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How to Retire Early

Updated: Feb 17, 2023

Retiring early sounds like a dream come true -- cutting the cord of the 9:00 to 5:00 routine and having all the time in the world to pursue your passions. But before you take the plunge, it’s important to take a good, long look at the facts of early retirement.

Retiring early requires enough income to be comfortable. Do you want 70% of your pre-retirement annual income, or does 85% sound better? Many folks find they spend the same amount of money they were earning in the years leading up to retirement. This may be the result of working through a ‘bucket list’ or supporting an elderly parent or struggling child.

Retired couple enjoying the view together while out hiking
Is it your goal to retire early?

Consider the following 7 important items to make an early retirement a reality.

  1. Take stock of your current investments and how much you are saving each year.

  2. Estimate the size of your nest egg at retirement and determine how much you might be able to comfortably withdraw each year.

  3. Identify all sources of steady income you may have. This may include: Social Security, an annuity, rental property income, or a pension if you are lucky. Keep in mind that pensions, annuities, and social security often penalize you for retiring early.

  4. Understand the tax consequences of withdrawing funds from your retirement nest egg. Many folks overlook the impact of taxes on their retirement income.

  5. Health care costs tend to rise with age. You should evaluate health care costs if you’re retiring early. For some, COBRA may bridge that gap for a small amount of time. But it can be expensive. If retiring early is your dream, make sure you have a plan for health insurance prior to age 65 when you become eligible for Medicare.

  6. Forecast your expenses during retirement. Where will you live? Will you have a mortgage? How will you spend your time? Will you spend more or less money on travel or hobbies? Don’t forget to account for inflation and increased health insurance costs.

  7. Most importantly, make sure your retirement income adequately covers your forecasted expenses. And, be sure to have a cushion for unexpected surprises.

It helps to have a strategy for retirement living. One study found that nearly 20% of those surveyed were bored in retirement. Finding a hobby or volunteering can help.

Final thought.

Like any other financial goal, achieving your vision of an early retirement requires a savings rate aligned with your time horizon. The best way to reach your financial goals is to stay focused on what you want for your future.

Curious how you make the dream of early retirement a reality? If you have more than $2 million saved and need a financial plan to reach your goals, the Peak Wealth Planning team can assist.

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About the Author

Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.

Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.


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