This is one of the top 10 most Googled questions related to personal finance. What is retiring early? For some people it may be age 62 instead of age 66. For others it may fall in line with what some people in the Financial Independence Retire Early (FIRE) movement desire. Financial independence significantly before Full retirement age, often in their 40’s.
There are many answers to this question but there would almost always be a couple factors that are present.
- Know what you spend.
- Spend significantly less than you make.
- Save the rest.
People who are able to retire early typically are very good savers. My general recommendation is to start saving 12-20% of your gross income when you start working. If you are able to consistently do this, you will likely be able to retire early. This savings can be split between long-term retirement accounts as well as a taxable account that you can access without penalty.
12-20% sounds overwhelming but many people do it. If you start early and build your lifestyle around those numbers, you will be able to achieve your goal. People in the FIRE movement will often target rates as high as 40% savings.
Being a high saver doesn’t necessarily mean making major sacrifices or not getting to do anything fun. It does involve thoughtful spending, however. I am a big proponent of knowing where you are spending your money so that you spend in categories that bring you joy. Wasting money on lots of miscellaneous spending neither brings you joy or helps you achieve your long-term goals. #Spending with Purpose.