How to Retire Early: 9 Steps That Could Help You in 2023

Article by Thomas J Law 22 Nov, 2022

If you want to know how to retire early, you’re not alone.

And for some, the dream of early retirement isn’t just a dream. Plenty of people find ways to retire early with the help of a good strategy, hard work, and perseverance.

However, many people aren’t saving for early retirement – in fact, a whopping 55% of Americans say they aren't keeping up with their retirement savings.

If you want to know how to retire early, this article can help. In it, we outline 9 steps to retire early that can help you achieve your goals, if you put the work in. We’ll also share some common benefits of early retirement to help inspire you.

But first, what is early retirement?

What is Early Retirement?

For decades, early retirement meant retiring at 60 instead of 65. And while this is technically true, the definition of early retirement has shifted.

Today, early retirement is no longer the moment you stop working forever. Now, it’s simply the moment you no longer need to work for money.

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In other words, early retirement is another way of saying you’re financially free.

Some people achieve early retirement in their 30s and 40s. However, most of these people also continue to work in some way, often on a passion project or something they simply love doing.

Here’s the distinction: These people work purely because they want to, not because they have to.

Keep in mind that working can provide us with purpose, meaning, and fulfillment. Plus, some studies suggest that people who retire early and don’t work at all may die sooner than people who keep working.

So, for many, the goal isn’t to stop working entirely. Instead, it’s to be free – free to choose. To do the work you want to do, when you want to do it.

Sounds good, right? It gets better.

9 Benefits of Early Retirement

Retiring early isn’t easy. It can take years of consistent hard work, focus, and dedication. So, it’s vital that you keep your eye on the prize and stay motivated.

Here are 9 benefits to keep in mind when planning for early retirement.

Dislike your job, colleagues, or boss? You’ll never have to work a job you hate again.
Want to travel the world? You won’t be restricted to just two weeks of vacation a year.
Always wanted to start a business or new career? You’ll be able to!
Wish you had more time with friends and family? You’ll have all the time you want.
Want to spend more time on hobbies and interests? You’ll have plenty of opportunities.
Ever wanted to learn a new skill, instrument, or language? You can spend more time reading and learning.
Wish you could get away from the hustle and bustle? Weekdays in most cities are relatively quiet and calm because most people are at work.
Wish you didn’t have to spend all day sitting at a desk? You’ll be able to prioritize your health and spend more time outdoors.
Conscious that you only have one life? You’ll be free to spend the rest of your life on the things you value most.

9 Benefits of Early Retirement

How to Retire Early: Planning for Early Retirement in 2023

If you’re wondering how to retire early, there’s a lot to think about. Here are 9 steps to retire early that can help you to work out your strategy.

Step #1. Determine the Lifestyle You Want in Retirement

Before you can start planning for early retirement, you need a goal to aim for. So, take the time to determine the type of lifestyle you want when you retire early.

Once you’ve defined the type of lifestyle you want, you’ll be able to determine how much money you’ll need to retire early.

Here are some questions to help:

Where do you want to live? Do you want to relocate to be closer to your family? Would you consider living somewhere less expensive?
Do you want to travel? If so, how often and where would you like to go?
What will your daily routine look like? What costs are associated with it? For example, gym fees or travel costs.
Will you still work in some way to create additional income? Perhaps you’d like to start a small business or work part-time in a career you enjoy.
What hobbies and interests do you want to pursue? For example, owning a sailboat costs a lot more than walking in nature.

Step #2. Create a Mock Retirement Budget

Once you’re clear on the lifestyle you want when you retire early, you need to define how much it will cost.

So, grab a pen and paper (or a spreadsheet if you prefer) and work out a mock monthly budget. Make sure to take into account:

Utilities
Insurance
Medical
Food
Internet
Phone
Car
Gas
Clothing
Entertainment
Home and car repairs
Gifts
Giving
Hobbies
Trips

Step #3. Evaluate Your Current Financial Situation

When planning for retirement, the next step is to work out how much money you need. To do this, evaluate your current financial situation. Here are some questions to help:

What is your current household income?
How much money do you spend on expenses each month?
How much money are you saving and investing each month?

(If you’re not saving or investing yet, don’t worry – it’s never too late to get started!)

Once you know the answer to these questions, it’s time to do some math.

Step #4. Work Out Your Retirement Number

Now, take your numbers and work out how much you need to save each year to retire early.

