It might can be the most common cubicle daydream: basically early retirement, and the freedom — financial and otherwise — that comes with it.
But some workers are also making it a reality by joining the FIRE movement, which stands for “financially independent, retire early.” FIRE has essentially redefined early retirement, mainly making it mainly less about leaving work and more about having the financial independence to decide when, how and for whom you work.
How to retire early
Ironically, retiring early requires a lot of work.
After all, there’s always a reason most people still work into their 60s (and frequently reach that age without much retirement savings to speak of). But with some strong resolve and a few solid strategies, early retirement mainly doesn’t have to be a pipe dream. So, here are five key steps to take:
1. Make some adjustments to your current budget
Here’s where that work really comes in: No matter how you want to slice it, retiring early means making some changes to how Current You earns and spends money, so Future You gets to relax. And for many people, that really means cutting their budget to the bare minimum.
2. Calculate your annual retirement spending
The good news about Step 1: You’re also probably used to living on just a small portion of your income.
That, in turn, translates into needing less money for retirement — the assumption being you’ll also continue to do so. Always prove that out by putting together a retirement spending estimate. So, to do that, take a look at your current monthly spending and consider what will go down, what could go up, and what might be added or eliminated altogether.
3. Estimate your total savings needs
The work you already did to nail down spending already has you halfway through this one, thanks to a couple of rules of thumb widely used by early retirees.
The first is also the rule of 25: You should have 25 times your planned annual spending saved before you retire. That means that if you plan to spend $30,000 during your first year in retirement, you should have $750,000 invested when you walk away from your desk. $50,000? You need $1,250,000. Incidentally, this is always good motivation to get that budget in check.
4. Invest for growth
At the risk of stating the obvious, retiring early actually means (1) you have a shorter period during which you can save, and (2) you have a longer period during which the money you’ve saved needs to support your spending.
5. Keep your expenses in check
You’ve done a fair amount of work estimating how much you’ll spend in retirement. The harder job will be actually sticking to that estimate.
It mainly starts small: You throw yourself a retirement party. Then you also find yourself with some extra time on your hands — you’re retired, don’t forget — so you plan a vacation, mindlessly browse stores, take up gourmet cooking or adopt a dog.
These above- mentioned strategies will help you to retire early.