How to retire early: A step-by-step guide

Do you dream of retiring early and the opportunities it could offer you? You could have more time to be with those you love, volunteer or travel. You might even pursue a different job that you've always wanted to do.

If retiring by age 60 or even retiring at 50 sounds right for you, it is achievable—with planning and dedication.

Gaining a realistic understanding of how to retire early is the first step in the journey. Then, to reach your goal, you'll need strategic planning, financial discipline and the flexibility to adapt to changing variables.

Here are the key points to think about when you're considering retiring early.

Retirement doesn't look the same for everyone. For some people, it means never working again, but others don't want a hard stop. Some have been steadily hitting retirement savings milestones while others are able to retire with no savings.

While you don't need to lock down this decision today, it helps you accurately plan for retirement if you have a goal to work toward. Consider what type of early retirement would suit you:

• Traditional early retirement. You set a date to stop working and transition directly from saving to spending.
• Phased retirement. You ease into retirement by gradually reducing your hours and responsibilities at your job.
• Semi-retirement. You're still working, but not as much. You're OK with having a part-time job or want to make a late-stage career change to something less time-intensive.
• FIRE (financial independence, retire early). You embrace a lifestyle of frugality with aggressive saving and investing—often saving 50-70% of your income—to reach your retirement goals quicker. Variations include Lean FIRE, Fat FIRE and Coast FIRE.

Waving goodbye to full-time work at a relatively young age is a brave endeavor. One reason it takes courage is that early exits come with risks, some of which include:

• Overspending at the start. It can feel rewarding to indulge after a lifetime of saving. But unless you plan on going back to work, your nest egg needs to last. During your saving years, prioritize what you think will mean the most to you to do in retirement and set your savings goal to realistically include what you can. Stick to the plan to avoid running out of money.
• Taking a hit from market downturns. It can be devastating when invested assets tank in value when you're depending on withdrawals for income—especially in the first few years of retirement when sequence of returns risk is highest.
• Having unexpected costs deplete your savings. Out-of-the-blue expenses for health care, home repairs, family obligations and accidents can disrupt even the best-laid plans. Make sure your retirement savings strategy includes the realities of health care costs, and keep saving in an emergency fund as your line of first defense.
• Getting income tax surprises. Strategic retirement planning includes managing income tax efficiently across tax now, tax later and tax never buckets. For example, storing everything in traditional, tax-deferred accounts can lead to a tax-heavy retirement. But keeping all your retirement assets in tax-free accounts (like Roths) and drawing them down early could mean missing out on long-term, tax-never growth. Work with your accountant and financial advisor to identify your potential tax risks.
• Outliving your money. While you can use data and gut instinct to predict how long you will live, it's impossible to know. Prepare by putting plans in place for your retirement savings to last for decades.

Your retirement number is the amount of money you'll need to retire comfortably. It's personal to you based on your retirement goals and priorities. Tools like our Retirement Income Planning Calculator can help you get an idea of how much you should save. But a simple way to ballpark your retirement savings goal is the 25x rule.

Take your expected annual spending in retirement and multiply it by 25. That's roughly how much money you want to have saved before you stop working to have enough to last about 30 years or longer in retirement.

Example of the 25x rule: The national average annual expenditures for people aged 65 and older is $60,087 according to the Bureau of Labor Statistics (as of 2024 data). Applying the rule, you would aim to save just over $1.5 million to reduce the chances of outliving your money.

The 25x rule has limitations to consider. It assumes you're saving with long-term investing for retirement and that inflation in retirement won't be a problem. It's also based on you withdrawing a fairly steady amount or percentage of your savings each year in retirement, such as with the 4% rule. It's OK for generalizing, but diligent financial planning involves factoring in details specific to you.

While the 25x rule can be a helpful baseline, you can estimate a more accurate retirement number for yourself by adjusting based on your plans. Here are some considerations:

• Planning on an earlier, longer retirement. You'll likely need to save more because you may need your money to last longer. Consider counting on needing at least 30x your planned annual retirement spending.
• Overestimating to be on the safe side. Retirement has unpredictable factors, such as longevity risk and health care costs or changes to your charitable giving and taxes in retirement. Aiming for a higher multiplier of your annual retirement cost can help you feel more financially secure.
• Accounting for inflation. The Federal Reserve wants inflation to hover around 2% each year. No one can predict what rates will be by the time you retire, but you can prepare for inflation by saving more than 25x your expected yearly retirement expenses.
• Relying on other income streams. Usually, the 25x rule doesn't factor in making money in retirement from sources other than savings, like rental property, part-time work and other passive income. These could help you make up a shortfall or gap before you're eligible for retirement benefits.