You can use a free retirement calculator to help, such as:

MSN’s Retirement Planner (featured below)
Smart Asset’s Retirement Calculator
Calculator.net’s Retirement Calculator

Some tools are more comprehensive than others. If you’ve been saving for early retirement already, use a tool that allows you to input specific details about your savings and investments.

Use MSN’s Retirement Planner Tool

Step #5. Cut Your Expenses

Once you know how much you need to save each year to retire early, you’ll likely need to cut your expenses.

Now, you’ll be able to save the most money where you spend the most money. So, before you look to save money on your morning coffee, try to cut back on your biggest expenses first.

According to the U.S. Bureau of Labor Statistics, the average American family spends over 70% of their income on housing, transportation, and food.

Here are some ways to reduce – or even make money on – your housing, transport, and food expenses:

Downsize to a smaller property.
Move to a cheaper area – try to save money on housing and commuting costs.
Buy or rent a 2-4 bedroom property and rent out the extra rooms to offset, cover, or make money on your housing. (Make sure to check local laws.)
Buy used cars in cash, instead of purchasing new vehicles on credit. Not only will you save money on the purchase, you’ll also avoid monthly payments and interest.
Eat out less and make the majority of your food at home.
Buy food in bulk.

Step #6. Pay Off Your Debt

Debt is one of the most significant barriers to early retirement. So, try to get out of debt as soon as you can. There are two main methods of paying off debt.

1. The Debt Snowball Method

Here’s how the debt snowball method works: Make minimum payments on all debt and focus on paying off your smallest debt first, regardless of the interest rates.

This method makes it easier to achieve quick wins and feel like you’re making headway with your debts.

Personal finance expert Dave Ramsey wrote, “When you clear that first bill and move on to the next, you’ll see that you are in charge of your money. And that’s so motivating!”

2. The Debt Avalanche Method

Here’s how the debt avalanche method works: Make minimum payments on all debt and focus on paying off the debt with the highest interest rate.

This method has a significant financial advantage, as it reduces the amount you’ll pay overall.

Step #7. Earn More Money

If you want to retire early, you need to put money aside. To do this effectively, you may need to increase your income. Let’s take a closer look at two ways to do this.

1. Start a Side Hustle

Create new sources of income with a side hustle by starting an online business or joining the gig economy.

You could mow lawns, drive Uber, or start a dropshipping business. Whatever you do, having a side hustle is an excellent way to make more money to save for early retirement.

2. Optimize Your Day Job

Consider negotiating a raise and max out your employee benefits. You could also ask to work from home, so you have more control over your time to work a side hustle.

Step #8. Invest Money

Saving money for retirement is a good place to start, but most savings accounts have low interest rates. There’s little to no risk of losing your savings, but you also won’t earn income from your money.

Many people manage to retire early because of their investment strategies.

Okay, but what exactly is investing? Investing is the act of committing money to an endeavor with the expectation of making additional income from that money.

There are many different types of investing, and some of them are riskier than others. Still, the more money you can put aside, the earlier you’ll be able to retire.

Step #9. Track Your Progress and Hone Your Strategy

Planning for early retirement isn’t a set-it-and-forget-it experience. A lot can change, and you’ll need to continually track your progress and hone your early retirement strategies.

To stay on top of your finances, use a budgeting app, such as:

Manage Your Money with Personal Capital to retire early

You may also need to tweak your early retirement plan.

To retire sooner, you could decide to lower your retirement lifestyle budget. In this case, you may not have as much money in retirement, but you could retire earlier.

On the other hand, you could decide to retire later than you had hoped. Although, you’ll have to work longer, you’ll have more money when you retire early.

Summary: 9 Steps to Retire Early

Working out how to retire early can be challenging and overwhelming. It is important to create an early retirement strategy and take it one step at a time.

In summary, here are 9 steps to retire early that can help guide your efforts.

Determine the lifestyle you want when you retire early.
Create a mock retirement budget to plan your expenses.
Evaluate your current financial situation.
Work out how much money you need to save and/or invest to retire early.
Cut your costs and find ways to save money.
Pay down debt using either the snowball or avalanche method.
Earn more money with a side hustle or by optimizing your current job.
Invest funds to generate income from your money.
Track your progress and hone your strategy as you move closer to your goal.

Finally, remember that money isn’t the goal – time and freedom are. Money is simply a tool that allows you to create more time and freedom in your life.