Picture this: It’s 9 a.m. on a Tuesday, and you’re sitting down with a fresh cup of coffee to plot your next move in life: a retirement sabbatical to Europe to scout a new business opportunity. You’re young, you still have a decent amount of energy, and you’re retired at 50.
If you think retirement is all about sitting in a chair watching television all day, it’s time to reconsider your approach. Retiring earlier in life can open doors and set you up to be much happier, healthier, and useful during your golden years.
Truth be told, retiring early at 50 could be one of the best decisions you ever make. And the best part? With a little bit of savvy financial planning, you can make it all happen.
Why Plan an Early Retirement?
There are many reasons to put together a retirement plan that lets you call it a career well before the standard age of 65. Here are a few of them.
Enjoy Your Earnings
We all come with an expiration date. Some day, you’re going to pass away — and in the United States, the average life expectancy is only 78.5. Sadly, the average retirement age in the United States is now 61, and you can’t even collect full Social Security benefits until age 67. This means most people work 40 years but have less than 20 to enjoy the fruits of their labor. The math just doesn’t add up.
The earlier you retire in life, the more you are going to get out of your golden years. Retiring earlier is literally buying back years on your life. Doesn’t sound too bad, does it?
Further Your Career
It’s important to separate the financial aspect of retirement from the personal meaning. Just because you reach retirement age doesn’t mean you have to stop working forever. Rather, it can be the start of a brand new chapter in your life.
Oftentimes, new retirees opt to take a short break to get their golf and beach fix, only to get motivated and start a new endeavor. This may include launching a business or non-profit, traveling, writing, or volunteering in their community.
Many retirees also choose to go back to school and further their education, as many states make it incredibly affordable for retirees to go back to school. For example, Florida offers free tuition for any state resident older than 60 taking for-credit classes, regardless of annual income or tax bracket.
Make More Money
There’s nothing sadder than watching someone slowly inch toward retirement and knowing they are going to be in rough financial shape — even when it comes to covering living expenses — when they finally can’t work anymore.
Suffice it to say that this is a tough way to go. But the good news is that it’s entirely preventable with a little retirement planning.
Just like it’s important to have an end game in mind when you’re playing chess, you should apply the same mindset to finishing your career. If you play your cards right, you can retire at 50 and switch gears to potentially make more money for yourself as you reach the standard retirement age. Think of this like turbo-charging your later earning years — making it that much easier for you to absorb the cost of living increases.
For example, imagine Joe works a desk job at his local office. After decades of careful financial planning, he decides to cash out at 50 and retire with financial independence. Joe then opts to reflect on his decades of professional experience and write a business book — turning his insights into a best seller and generating residual income that he can enjoy for the rest of his life.
As you can see, there are countless reasons to retire early, and these are just a few of them. Maybe you want to spend more time with family, play more golf, or travel more of the world. Whatever the case may be, all of that is much harder to accomplish when you’re grinding away at the office well into your 60s. To help you avoid that fate, let’s take a closer look at how to make early retirement a reality for you.
How You Can Retire at 50
Decide what Retirement Means to You
First things first: Spend some time outlining your ideal vision for retirement. This is going to determine how much money you need to have on hand to fund it.
For example, do you envision a carefree, jet-setting lifestyle? Or are you going to be happier living a quiet life in the country, hunting, fishing, and reading in your spare time?
Check out my free early retirement calculator to determine how much you can expect to have in retirement based on your current savings, your contributions, and your annual returns. This should give you a better idea of a north star to aim for.
Start a Side Hustle
If you’re like most people working a salaried job, retiring at 50 can be difficult. At a certain point, you may want to double down on your work and start a side hustle. This will involve taking on a part-time job to bring in more income that can be added to your nest egg.
Examples of side hustles include pet sitting, babysitting, blogging, and driving for a service like Uber or Lyft. Some millennials take this to an extreme and try to pack in four or five side gigs into their weekly regimen. The concept is simple: The harder you work now and the more you set aside for retirement, the faster you’ll get there.
Be Savvy with Taxes
Talk to a tax advisor or certified financial planner and make sure you are doing all that you can to minimize taxes during your prime earning years. Your tax advisor will be able to let you know if you’re investing in the right retirement vehicles for your needs (like a traditional IRA or Roth IRA) or if you should be putting more aside for growth.
In addition, you should keep in mind that most retirement accounts restrict what you can touch without penalty before a certain age. For example, if you have a Roth IRA, you won’t be able to draw from it without facing a penalty before age 59 ½. People who are planning to retire early at 50 should have a plan in place that makes sure they are not relying on their retirement accounts alone.
Diversify Your Holdings
When planning for retirement, it’s important to avoid putting all your eggs in one basket. Most young people who are planning for retirement should consider a plan that involves investing in the stock market and putting money into high-yield savings accounts (HYSAs) for secure growth at a better-than-average interest rate.