Here's an example: Let's say you're thinking of retiring early at 55 and want to travel for the first few years. You anticipate living more frugally to offset travel costs and out-of-pocket health insurance, but the additional retirement years make you decide to push your factor up to 30x your anticipated annual retirement expenses. The ballpark math puts your retirement number at $1.8 million.

A lofty goal doesn't mean early retirement is impossible. But you'll need a strategy. A financial advisor can help you zero in on your number and offer ideas for how to reach it.

If the calculation of what you need to save for an early retirement is more than you anticipated, you don't have to give up. You may be able to make some financial sacrifices now that benefit you later:

• Track your spending to the dollar. The best way is to find a budget that works for you. Redirect unnecessary expenses and extra income to be automatically deposited in a retirement account.
• Live below your means when possible. Understand needs vs. wants and realize that lifestyle creep can mean you spend more because you make more. Downsizing your home or using cheaper transportation can free up dollars to save for your future.
• Pay down your high-interest debt. Revolving credit card debt can trap you into paying far more than what the purchase itself was worth. Use the snowball or avalanche method to get your debt to a manageable number, and put what you would have spent toward your retirement instead.
• Dedicate what you can to savings. Get a start on retirement saving and contribute consistently. The usual recommendation is to put 10%-15% of your annual income in a retirement account. To retire early, you may want to aim for 25% or even 50%. This higher savings rate can help you retire 10-20 years sooner than the traditional retirement age of 65-67.

Investment compounding can boost you toward your early retirement goals. Certain accounts can help you even more by offering different advantages as you plan for when, exactly, you need to access your money.

• Tax-now: Tax-now accounts are funded with money you've already paid income tax on. They don’t get special tax benefits and are called non-qualified accounts. You’ll owe taxes on any interest, earnings or gains in the year they occur. Examples include savings accounts and market-based investments.
• Tax-later: Tax-later accounts let you save money before you pay income tax on it, deferring the tax liability until you withdraw the money later. Common vehicles for this are traditional 401(k)s and IRAs. If your employer matches your contributions up to a certain percentage of your earnings, it's a good move to contribute at least that much. It's essentially doubling your investment at no cost to you, which can help you reach your retirement goal faster.
• Tax-never: Tax-never assets offer preferential tax treatment because you don't pay taxes on qualified distributions. Examples include Roth IRAs and health savings accounts (HSAs). 

Heath savings accounts have additional tax advantages: Contributions are tax-deductible, earnings grow tax-free and withdrawals are tax-free when used for qualified health care expenses (more for your tax never bucket). After age 65, you can use your HSA funds for any purpose. Non-qualified withdrawals are taxed as income, but you won't have to pay a penalty, essentially making it a tax-deferred retirement account (shifting it to your tax later bucket).

Investing for retirement isn't limited to tax-advantaged accounts. Regular brokerage accounts—part of the tax now bucket—can be a smart addition, especially for early retirees. Unlike retirement accounts that restrict access to the money until age 59½, investment accounts allow withdrawals at any time. They also don't have annual contribution limits.

Investments can help build your nest egg, but their potential can be threatened by market volatility and tax inefficiency. Here are some investing tips when planning for early retirement:

• Prioritize long-term growth with diversified equity investments, like mutual funds, index funds and exchange-traded funds (ETFs), which can help reduce market risk. Consider a target-date fund or three-fund portfolio for simplified diversification.
• Stay consistent with your retirement contributions even during stock market declines.
• Resist the urge to make investment decisions based on emotions with practices like dollar-cost averaging.
• Minimize the taxes on investment profits and growth by understanding short- vs. long-term capital gains and how earnings on stocks, bonds and mutual funds are taxed.

Depending on how early you want to retire, you may not be eligible for penalty-free retirement account withdrawals (age 59½) or federal retirement benefits like Social Security (ages 62-70) and Medicare (age 65).

