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30 Money Ideas That Are Vital For Early Retirement

Trista Smith October 26, 2024

Do you want to retire early? If so, you are not alone, but you probably have many questions about what you need to do to make that dream a reality. There are also many considerations to make about how you understand retirement and what you really want out of it.

Are you just looking for the ability to quit your 9-to-5, or is your genuine desire to be able to pursue a life that is filled with more meaning and purpose? Keep reading for tips about retirement and how you can retire early.

30. Know What You Want Out Of Retirement

Many people dream of getting out of their full-time job as quickly as possible and living a life of leisure. However, before you get too far in your financial planning, take some time to think realistically about how you will fill your time without a job and the meaningful social interaction it provides (via Forbes Advisor). You may want to consider volunteering, part-time work in a position you are passionate about but that does not pay much or filling your time with family that lives nearby (via Forbes Advisor). What you don’t want to happen is to get to retirement and find that you’re bored.

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29. Plan Your Retirement Expenses

Once you have a plan for how you will retire, start thinking about what your budget will look like. There are two critical expenses that people tend to underestimate when making retirement planning: healthcare and taxes. Healthcare expenses tend to go much higher the older a person gets, and secondary insurance to complement Medicare can be highly beneficial (via Nerd Wallet). Taxes can get complicated when you are taking from retirement investments with tax incentives while depositing rather than withdrawing. Add 20% to your estimated budget to account for inflation and unexpected expenses (via Nerd Wallet).

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28. Reduce Retirement Taxes

If you retire early and begin withdrawing from your retirement fund, you may face hefty taxes, currently 10% if you start withdrawing before the age of 59.5 (via Forbes). However, there are other ways to maintain a steady income in retirement without paying this 10% in taxes. The easiest way is to begin using funds different than an IRA or Roth retirement fund until you reach the age of 59.5 (via Forbes). Cashing in investments can be one way of allowing you to live comfortably until then. Another way is to talk with a financial planner about different strategies to utilize those retirement savings without facing the 10% tax.

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27. Change Your Mindset About Money

Many people consider retirement as a milestone when they have saved up enough money to last for the rest of their lives. Yet there are other ways to feel about retirement if you first change how you think about money. Maybe the question should not be how much money you need to save for the rest of your life, but how much money do you need to live the fulfilling and meaningful life you want to live (via US News)? Retiring early may simply mean that you quit your full-time job that pays well so that you can take a different job that pays less (via US News). However, it gives you a reason to get up in the morning.

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26. Make A Detailed Plan

Many online tools are free to use that help you develop a retirement plan. They will help you determine how much money you need to retire based on investment rates and how much you regularly put into savings and investments (via Yahoo!). Having a plan in place, one that is based on financial performance over the long term will help you strategize your decision-making over the next few years to be able to retire early. Moreover, while free online tools can certainly be helpful, they are no substitute for talking to a financial advisor. A financial advisor can help move beyond dollars and cents to the goals you have for retirement (via Yahoo!).

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25. Create A Target Savings Amount

Once you have an idea of how much money you will need to retire early, you will get a sense of how much money you will need to have in savings (via New Retirement). That amount may or may not be the nest egg of one million dollars depending on your retirement goals. Once you have that amount in mind, start putting that money into the bank or an investment fund. You may need to start paring down your monthly expenses if you want to prioritize retiring early (via New Retirement). That way, things like eating out and taking vacations every year may need to take a backseat to your retirement goals.

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24. Get Rid Of Debt

High levels of debt, including “good” debts like a mortgage, often prevent people from being able to retire early, even when other necessary prerequisites have been met. While building a savings account, make sure you also prioritize paying off debts (via New Retirement). Begin with credit cards, which have a much higher interest rate than other debts. Pay extra towards your mortgage every month because shortening the life of the mortgage will also lower the total amount of interest that you have to pay (via New Retirement). Avoid taking on new debts like buying new cars when your current one still runs fine.

