Early Retirement Secrets and Strategies You Need to Know

The FIRE movement has plenty of fans, particularly among younger Americans. For those not yet familiar with the term, it means Financial Independence, Retire Early, and there are countless stories of those who have managed to achieve this goal — but in reality, saying goodbye to work well before full retirement age can be challenging, requiring discipline, planning, and frugality in the best of times (which these are not; the COVID-19 health crisis has upended these plans for many). Want to start laying the groundwork? Personal finance experts from around the country share their top tips for achieving financial freedom early.

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The first step, which should be done well before you stop thinking of yourself as a wage earner, is to imagine what retirement will look like. "Will you be playing tennis every day or spending more time with the grandkids? … How much will that cost?" asks Jeff Motske, president and CEO of Trilogy Financial. "For most of us, our free time is not free. We fill it up with eating out, traveling to see family and friends, or spending time on activities and hobbies that have some sort of cost attached." Not sure where to start when defining your retirement lifestyle? Look at what you do in your free time now and determine if you would like to do more of that when you stop working. The more details you can determine, the better.

Related: How COVID-19 Changed Retirement in America

Increasing your current career worth is about allowing you to make more money now. "When you learn new skills or take on new tasks, you build more skills that can be used to either get a raise or find a job that pays more," says Todd Kunsman, founder of Invested Wallet. And when you make more money, use that to your savings advantage by investing more in your retirement accounts.

Related: Smart Investments to Make

When people begin making more money, they tend to upgrade their lifestyle. "While some minor upgrades can be okay, the goal is to live below your means," Kunsman says. "This allows you to save money, have a nice cushion, and not get trapped in the overspending on material things. Many millionaires don't look or act rich. That's because they have the right mindset to protect their money and not go into debt." Just because you can afford something doesn't mean it makes sense to buy it.

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Side hustles became a trend with the proliferation of such platforms as Uber, Airbnb, and Upwork. "Find something extra on the side to make you money. Mow lawns, flip items on eBay, start a blog, start a drop-ship business," Kunsman says. "A few extra hundred dollars a month invested can compound into quite a lot over five to 10 years."

Related: Simple Ways to Make Extra Money

How much do you need a year to survive? What will inflation be by the time you want to retire? How much in total will you need to retire and start withdrawing? There should be no guessing when answering these questions. "Of course, there will be some slight estimations, but you need to do the math and check the numbers,"  Kunsman says.  "There's a lot to think about, like health insurance, unexpected bills, [and that] we are living longer. You don't want to miscalculate, or you might be looking for work again."

Related: Ways to Put Your Family on a Budget

In addition to saving more and making more money, you need to cut expenses, which can allow you to save even more. "Downgrade unnecessary home size, coupon when grocery shopping, don't get a new car every few years, cut cable," Kunsman says. "Look at everything you have and are spending on, see what can be changed and save you money. Again, even a few hundred dollars a month can make all the difference and shave off time until you can retire." Sacrifices now can be rewarding in the future.

Related: Long-Term Steps to Reduce Your Living Expenses and Save Money

Building passive income streams is another way to help create cash flow to fund an early retirement. But you’ll have to invest something first, whether it’s time or money. "Time to create a book, music or even videos that collect royalties, or invest money in stocks and bonds that collect dividends," says Peter Koch, creator of the personal finance site DollarSanity. You can make staged videos for YouTube or sell to major media outlets through content licensing agencies such as Newsflare, Rumble, or Jukin Media.

Related: Passive Income Ideas to Increase Your Retirement Savings

Yet another way to create a passive income stream that can help fund an early retirement is to buy rental properties that generate cash flow. "Rental income, purchased properly, can weather a financial storm while providing you with recurring monthly income that can carry you through retirement without the fear of stretching your savings," says Shawn Breyer, owner of Breyer Home Buyers. "Small multifamily rentals in hardworking, blue-collar neighborhoods close to schools and hospitals are where downturns tend to affect rentals less, mitigating your risks."

Related: Tips for Turning Your House Into a Rental Property

To reduce expenses during retirement, pay off your mortgage as soon as possible. "Living mortgage free or rent free is life changing," says John Myers, owner-broker of Myers & Myers in New Mexico. "So how do you pay off your mortgage early? Most mortgages allow you to make additional principal payments with no penalty. Set up your mortgage to be auto-drafted from your bank account each month and pay as much as you can to principal reduction." If you come into extra money, consider making a lump sum payment to the principal reduction.

Related: Should You or Shouldn't You Refinance Your Home?

If you’re serious about saying goodbye to work and sailing off into the sunset, start paying off your debt and eliminating it altogether now. "The sooner you get rid of some debt, whether its student loans, credit cards, or car loans, the sooner that money can be invested and saved for retirement," says financial coach Karen Ford, creator of the site Money Matters.

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Check with your employer to find out whether the company offers a 401(k) plan or some type of pretax retirement plan. Be sure to invest at least as much as the company will match. "The percentage they match your investment is like free money from your employer," says Ford, who suggests that eventually, you should be investing 15% of your income in a 401(k) or Roth IRA.

Related: Ways to Jump-Start Your Retirement Savings

A dividend reinvestment plan is one of the easiest ways to grow a stock portfolio over time. "The dividends are plowed back into more stocks. A DRIP and stock splits are exactly how some little old ladies wind up worth a cool quarter-million for little to no effort," finance expert Steven Millstein says. A dividend reinvestment plan allows investors to reinvest cash dividends from a stock back into additional shares or fractional shares of that stock.

Related: Why Billionaires Pay Less Tax Than You

There is certainly something to be said for saying goodbye to the sky-high real estate prices, property taxes, and food and fuel costs associated with some of the most expensive states in the country. "If you live someplace pricey, like California or New York, consider moving someplace cheaper," Millstein says. "A cheaper place to live may put you several years closer to retirement."

Related: How Seniors Can Decide When to Move From Their Home

For most people, housing is their single biggest expense, followed closely by transportation. "If you can go from a two-car family to a one-car family or a one-car family to living car free, you can potentially save thousands annually," Millstein says.

Related: Calculating the Real Costs of Car Ownership

A shockingly high percentage of American money is spent on medical care. "Taking care of yourself is one of the best ways to keep your medical bills from completely ruining the planned budget," Millstein says.

Related: Healthy Habits You Can Carry Into Your 80s and 90s

Treat all fresh money, such as a pay raise, an end of year bonus, tax refund, or even a financial windfall as found money. "Bank it all," says George Krueger, co-founder of BIGG Success. "You won't miss something you never had. While the amount may not be significant, it adds up year after year, especially with the power of compounding — your money multiplying to make more money."

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In case it's not already clear from all of these tips, one of the keys to retiring early is living frugally and saving more of your income now. "I save roughly 60% right now, all going toward retirement accounts and other investments," Kunsman said.

Related: 100 Top Money-Saving Tips

There are many FIRE blogs, discussion boards, and other resources available for people who want help figuring out how to retire early. Some of the well-known blogs on this topic include Early Retirement Extreme, Think Save Retire, and Financial Samurai. Just Google "FIRE retirement movement" to start finding your own favorite blogs on the topic. "These blogs can help people like you figure out how to get there sooner rather than later," Millstein says.

Related: How to Prepare for Working Past Retirement