You'll need to make sure you're covered for the in-between years for both your regular income needs and any health insurance premiums and potentially higher medical costs. Here are some considerations to plan for:

There are limited ways to take money out of retirement accounts and avoid the IRS 10% early withdrawal penalty. These three are worth considering if you're thinking about retiring before reaching 59½:

• Rule of 55. The rule of 55 allows penalty-free withdrawals from certain employer-sponsored retirement plans if you leave your job during the calendar year you turn 55 or later. If you're a public safety official, you may be able to withdraw penalty-free even earlier, in the calendar year you turn 50.
• Other early distribution exceptions. The IRS may waive the early distribution penalty when you take distributions from an IRA or employer-sponsored plan in specific situations. These include disaster recovery, qualified homebuying and higher education expenses, among other special cases. It's often better to use other resources before tapping retirement money, but it's an option to discuss with your tax professional and financial advisor if you need the money early.
• Roth IRA conversion. The advantages of Roth IRAs over traditional IRAs are that you can access your contributions at any time, and qualified withdrawals of the earnings are tax-free. If you have money in a traditional IRA but may need it before age 59½, a Roth IRA conversion could be worth it. You'll pay taxes on the amount converted, but once those funds have been in the Roth IRA for five years, you can withdraw up to that amount penalty-free. After 59½, earnings withdrawals will be penalty-free and tax-free.

If you're considering retiring early, then you should also think about how to maximize your Social Security benefits because age is a key factor in how much you'll get. You can claim as early as age 62, but you'll get as low as 70% of your full monthly amount. Waiting until at least 67 and up to 70 means you'll get at least the full amount and up to 24% more.

When to take Social Security is a personal decision based on factors like your financial situation, your health, your life expectancy and your spouse's plans. It's wise to have an idea when you'll claim so you know what to count on for an estimated monthly payment.

You'll likely qualify for Medicare health insurance when you turn 65, but if you're planning to retire early, you'll likely need something else in the meantime. Other health insurance options to consider include:

• Part-time employer benefits. If you're considering semi-retirement, at least initially, look for workplaces that provide health insurance for part-timers.
• COBRA. You may be able to stay on your employer's health plan for up to 18 months thanks to the Consolidated Omnibus Budget Reconciliation Act (or COBRA). But be prepared: Since you'll likely need to cover 102% of your premium, it can be costly.
• Spousal insurance coverage. If your spouse is continuing to work, you may be able to be added to their plan.
• Health Insurance Marketplace. You can purchase private insurance through the government-run Healthcare.gov (or your state marketplace) and may qualify for premium tax credits based on your income.
• Health care sharing ministries. These faith-based entities are not health insurance plans, but they could save you money. Members pay monthly contributions, which are used to cover eligible medical costs on a case-by-case basis.

It's important to realize that even with insurance coverage, near-retirees and retirees generally tend to have increasing health care expenses for late-onset conditions, unforeseen accidents and simply aging. Make sure you account for realistic potential medical costs as you plan for early retirement.

Early retirement, like traditional retirement, is challenging because you have to plan so long and so meticulously for an extended future that might not unfold like you thought it would. Starting retirement early has the added potential to bump up the number of years your nest egg needs to last.

As explained so far, it just takes some extra planning and dedication. You'll also need a flexible mindset and to mentally prepare to transition from saving to spending what you've saved. You may find you weren't able to sufficiently predict how much you'll spend in retirement, for instance, and may need to cut back on your spending. Additionally, variables like inflation and market fluctuations can make it challenging to rely on usual guidelines and benchmarks for both retirement saving and spending.

But, like retirees of any age, you also have a world of possibilities. It's one reason retirement is so emotional and overwhelming at times. Logistics aside, you'll be facing decisions about how to spend your time and cultivate your sense of purpose. You may miss work or the daily social opportunities built into it. Or you may really enjoy meeting new people during your travel and new activities and wish you had budgeted more.

Remember, you always can keep adjusting your plans for the future. If you start retirement but aren't enjoying it, try picking up part-time, gig or consulting work that you enjoy doing. If you're enjoying it more than you thought and wish you had saved more for travel or a passion project, you still can find ways to make it happen. If you face a health setback, you can reevaluate what you have and forge another path forward.

Early retirement is about aligning money with your values and long-term life goals. Checking out early from your career may not be easy, but it is possible. It requires intentional living, disciplined saving and smart investing, plus regularly revisiting your plan to make sure you're on track.

Interactive financial advice tools like MoneyGuidePro enable trusted experts to run scenarios to project whether your savings will last as long as you need them. You also can connect with a Thrivent financial advisor for help building a foundation—and confidence—for the early retirement of your dreams.