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23. Plan Ahead For Health Insurance

Once you’re no longer employed, you will lose your employer-provided health insurance unless you have a prior agreement. You will not begin using Medicare until you are 65, so if you want to retire early, you will need to plan to make sure you have adequate health insurance (via Forbes Advisor). COBRA can extend your employer’s health insurance by 18 to 36 months, but you will have to pay substantially more towards the premium than you formerly did (via Forbes Advisor). Take a look at your state’s insurance marketplace to see how much those plans will cost. Make sure you budget health insurance into your retirement plan.

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22. Know The Rule Of 25

The rule of 25 says that however much money you anticipate needing for your first year of retirement, multiply that amount by 25 to determine how much money you need in savings or investments (via Nerd Wallet). Do you want to lower the amount? You will need during that first year, thereby reducing the total amount you need for retirement. So prioritize getting your mortgage paid off. Not having a mortgage could easily slash your monthly expenses by one-third (via Nerd Wallet). Make sure that the money you have stowed away is in an account earning interest. That way you can account for inflation.

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21. Understand The Three Bucket Method

The three-bucket rule says you need to have three separate “buckets” of retirement funds. The first bucket is cash savings that can cover two full years of living expenses and the second bucket is fixed-income investments covering five years of living expenses. Finally, the third bucket is stocks that can pay a steady paycheck through dividends throughout your retirement (via Forbes). By dividing your retirement plan into these three buckets, you have backup strategies should your stocks take a downturn. Having two years’ worth of savings will ease the temptation to sell off all of your stocks at a loss should the market take a downturn (via Forbes).

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20. Lower Your Monthly Expenses

This one may seem obvious, but are you having trouble putting money away into savings but you still want to retire early? You need to lower your monthly expenses. Begin by looking at costs that are not necessary, such as eating out, going to the theatre, and taking trips (via US News). These expenses are much easier to eliminate than things like groceries and utility bills. If you’re living in a house that is costs too much to put money in savings, consider downsizing into a smaller dwelling. Aim to get your monthly expenses down enough to put at least 10 percent, preferably 20 percent, into savings each month (via US News).

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19. Rethink How You Think About Retirement

Many people begin dreaming about their retirement time with ideas about having a million-dollar vacation home on the beach. Nevertheless, if your goal is to retire with a second home and you also want to retire early, you may run into goals that you are simply not able to achieve without a very high-paying job (via Yahoo!). Instead, rethink your ideas about retirement (via Yahoo!). Do you really need a million-dollar second home? Alternatively, would you rather do something fulfilling by volunteering and being able to take more trips to see your family? The latter may be more feasible.

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18. Create Passive Income For Early Retirement

In addition to your regular full-time income from your job, creating streams of passive income will help jump-start your retirement planning (via New Retirement). Furthermore, it could also carry you through difficult periods of retirement. Some people rent out spare rooms through Air BNB to earn extra income. Other ways to earn passive income include establishing a website or blog that generates money through advertisements or affiliate marketing. Setting that passive income into a retirement fund that generates interest or using it to pay off debts can make a huge difference in your retirement planning (via New Retirement).

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17. Consider Retiring Overseas

You may think that people who retire to exotic locations, such as Tahiti or Cancun, have copious amounts of money at their disposal. While some obviously do, many people retire overseas because the cost of living is so much lower (via GOBankingRates). If you speak a second language or don’t have significant relationships where you currently live, you may want to consider retiring overseas so that you have lower retirement expenses (via GOBankingRates). If this idea sounds like a good one, begin doing your research now to determine if the location of your dreams will help you meet your retirement goals.

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16. Join The Tiny Home Movement For Early Retirement

One of the absolute best ways to lower your monthly expenses so you can stash more into savings is to move into a tiny home. If you think this trend is just for millennials, consider that 40 percent of people who own tiny homes are over 50 (via GOBankingRates)! Selling your larger home and dramatically downsizing your possessions is not for everyone. However, if you are able and willing to, you may find that you pay less than $20 per month for utilities (via GOBankingRates). Having a tiny home on wheels can be an even bigger bonus, especially if you enjoy traveling or want to travel in retirement.

