits. I'm a firm subscriber to the old adage that "all work and no play makes Jack a dull boy".  I work hard for my money, and while I adhere to a fairly frugal lifestyle, I do indulge in some luxuries to reward myself for the hard work and long hours I put in. The difference for me is that I focus those splurges either on things that bring me happiness (like steaks), or trips and experiences that bring me closer to loved ones.

    A killer pair of kicks or an Apple Watch are wonderful, but the money you allocate to those expenditures could also be accruing compound interest, and getting you closer to your goal of early retirement. Ask yourself, will these items bring you happiness or improve your life? Or are they simply status symbols?

    The same goes for other pricey but unnecessary purchases, like regular dinners and drinks out at restaurants or subscription services that you don’t really use.

    Will ordering avocado toast at brunch every once in a while keep you from retiring? Of course not. However, little indulgences and sneaky recurring payments do add up over time (especially when those monthly payments are specifically designed to make you feel like you’re not paying too much at once).

    These good spending habits all start with changing your mindset toward planning for the future, which is why it’s so important to kick off your journey to early retirement with a complete overhaul of your thinking.

    Suggested Reading: Frugal doesn't mean miserable

    Create Your Own Roadmap

    After you’ve wrapped your mind around the idea that retirement needs to take priority—even in your 20s or 30s—you’ll need to get a solid game plan together. This plan is going to serve as the blueprint for your course of action, so be sure to pay special attention to the planning parts.

    To do this, you should:

    Calculate your net worth.

    You need to know what your net worth is in order to build the best plan of action. Net worth encompasses a lot more than what’s in your checking and savings accounts, though. Your net worth is the total value of all of your assets combined minus your debt. This includes your home (if you own one), your car, and other valuables, as well as the money that is in your bank and investment accounts.

    The easiest way to calculate your net worth is to write down the value of all of your assets and what you owe your debts and then calculate the total value of your assets, minus what you owe.

    Start by gathering all of the information on how much your assets are worth, as well as the balance statements for any debts. Make sure to account for things like your student loan debt, the balance on your mortgage, your credit card balances, the balance left on any personal or car loans, your medical debts, and any and all other debt-related information.

    Once you have your debt and asset information in hand, you’ll start by adding up the value of all of your assets. If you don’t have an estimate of the value, assign a realistic number to the item. You’ll likely need to do this for things like heirlooms or antiques, so be sure to do some research and find out a realistic market value for the item.

    From there, add up what you owe, in total, on all of your debt. Include the obvious: the balance you owe on your car note or home, for example. Be sure to also include other less obvious ongoing debts, like the total amount you’ll owe on your rental unit for the year. Things like rent also play a part in calculating your net worth.

    Once you have both figures in hand, you’ll simply subtract your debt from your assets to find out what your net worth is.

    Suggested Post: Use our net worth calculator

    Determine the age you want to retire, and calculate how much you need to invest.

    Your net worth is your starting point. Once you know how much you are (or aren’t) worth, you’ll have a jump-off point for calculating the amount of money you need to invest to make your early retirement dreams come to fruition.

    The good news is that this part requires much less math than the one above. You can plug in your information, including your age, your starting investment, your monthly investment, the rate of return, your optimal retirement age, and your annual cost of living into an investment calculator to help you determine your path to investing the right way for early retirement.

    After you’ve determined what you need to invest each month to pull off your early retirement, you’ll have a solid plan in hand for where your money needs to go.

    Save: Track Your Path to Retirement

    Early retirement prep doesn’t end with the math problems above (though it would admittedly be a lot easier if it did). You’ll also need to put your plan into action. To do that? You need to save.

    Set a Reasonable Budget

    Remember, retiring early requires sacrifice. The main one you’ll need to make is creating and sticking to a budget over the long haul.

    You can start by setting a strict budget for your spending that includes all of your monthly expenses and investments—and then stick to it. Take into account all of the costs you are responsible for, and any that may come up in the near future, too. If you’re anticipating an increase in your rent, your insurance, or another cost, calculate it in as early as possible so you have a very clear picture of what you’re working with.

    You should also leave some wiggle room in your budget. The goal is to avoid deviating from the budget you create, so you’ll also need to build in a cushion for emergency expenses, occasional dinners out with friends, splurges here and there, and other irregular costs.

    The goal is to be frugal, not cheap, so that cushion, while perhaps unnecessary some months, will keep you from getting frustrated with your finances. You’re allowed to have a little—or even a lot—of fun, as long as you can fit it into your finances accordingly.

    You can also add a system of goals and rewards to your budget to keep you from getting budget fatigue. Setting up a system of rewards and goals is a healthy way to handle a budget, and will also keep you from dipping into your savings out of frustration. Let’s say, for example, that you managed to come in under budget for a few months in a row, or were diligent about putting away extra cash into your investments. If you meet those types of goals, treat yourself for a job well done.

    The nice part about creating a budget is that you get control of how it works. Just make sure it’s realistic and fits within your needs, and then try to have some fun with it. You’re way more likely to stay on track if you give yourself the much needed breather from adulting every now and then.