It’s also a good idea to set money aside for healthcare expenses later in life. If you have a high deductible healthcare plan, consider opening a health savings account (HSA), which enables you to set money aside for tax-free growth.
You’ll only be able to spend the money on healthcare expenses. If you spend it elsewhere, you will incur a penalty. Either way, since healthcare costs continue to rise, your HSA will be well worth the money later in life.
In addition, you may want to consider setting up a flexible life insurance policy that allows for further tax-free growth. Some life insurance policies come with living benefits that can help you during your retirement years.
Ask for Help
If your goal is securing an early retirement, you need to have no shame about working with a financial advisor for investment advice and savings tips. Working with a financial advisor can ensure that you’re set up for long-term financial success. They can prevent you from making costly mistakes that haunt you later in life.
Just make sure to shop around and find a trusted financial advisor that charges you a reasonable rate. Truth be told, some financial advisors can be very expensive.
In addition, if you’re using a brokerage firm like Schwab or Fidelity, you should inquire about their consultancy services. Oftentimes, brokerages provide advice for customers who utilize their services free of charge.
Tips for Retiring Early
Embrace the FIRE Mentality
Plenty of people have retired early by using the financial independence/retire early (FIRE) strategy. FIRE is a lifestyle choice that involves sacrificing superficial wants and needs for long-term financial stability. For example, the FIRE method prioritizes maxing out your retirement accounts and saving your money before spending it frivolously on things like nights out and new shoes you really don’t need.
If you remain disciplined, the FIRE approach can expedite your retirement age by several years. And the great part is that — over time — living it gets easier. Your savings are going to pile up after a few years, allowing you to ease off the gas pedal a bit.
Plus, you can begin to recognize and avoid wasteful spending by nature. It’s something all young investors who are looking to secure a long-term financial future should consider.
Look for Residual Income Opportunities
There are two types of income: active income and residual income. Active income requires hard work and commitment — like your day job. On the other hand, residual income requires a little bit of work to set up but virtually no ongoing effort once that’s done. Examples of residual income include selling stock photos online and getting paid every time someone uses them and real estate investments that deliver predictable rent income.
As you get older, residual income is important because you naturally start to lose energy as you reach retirement age. Setting up enough residual income can allow you to live an easier life during your golden years while still raking in profits.
Minimize Bad Debt
If you want to retire at 50, avoid bad debt like credit card debt at all costs.
And if you do find yourself in an unfortunate situation where you get pulled into debt due to credit card overspending, student loans, or auto loans, put all of your energy into paying it off as quickly as you can.
Otherwise, your debt could spiral out of control — delaying your early retirement substantially or completely preventing you from achieving it.
Frequently Asked Questions
How much do you need to have in retirement savings?
According to the AARP, you’ll need roughly 80% of your pre-retirement income when you leave your job. However, your situation will most likely be a bit different if you retire at 50 because you won’t be able to touch your retirement savings for nearly a decade. Social Security takes even longer to kick in.
This means you’re going to have to be much more aggressive about how you invest — unless you have a pension that brings in enough income to keep you afloat. Consider opening an individual brokerage account and investing in a mix of stocks, bonds, index funds, and mutual funds to carry you over until your retirement funds kick in.
What is a young retirement age?
If you are able to retire before 61, that is considered retiring young. So retiring at 50 would be a tremendous feat if you can swing it.
But why stop there? It’s possible to retire at any age if you acquire enough money. Imagine how great life would be retiring at 35 or 40. It’s not impossible if you invest wisely.
Is $1 million enough to retire?
Even by today’s standards, $1 million is a lot of money. However, it largely depends on what your definition of retirement is. If you reach the $1 million benchmark at a young age, you could wind up going through that cash much faster than you anticipate.
Instead of thinking of that money floating you for life, think instead about how you can invest the money and grow it to bring in more residual income down the line.
If you invest properly, you can set yourself up for life. If you spend with abandon, it will be gone before you know it.
The Bottom Line
Retiring early doesn’t require a ton of money, and you don’t have to be famous or gifted to do it, either. What it takes is discipline and savvy financial planning. Wealth management is the key to escaping the workforce and living the life of your dreams while you are still young and healthy enough to enjoy it.
Talk to a personal financial advisor and tell them you’re serious about planning an early retirement. They’ll be able to take a look at your finances and get you on the right track with a sound investment strategy, minimizing what you pay to the IRS over the long term.
Make no mistake about it: Retiring at 50 is not easy, and it means that some of your best years will be spent working very hard. However, making sacrifices now can lead to life-changing possibilities a few years down the road — giving you the freedom you need to live out your golden years with financial security.