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15. Retirement-Proof Your Home

While investing enough money is critical to retiring early, not preparing your home for retirement can derail your retirement after you have already retired (via Forbes Advisor). If your roof needs to be repaired or you want to put in solar panels, you need to do those things sooner rather than later. Not only will making repairs cost less if you make them sooner but relying on your retirement nest egg to cover expenses could spell serious trouble for your plans (via Forbes Advisor). If you plan to downsize, start looking at making that a reality now.

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14. Focus On Investments That Will Grow

The safest investments will generate the lowest amounts of interest, and these tend to work much better for those who plan to retire closer to age 60 (via Nerd Wallet). For those who want to retire earlier, their investments have less time to grow before they need to begin withdrawing. Aim for accounts that are riskier but will generate higher interest. A diverse portfolio is usually safest, with a portion of the money invested into lower-yielding funds and some invested in higher-risk, higher-yielding funds (via Nerd Wallet). Once those higher-yielding stocks have generated enough interest for you to feel comfortable, you can begin transferring money towards lower-yielding funds.

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13. Take Stock Of Your Portfolio

Did you have a 401(k) or another retirement account at a previous job but lost track of it? You may actually have a small fortune sitting around waiting for you to claim it. Talk to your former employer to see if you have any funds from that job and roll them over into your current retirement plan (via Yahoo). Also, consider if your employer offers any kind of pension that could be added to your retirement planning (via Yahoo). Furthermore, you may not be able to rely on an inheritance or massive book deal. However, if those funds are already available, incorporate them into your portfolio.

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12. Change How You Spend

Do you buy a cup of specialty coffee at Starbucks on the way to work in the morning? It may feel like that little indulgence that helps get you through the day. However, have you considered the price? If you spend five dollars each workday on a cup of coffee, that amounts to $25 per week and $1300 per year. Without even investing that $1300 to generate interest, that amount could cover a week’s worth of expenses in retirement. Start thinking about those little indulgences (via New Retirement). You could be guilty of nights out that add up to a hundred dollars or eating out for lunch every day. Consider how long those habits are keeping you from retirement (via New Retirement).

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11. Focus On A Purpose

Studies have shown that people who retire early tend to die at an early age, and the jury is out as to exactly what the reason is (via New Retirement). Nevertheless, one thing seems clear. It seems having a purpose in waking up each day, keeping busy, and maintaining meaningful interaction with peers are critical to maintaining health (via New Retirement). If your idea of early retirement is being able to stay in bed until noon every day just because you don’t have to go to work, you may want to reconsider how you plan to spend your time.

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10. Keep Earning In Retirement

One of the best ways to help fill your days during retirement is to continue earning income, albeit not from the 9-to-5 that you will be getting away from (via Forbes Advisor). The gig economy offers many ways to make money in their free time; the key is finding something that works for you. Some retirees look for part-time work that is more meaningful than their nine-to-five, such as working in the church office or at a community-service organization. The bonus of earning a (diminished) income during your retirement years is that you will be able to continue growing investments (via Forbes Advisor).

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9. Maximize Employer Contributions To Your 401(k)

If your employer offers matching contributions to your 401(k) and you are not taking advantage of them, you are leaving free money on the table (via Yahoo). Retiring early requires much more than saving and investing your own money; getting those employer contributions can dramatically increase your retirement portfolio, especially when considering the interest earned. Make sure that you contribute at least enough to reach the maximal employer contribution. To make even more of an impact on your retirement nest egg, make sure your spouse or partner is also getting those matching employer contributions (via Yahoo).