    Track and Manage Finances

    You also need to make tracking and managing your finances a routine event. Luckily, these tasks are simple with the help of a few personal finance tools, which make it possible to keep a clear eye on where your money goes each month. With the help of these tools, it’s easy to keep track of your financial information and your money, whether the goal is to build wealth or simply stick to a budget each month.

    For example, Personal Capital offers an easy-to-use tool with a user-friendly dashboard that lets you link your accounts and track your entire net worth. You can use this information to set goals for your finances, or you can opt to work with an advisor to build a free personalized plan for building wealth. You can also use this tool to get wealth management help that’s custom-tailored to your unique situation.

    What’s especially handy about this tool is that it also allows you to plan for your retirement. The retirement planner feature lets you chart a path to financial freedom, assess your chances of retirement success, and see what you can do to meet your goals. If your goal is to retire early, a tool like this, which acts as a guide for what you need to do to meet your goal, is invaluable.

    Suggested Post: How we use Personal Capital to track our finances

    Let Go of “Pseudo-Affluence”

    Do you feel compelled to drive the most expensive car, wear the most expensive clothes, or own the most expensive watches? The “need” to look affluent is a dangerous trap, and you should avoid it at all costs.

    This phenomenon of overspending to look wealthy is known as pseudo-affluence, and it can cause some serious damage to your finances. You don’t need to buy expensive material items to convey success. In fact, most wealthy people don’t do that.

    Here’s a little secret you should know: While it may seem contrary to the idea of having money, the truth is that most rich people don’t actually look rich. People who have enough money to be comfortable are wise about spending, saving, and investing, and an $80,000 car isn’t generally a wise investment.

    So, rather than spending money on a glitzy high-dollar watch or an expensive luxury item, most wealthy people use their money wisely instead. And, you should too. Let go of the need to appear pseudo-affluent to others and focus on the goal at hand instead: saving for retirement so you can be free of work stress and pursue what you love instead.

    Letting go of pseudo-affluence could mean that you’re stuck driving your car for more than a couple of years before trading it in, or it could mean that you buy a modest home rather than a huge McMansion in the suburbs. And, that’s OK. If the modest home or car meets your needs, there is nothing wrong with it.

    The goal is to be wise with your money, make the most of it, and then spend your later years doing exactly what you want to do. If that means waiting to drive an expensive car in your late 50s, after your savings and investment strategies have panned out? Well, you’ve earned it at that point.

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    Retire: Build Wealth to Achieve Financial Independence

    The main way to be successful at retiring early is to build wealth. Easier said than done, of course, but there are many ways you can start building wealth now as part of your plan for an earlier retirement.

    Increase Your Income

    If you want to achieve financial independence and retire early, commonly known as F.I.R.E., you’ll also need to find a way to boost your income. That can be tough with a 9-5 job, but it’s certainly not impossible. Steve Adcock, the founder of Think Save Retire, is a perfect example of how a regular person with a regular income can achieve their financial goals and retire early.

    At the age of 35, Adcock quit his full-time job in IT and set off with his wife and two dogs on their dream to travel around the country in an RV. At the time, they had just under a million dollars in the bank, which they’d accrued by their mid-30s by making a series of smart money moves.

    The key for Adcock was to see building wealth as an equation: Wealth = Income + Investments - Lifestyle. While savings are important, that alone won’t do the trick. You’ll have to invest and increase your income if you want to retire early.

    How to start a business

    In fact, a large portion of Adcock and co.’s money is still tied up in safer investments. Putting your money to work is important if you want to retire early, which means you’ll need to increase the amount of money you have to invest.

    The most obvious way to increase your income is to ask for a raise.

    It doesn’t hurt to ask, especially if your work performance is top-notch. Employers tend to reward good employees, so it’s worth a shot. Every little bit helps.

    If you aren’t getting regular raises at your current job, there’s another trick you can use to earn more money. You can change jobs.

    It’s not uncommon for people to switch jobs every 3+ years to increase their salaries, especially if their salary or their advancement is stalling out. If you need to go that route, it’s not a bad way to start increasing your extra income—and, in turn, the money you put into your investments.

    But we’ll get to all that in a moment. Let’s go back to how Adcock pulled off retiring at 35.

    In addition to making smart budget and investment moves, he also put a clear focus on side hustles.

    Required Reading: How to build wealth from nothing

    Start a Few Side Hustles

    Adcock started the Think Save Retire blog, which earned a couple thousand in revenue each month after a few years of work. He also contributed financial advice to large media outlets, and still does to this day.

    The more money Adcock earned from the side hustles, the more money he had to invest—and that’s the case for you, and you, and anyone else who wants to build wealth. If you want to quit your job and live the good life—in an RV around the nation or in some other early retirement dream—you’ll need to find a few ways to earn more money.

    Luckily, just about anything can be turned into a side hustle if you’re ready to get creative. It’s OK to think outside of the box when it comes to side hustles. If you have a skill you’re good at, chances are it can make money.

    Find a side hustle for financial independence

    For example, there are ways to earn money playing video games, but playing the latest Call of Duty release probably isn’t the first thing that comes to mind when you think of a side hustle. (If you’re good at gaming, though, maybe it should be.)

