What You Need to Know When You Plan to Retire Early

It seems I hear and read so much about how to retire early these days, and that isn’t just thinking about getting there at 62 or 55. It’s aiming for it at ages I could never ever have thought about like age 45 or even age 30. I retired at age 62 and that was because of my health more than a well-planned retirement scheme. Other senior workers start an unplanned retirement when they are laid off. But for many younger people, a real early retirement plan is a goal and not a condition of senior age or health.

Younger couple on boat because they decided to retire early

The FIRE movement (Financial Independence, Retire Early) is more popular than ever these days. Having said that, I have come to a few mind-altering facts about early retirement and wonder exactly how much thought goes into them before anyone actually takes that giant step off the cliff into retirement. There’s a lot to consider when you plan to retire early, and here are just a few of those factors.

Early Retirement Is Different for Everybody

Your financial personality will play a big part in determining whether or not you can retire early. Figuring out what motivates you and what is behind your money habits can be a useful part of figuring out how to prepare.

Of course one of the very first steps in deciding about retiring is looking at all of the financial aspects. It probably means living a different kind of life and making real adjustments.

Ask yourself what you will be doing every day and what motivates you? How will you afford to do what you want to do? For some, retiring early means working part-time, as a freelancer, or on a passion project. For others, it may mean travel and leisure activities. Plan what you’ll be doing and budget accordingly.

One of the biggest misconceptions you may have about retiring early is about your finances. You need to create an income even when you aren’t earning it from a full-time job. Having a big savings or investment account today doesn’t always factor in the many tomorrows ahead of you. And the earlier you retire, the more tomorrows there are going to be.

How Much Do You Intend to Live on Each Year?

The basic formula for an early retirement is to build up 25 times your annual expenses and then plan on drawing down no more than 4% of that value each year. If you can afford to live on that, you should be good. However, there are many variables that can throw a wrench into that formula. The age you retire matters. People are living longer these days and that’s a factor, too.

Rules of thumb are okay as a starting point, but a reliable retirement plan needs to be customized to you. A lot of people could retire early if they were willing to dramatically curb their spending and lifestyle.

Create a really detailed budget now and document how those numbers will change in the future. Be conservative in your estimates. See if there is a way to plan your future that satisfies both your wallet and your life plan.

How Long Do You Need to Prepare?

You can’t just decide today that you are going to retire next week and think that is going to work for you. Planning and saving is key. It’s safe to say that years are required to get ready for retirement.


Let’s get right down to it. If you plan to accumulate a big retirement account and use it to stretch over 25 to 35 or even more years, consider the inflation factor. Right now, inflation is at its highest levels since 1982. But even when inflation is deemed “under control” and within the acceptable guidelines, it still has a big impact over time. At just 2% each year, inflation would add 20% in cost in 10 years to almost everything. Without planning that into your lifestyle equation, you may be in serious trouble in your retirement.

The truth is that most retirees make downsizing a priority to afford retirement. That can be difficult for younger people to wrap their heads around, especially if there are families involved.

Big Health Issues

Of all of the things that I personally have dealt with in retirement, health is the thing that has had the biggest impact. I retired because I had a heart attack at age 62. I wasn’t planning to retire until 66 (my full retirement age). The problem I immediately faced was not having any health insurance and I wasn’t yet qualified for Medicare (that comes at age 65).

I had to get my own health insurance at that point and it was very expensive—about five times the cost of Medicare—and bear that expense for three years all while earning no income but Social Security and using my savings to assist in surviving.

Since that time, I have had other serious setbacks including health issues with my kidneys and thyroid as well as type 2 diabetes. These are all chronic issues that require on-going care. This can happen to anyone at any time, but of course is more common in older folks. You must at least think about the “what if” scenarios.

Final Thoughts

I applaud you if you are working towards an early retirement and are ablaze with the FIRE mentality. Why not if you can spend your time doing what you really want to do. The key word is “if” here, so think about it carefully before you just plunge ahead.

There are other ways these days to live independently and it doesn’t mean that you no longer work. You can work independently, even on the internet, have plenty of self-time, and still make a living.

Planning all your time as your own has an appeal that can’t be denied. If you think FIRE might be right for you, now is the time to start planning for early retirement.

Are you planning to retire early? Have you asked yourself the tough questions and are you ready? If not now, when?

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