5 Steps to Early Retirement

Kicking back well before you turn 65 is possible, but you’ll need to plan ahead.

Written by Mike Powers CFP® / April 4, 2022

Quick Bites

  • If you’re looking to retire early or make work optional, getting a handle on your expenses can be one of the biggest drivers of success.
  • Reviewing your overall financial basics and plan is an important part of your journey.
  • Significantly increasing your savings rate can greatly reduce the time to retirement.
  • Staying flexible and resilient can help keep you on track to reaching your goals.

Have you ever daydreamed about retiring early? Or at least have work be optional, so you can be less concerned about your income and can instead focus on something you’re passionate about and work on your own terms?

Me too.

In fact, I’ve been daydreaming, reading, researching and listening to podcasts about early retirement for well over a decade. And now that I’m living out my own aspirations by helping others retire early, I wanted to share what seems to work for many of my clients and others I have learned from along my journey.

While everyone’s situation is unique, the following five themes seem to be consistent.

Inside this article

  1. 1. Understand your expenses
  2. 2. Cover your financial basics
  3. 3. Focus on your savings rate
  4. 4. Track your progress
  5. 5. Be resilient

1. Fully understand your expenses

I know, this may not sound like the most exciting way to start your early retirement journey. But from my experience, clients who track their expenses tend to spend quite a bit less than those who don’t. This may allow you to reach your goals much quicker, as it lets you save more now and decreases the amount of money you need to save in the first place. That’s a win-win.

Start by combining similar expenses into categories. Sample categories I usually see are housing, transportation, food, clothing, entertainment, health care, childcare, etc. Be sure to include irregular expenses that don’t occur every month but should be accounted for throughout the year, such as insurance premiums or maintenance on your home. Once your expenses are categorized, think about what areas you would like to reduce or potentially increase.

Let’s say you’re currently paying $200 per month for streaming services. If it brings joy and fulfillment to your life, that’s great. If it doesn’t, maybe that’s an area to cut or at least look for a less expensive alternative.

Or perhaps you have young children and are in desperate need of a regular date night. In that case, it’s probably worthwhile to increase your babysitting and dining out/entertainment spending categories.

Budgeting apps, such as Mint, Personal Capital or YNAB can be great to help automate this process. If you utilize one of these services, just make sure you’re actually reviewing the spending and categories on a regular basis.

2. Cover your financial basics

Once you have a handle on your spending, the next thing to do is to make sure there is nothing that could easily derail your plan. This is a great time to review your:

Emergency fund

Do you have sufficient resources saved in checking, savings or other accounts that are easily accessible if you lose your job or have an unexpected large expense? The general rule of thumb is to have three to six months of living expenses in an emergency fund, although there are other factors that should be considered such as the stability of your income, any upcoming life transitions and other liquidity options that may be available to you.

Insurance and other coverage


Do you have appropriate coverage? If you’re on a high deductible plan, have you considered a Health Savings Account (HSA)? This is one of the most beneficial accounts available due to its triple tax advantages. Contributions are pre-tax, earnings are tax-deferred and distributions are tax-free when used for unreimbursed medical expenses.


Will the people who depend on your income be well covered if you pass away before hitting your retirement goal? And do you have the most cost-effective policies in place for what you’re trying to cover?


Will your family be OK if you are injured and not able to work in your current capacity?


Are you covered if you are sued, whether personally or professionally?

Long-term care

What is your plan if you eventually are not able to care for yourself and need additional assistance, whether in-home care or in a nursing home? (This is typically addressed later in life, but can be considered at any age using various strategies.)

Estate planning documents

Is everything titled and set up properly so that your loved ones will be cared for if something happens to you?

Tax strategy

Review your prior-year tax return. What income tax bracket were you in? Do you expect this to change? Are you taking advantage of all the deductions and credits available to you? Would it be more beneficial to save in pre-tax, after-tax (Roth), taxable accounts or some combination of all three? If all your savings are in pre-tax 401(k)s and/or IRAs, how will you access them if you’re planning to retire before age 59.5? (There are strategies available, but make sure you understand how they all work so there are no surprises later.)

3. Focus on your savings rate

You probably have heard typical retirement advice that you need to save 10% to 20% of your income over your working career. This is generic advice that may have no bearing on your personal situation, especially if you’re looking to retire early. Many early retirees have savings rates much higher than this, but it all depends on what you’re trying to accomplish and your time frame.

In my opinion, a better way to approach this is to:

  1. Think about when you would like to ideally retire.

  2. Take your current living expenses and make any adjustments you expect in retirement, whether that’s childcare or more travel. Then subtract any net income you expect to receive in retirement, such as rental, part-time employment, pensions or Social Security.

  3. Multiply the result by 25. This should get you in the ballpark for what you’re trying to save before you can retire.

A note for many early retirees: Pension and Social Security income may not be available for many years after they retire, so in that case, those resources can be ignored for this computation or factored in using more robust calculations. Also, note that this assumes a 4% withdrawal rate in retirement based on the Trinity Study.[1]

Some early retirees prefer to be more conservative and withdraw a lower amount, such as 3%, or more aggressive and withdraw 5%, knowing they may need to make adjustments if investment returns are lower than expected.

To get an estimate on when you might be able to retire early using various assumptions for investment returns and withdrawal rates, check out some of the online early retirement calculators available, such as this one.

4. Track your progress

If you’re able to achieve a high savings rate, you’ll be amazed at how quickly your net worth can grow. Whether it’s monthly, quarterly or annually, be sure to check on your progress toward your goals to help stay motivated and see if any adjustments are needed.

5. Be resilient

Life happens. Unexpected expenses will come up, stock markets will drop, and you’ll probably at least occasionally be persuaded to purchase a fancy new object that wasn’t in your budget.

And that’s all OK.

Pick yourself up, dust yourself off, and move forward. Experiencing challenges along the way will make reaching your early retirement goal that much sweeter.

All written content in this article is for informational purposes only and should not be considered advice. Opinions expressed herein are solely those of Manuka Financial, unless otherwise specifically cited. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

Article Sources
  1. “Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable,” AAII, https://www.aaii.com/files/pdf/6794_retirement-savings-choosing-a-withdrawal-rate-that-is-sustainable.pdf.

About the Author

Mike Powers

Mike Powers CFP®

Mike Powers is a Certified Public Accountant (CPA), Personal Financial Specialist (PFS), and CERTIFIED FINANCIAL PLANNER ™ (CFP®) who founded his own financial planning firm, Manuka Financial, focusing on helping clients retire before the traditional retirement age of 65.

Full bio

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