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8. Adopt Healthy Eating and Exercise Habits

Having healthy habits through your retirement can dramatically decrease healthcare expenses. Not only that, but it can extend your life expectancy. Healthy habits will help you have the most meaningful and fulfilling retirement years possible. Reduce or even eliminate your consumption of red meat, which has more adverse health effects than positive ones (via Yahoo). Up your intake of fruits and veggies, reduce your sugar, and start working out regularly. While taking the stairs instead of the elevator is a great start, going to the gym a few times a week is even better. Getting into those healthy habits now will help you have a longer and happier life into early retirement (via Yahoo).

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7. Get Your Legal Affairs In Order

You may not realize how necessary having your legal affairs is in order before retirement. The sooner, the better. Some people have living wills in place before they turn 30. A living will states your desires if you develop a life-threatening condition. Having one takes away guesswork that could cause family members immense pain (via GOBankingRates). A power of attorney says who will be in charge of your affairs if you become incapacitated, and you should not wait until your health begins failing to put one in place (via GOBankingRates). Other important documents include wills and trusts.

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6. Prioritize Saving For Retirement Over Children’s College Funds

This one may sound harsh. After all, isn’t your responsibility as a parent to do everything you can to prepare your child for adulthood? However, consider how many options are available to help finance your children’s education, everything from student loans to work-study opportunities to AmeriCorps stipends to scholarships and grants (via GOBankingRates). Nevertheless, these options are not available for retirement, and borrowing against your retirement fund will cause you to incur some hefty penalties (via GOBankingRates). You can help your children plan for college without sacrificing your own financial future to pay for their school.

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5. Consider A Sabbatical Over Early Retirement

You may have hit a mid-life crisis. Is it causing you to think that retiring early is the only way to get your life on track? Perhaps you aren’t sure how to fulfill your own personal goals. However, given how long people live nowadays, compared to just a couple of decades ago, retiring early could mean that you have to save enough money to last for 50 years. Instead, consider taking a year-long sabbatical from work so that you can explore the world, write that novel, take those courses, and develop your own interests (via New Retirement). Then you can get back to work with renewed vigor and energy because of the improved perspective (via New Retirement).

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4. Put Raises Into Savings

For many people, getting a raise at work is ideal. Nevertheless, if you’re trying to get your finances in a row to retire early, keep living at the lower salary and put the income from the raise into savings (via New Retirement). You will basically be saving that higher standard of living from the raise for your retirement years when you will have more time and freedom to enjoy it. Furthermore, whenever you pay down debt, instead of taking on another debt, please put the amount you were paying each month into savings for retirement (via New Retirement).

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3. Automate Your Savings Each Month

One approach to saving money is to consciously deposit cash into your account every month. That way, you can check that item off your box with confidence. Another method is just to hope that saving happens whenever you get around to it. Do you often just hope to have enough money left over at the end of the month? The best method to saving money is automatically transferring a certain amount of your salary into savings each month (via New Retirement). This approach has been proven to be the most effective way of saving for retirement (via New Retirement).

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2. Utilize Charity Tax Deductions For Retirement

There are many reasons to give to charity such as the feeling of fulfillment and joy. It comes from making a sacrifice that you know will help others live a better life. Another good reason to give to charity is getting a tax deduction as a side dish to that good cheer (via GOBankingRates). Making charitable donations in retirement can be a powerful way of offsetting taxes while also helping you maintain connections that make life meaningful. You can also donate your time, but you probably won’t get a tax deduction for it (via GOBankingRates).

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1. Start Planning For Early Retirement Now

So you want to retire early. No matter how old or young you are, the key is to begin planning now. Start paying down debts and avoid taking on new ones (via Forbes Advisor). Develop aggressive savings habits that will allow your money to grow through the magic of compounded interest. Create passive income streams that will enable you to sock away more money now. Improve your diet and increase your exercise time to boost your health. Furthermore, you will lower your risk of developing expensive health complications during your retirement years. Don’t wait until you are well-established in the career of your dreams to start making the choices that will prepare you for retirement (via Forbes Advisor).

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