How to retire early                       

Personal finance risk management practical examples

Getting early retirement is definitely not a piece of cake as you have to have the vision to invest your lifelong earnings into perfectly so you would not get financial setbacks. Everyone has his/her own version of early retirement if you are planning to do so, here are the steps you must consider:

Find your own version

Early retirement comes in diverse shapes, many retirees may have the idea of spending their rest of life to just chill out or one might have an amazing idea clicking in the mind that needs to have complete independence in terms of deciding working hours. So, out of these wide shapes, you should be able to figure out which model exactly defines you.

Guesstimate your spending

Here you are taking into account the fuel you have right now and the distance you have to cover in the vehicle of your life. It is going to shape the quality of life the retiree has to live afterward. It is just a matter of hours. Firstly, you should calculate the net worth you have, and secondly, you are going to guess how much you would spend annually seeing the spending habits you had in recent years.

Investments Envelope


Reduce your expenses

If you are planning to spend your economic means into luxuries, then surely you are missing the point because you will soon be caught by a financial catastrophe. Your early focus should be an aggressive investment and that would require you to reduce finances. Start by focusing on the biggest expenses, they fall into three categories, i.e. traveling, food and housing.

Track your monthly spending on each of the categories and make sure that the spending graphs have a regular downward trend, starting from the average spending you had at the beginning. This would start generating savings for you.

Supersize your income rate

Following the above-mentioned steps, you will definitely be having a source of income besides the bank balance you kept for the post-retiring period. Living below the means and cutting off your daily spending would help you out on a short term basis. But in the long run, your dependence will be on the positive cash flow. Work on that side hustle and try to increase the income size every month. Sabatier, an early retiree, and a millionaire say that one should go for the side hustle generating passive income, like real estate. It gives the flexibility of multiplying the financial goals in a very short span.

Using your retirement accounts

Saving early and frequently is the most common strategy in the journey of getting financial independence. Retirement accounts can be the best way to boost up your savings.

Tax advantage provided in the employer-sponsored retirement plans and IRAs give an exceptional advantage when it comes to the taxes. Your contribution can be somewhere around $19,000 to a 40(1) and for traditional IRA it is $6000.


You might face trouble in the only case if there are any restrictions on the withdrawals while planning to retire early. You cannot cash-out money from your 401(k) without paying the penalty until you get 59 and a half. However, that is not the same case when it comes to the Roth IRA.

Conclusion - our final investment portfolio return

Invest in stocks

Now, when you have maxed out the retirement account, go for the brokerage account and invest the money directly into stocks. The popular investment method among the self-made millionaires is the low-cost investment into the index funds. In index funds, one has to invest in the index funds which track the market index with a minimal risk involved.

Getting freedom from mortgage

Considering early retirement, one should be focusing on eliminating the accumulated debt with high-interest rates. That also goes the same for paying off the mortgage early with good terms reducing the amount of interest needed to pay for the loan. That would make your head free to use future money for other purposes.

One can follow different approaches in paying off the money. You can make extra payments by splitting the monthly mortgage payment into half and paying in the form of bi-weekly payments. There is also the option of refinancing and recasting the mortgage. Alternatively, you can make lump-sum payments when you are able to do so.

Looking for alternative health insurance options

Employer’s health insurance is also terminated upon leaving the employer. The most cost-effective plan in these circumstances is waiting for Medicare by joining a spouse’s employer-sponsored plan. Otherwise, one should search for coverage options and get discounts through the Affordable Care Act marketplace or get some part-time job.

Index fund performance comparison

Look for having a backup plan

You should always be considering the worst-case scenario despite having crystal clear and rock-solid plans. Imagine getting frustrated of the early unstructured retirement days, what options you would consider to have as a backup and start establishing so as to use in the potential bad times.

Keep rewarding yourself for the little achievements

Getting an early retirement obviously needs to work for a long time in a well-disciplined manner. But getting the fruits of your sacrifices might take a long time. So, keep yourself positive by appreciating the small achievements you get through the way and keep rewarding yourself by celebrating your happiness. Go outside for dinner or enjoy the beach, whatever suits you. The important thing above all is to stay happy at the moment.

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