How To Retire Early (FIRE – Financial Independence, Retire Early)

A Gallup survey found that most Americans expect to retire at 66. Now, we don’t know about you, but that sure seems like a lot of years of working.

But then, the Covid-19-led economic downturn has forced many people to think about their retirement plans. Unfortunately, it has also led to people working late in their lives. But guess what?

You don’t necessarily have to work into your sixties if you’re smart during your youth. We’re not saying it’s easy, but you can achieve FIRE with some grit and determination.

Let’s take a closer look at the FIRE approach and how you can implement it in your life.

What is FIRE?

FIRE (Financial Independence, Retire Early) is a movement that’s gaining popularity across the globe. The concept is simple – save as much money as possible and invest it in a way that generates passive income.

The goal is to reach a point where your passive income covers all your expenses, and you can eventually quit your day job.

It doesn’t mean that you have to become a millionaire overnight. Even if you can save enough to cover your basic expenses, you can still retire early.

The FIRE movement has its roots in the book “Your Money or Your Life” by Vicki Robin and Joe Dominguez. The book was published in 1992 and has since become a bestseller.

It’s worth noting that the FIRE movement isn’t just about retiring early. It’s also about leading a more fulfilling life.

While chilling on the beach with a drink in your hand at age 40 seems like a fantastic prospect for most people, some people might not fancy it much. After all, some people like to work.

So, there’s no compulsion that you have to stop working after a certain age if you follow the FIRE approach.

However, the attraction of this approach is that you have a CHOICE.

You can either continue working if you want to or quit and enjoy your life in retirement.

Taking the FIRE road: How to retire early in 7 steps

There’s no one-fits-all approach to retiring early, but there are some key steps you can take to make your goal a reality. Here are seven steps to help you lead a good life of retirement in your late 30s or 40s.

Step 1: Determine your retirement income

How much money do you need to support your lifestyle in retirement? It is perhaps the most critical question regarding early retirement planning.

Most people put a blanket figure on it. They’ll say a million will suffice.

Or, they’ll say they need enough to replace their current income. But that’s not always accurate.

Your retirement number should be based on your specific lifestyle and income needs in retirement.

For example, if you plan to retire to a rural area where the cost of living is low, you’ll need less money than if you retire in an expensive city.

You can use a retirement calculator to get a personalized estimate of how much you’ll need in retirement. But it’s always a good idea to have a cushion.

Here’s a simple way to calculate how much you’d need post-retirement. Most people need 80% of their pre-retirement income to lead a comfy post-retirement life.

Let’s say you earned $80,000 a year and wanted to retire in 10 years. You’d need $64,000 a year in retirement, or $5,333 per month. However, you’ll have to account for the following too:

  • Travel
  • Lifestyle 
  • Inflation
  • Unexpected expenses

To account for those, increase your retirement number by 25%. So, in the example above, you’d need $8,000 per month or $96,000 a year to retire comfortably.

Step 2: Evaluate the amount coming from fixed sources of income

The second step is to evaluate all your money coming in from sources that are not your job.

It includes things like:

  • Rental income
  • Pension
  • Social security
  • Inheritance

You want to get a sense of how much you can count on each year from these places.

The best way to do it is by looking at your last year’s tax return. It will give you a good idea of what to expect each year.

For instance, if you’re planning to retire in 10 years and have a rental property that generates $1,500 a month, you can expect to have an extra $18,000 each year.

Step 3: Figure out how much you need to save each year

The third step is to determine how much you need to save each year to achieve your retirement goal.

The number will be different for everyone. It depends on factors like your age, how much you have saved already, the rate of return on your investments, and how much money you’ll need in retirement.

You can use a retirement calculator to determine how much you need to save.

For example, let’s say you’re 30 years old, have $10,000 saved, and want to retire at 65. You’ll need to save $227 per month to reach your goal. 

If you start saving at 35, you’ll need to save $415 per month. And if you start saving at 40, you’ll need to save $702 per month.

The earlier you start saving, the easier it is to reach your goal.

Step 4: Invest in a diversified portfolio of assets

A diversified portfolio is key to achieving your retirement goals.

When you diversify, you spread your money around. That way, if one investment tanked, you’re not entirely wiped out.

For example, let’s say you have $100,000 to invest. You could put it all in cash, all in stocks, or some combination of the two.

If you put it all in cash, you’re not taking any risk. But you’re also not giving yourself the chance to earn a higher return.

You’re taking on more risk if you put it all in stocks. But you’re also allowing yourself to earn a higher return.

The best strategy is to diversify your portfolio. Here’s how to do it:

Decide how much money you want to invest in stocks. A good rule of thumb is to subtract your age from 100. That’s the percentage of your portfolio you should have in stocks.

So, if you’re 30 years old, you should have 70% of your portfolio in stocks.

Choose a mix of different types of stocks. For example, you might want to invest in large-cap stocks, small-cap stocks, and international stocks.

Rebalance your portfolio every year. As your investments grow, they’ll become out of balance. For example, if you started with a 70/30 stock/cash portfolio, it might become an 80/20 portfolio.

To rebalance, sell some of your investments that have grown the most and reinvest the money in investments that have lagged behind.

Step 5: Account for travel and healthcare

There are way too many possibilities to account for every single one. So we’re going to focus on two critical considerations: travel and healthcare.

You might want to travel more in retirement. That means you’ll need to account for the cost of travel in your budget.

The same goes for healthcare. Some jobs might let you keep your health insurance even after retirement. But that’s not the case for everyone.

You’ll need to account for the cost of Medicare or private health insurance in your budget.

Step 6: Pay off mortgages and other debt

Before you retire, pay off any debt that you have. That includes things like mortgages, car loans, and credit card debt.

The interest on debt can take a big bite out of your budget. So it’s best to get rid of it before retirement.

If you have a mortgage, you might want to consider paying it off early. That way, you won’t have to worry about making monthly payments during retirement.

Step 7: Stick to the plan

Possibly the most challenging step of all is sticking to the plan.

Saving for retirement takes discipline. You might be tempted to spend your money on things you want now. But it’s important to resist that temptation.

You don’t need to buy the latest iPhone or go on a fancy vacation every year. The important thing is to stay focused on your goal.

If you can do that, you’ll be well on your way to a comfortable retirement.

Common retirement planning mistakes to avoid

To err is human. You’ll most likely make some errors as you plan for retirement, no matter how hard you try to avoid them.

But certain mistakes could have a more significant impact on your future retirement lifestyle than others. Here are a few common mistakes to avoid as you plan for this next phase in your life.

  • You spend lavishly at the moment.
  • You apply for Social Security benefits too early in life.
  • Instead of paying off debt, you use your extra cash to finance a comfortable lifestyle.
  • You don’t have a written retirement plan.
  • Your investments are not diversified and are rather aggressive.
  • You don’t monitor your portfolio regularly.
  • You fail to plan for healthcare costs in retirement.


Summing up, planning for retirement is no child’s play.

There are so many calculations, assumptions, and estimations needed to be made. You need to consider your current lifestyle, debts, income sources, and other associated costs to make an informed decision.

But trust us on this, the sooner you start saving for retirement, the better off you’ll be.

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