    Believe it or not, shopping can be turned into a side hustle, too. So can house sitting, or freelancing, or pet sitting, or just about anything else you’re good at. The options for lucrative side businesses are endless, so if you have a service you can offer that others might want, consider pursuing it.

    Alternatively, if you’re struggling to find ways to spend your extra time more profitably, you may want to spend some cold, hard cash investing in yourself first. You can take the leap into learning new skills, enroll in some online courses, or pursue a certificate or class that interests you.

    You could end up leveraging those new skills into a higher-paying day job or a lucrative side business. You never know what could end up being the key to early retirement.

    Suggested Reading: 20 of the best side hustle apps for making extra money

    Develop Passive Income Streams

    Another smart way of building wealth, and getting solid footing with early retirement, is to develop as many passive income streams as possible.

    Passive income is an important part of an early retirement plan because this money is made with zero or minimal effort on your part. No need for extra work; no need to hustle and find contracts. The money is essentially made for you.

    This can be done in a wide range of ways. You can earn passive income by locking your money for a set period of time into CDs or bonds, which will earn interest without any effort on your part. Once the term is up, you’ll get your initial investment back, along with the interest you earned.

    How to invest in index funds

    How to invest in real estate

    There are tons of other ways to develop passive income streams, too. Some are a little more risky, like offering private loans to individuals, while others are typically more safe, like investing in real estate via REITs or allowing boondocking for RVs on your property in exchange for a small fee.

    While these are all great options for bringing in recurring revenue, there are two big sources of passive income that you should seriously consider: index funds and real estate.

    Invest in Index Funds

    Investing might seem intimidating to a novice, but it doesn’t have to be. There are investment options, like index funds, that allow you to earn passive income on your money.

    If you aren’t familiar with index funds, here’s the gist. Index funds are mutual funds and ETFs that are designed to track the big indexes, like Dow Jones Industrial and the S&P 500. However, rather than putting the focus on one type of investment, index funds are broadly diversified to put your money to work as well as possible.

    Not only do index funds typically result in solid returns, but they also remove the stress that comes with picking the right stocks, selling when the time is right, and knowing when to get out of dodge if the market tanks.

    In other words, opting to invest in an index fund is a much easier way to get the investment job done.

    If you opt to invest in an index fund, all you really have to do is set up your account, choose a fund to use, and make frequent investments to start building wealth. Everything else is done for you.

    Required Reading: Our favorite resource for building wealth

    Automation is Your Friend

    "Set it and forget it" is a phrase that applies to more than just toaster oven infomercials.

    Setting up auto-invest so that money is being withdrawn from your paycheck, or directly from your bank account is a surefire way to make sure that your investment accounts are growing without much effort from you.

    Setting it up will depend on your investment platform, but most of the major players in the investing game should allow you to easily set up automation.

    Invest in Real Estate

    Investing in real estate may seem risky, but it’s actually one of the most common strategies people use to help build wealth and become financially independent.

    That’s because buying property is a great way to protect your cash and help you build extra income without taking on more side gigs or other employment. Sure, you may have to do some upkeep or updates to your properties, but it’s still minimal compared to the work you’d put in by taking on more side hustles or extra jobs.

    This route of building wealth is popular for other reasons, too, including:

    • You can invest in real estate for as little as $500 using platforms like Diversyfund
    • The returns can be high and are often much higher than the returns on traditional stock market investments.
    • The cash flow from real estate investments, especially rental property, tends to be steady.
    • Major losses are relatively uncommon when you’re investing money in real estate.
    • The income you earn from real estate investing is mostly passive.
    • Worst case scenario? If you invest in real estate, you’ll have a place to live if you need it.

    The return you earn on a real estate investment will vary, of course, based on where you buy property, what you do with it, what type of property you buy, and other factors. That said, the returns on most rental properties are significant.

    It’s not uncommon for real estate investments to return between 12% to 15% annually, and with a little luck (and some smart purchases) your returns could be even higher.

    Plus, your real estate is an asset that you can sell if or when you decide to, which means that there is passive income and real wealth built into this type of investment.

    The bottom line is that getting a few lucrative passive income streams going will set you on your way to early retirement before you know it. Just make sure that you’re opting for passive income that is actually passive.

    Otherwise, you’ll spend your early retirement years hustling, which isn’t really retirement at all.

    Required Reading: The ultimate guide to real estate investing for beginners


    The road to early retirement isn’t always straightforward, and different people take different roads to the same destination. What matters is that you get started creating a roadmap and charting that journey for yourself.

    If spending less time at work and more time at play sounds like a route you’d like to pursue, there are plenty of ways to get on the right track now. All it takes is a little bit of elbow grease, some innovation, and a determination to save, invest, and earn passive income to get the job done.

    Just be sure to watch out for the financial hidden traps and detours along the way. You’ll be armed with a solid plan if you follow the tips above, but if you aren’t careful, issues like pseudo-affluence can derail your train to early retirement before you know what hit you.


    Angelica Leicht

    1 post

    Angelica is a personal finance writer and editor. Her work has appeared in The Motley Fool, The Simple Dollar, Interest, Bankrate, The Spruce, Houston Press, and VeryWell.