Retiring early is a common aspiration. However, achieving this goal often means taking a more aggressive approach to saving and investing if you can — and carefully considering your retirement income strategy. 

If early retirement is your goal, an Ameriprise financial advisor can help you think through the many financial considerations and create a personalized savings and investing strategy to help get you there. They can also help you evaluate early retirement offers from your employer and help you assess whether it fits with your long-term financial goals.

1. Define what your ‘early retirement’ looks like 

Early retirement means something different for every person. For some, it means retiring by age 55. Others may want to retire even earlier.  

Whatever your target age, early retirement can translate to more time for travel, interests or family. You may decide to switch to a new low-stakes job or take up a cause you’re passionate about. Or you may simply wish to have the financial freedom to do the things you want to do. Regardless, it’s critical to think about your early retirement lifestyle, since it will inform how much you’ll need to save, spend and invest in the years leading up to, and in, retirement. 

2. Save aggressively 

The earlier you plan to stop working, the shorter the time horizon to save. Further, early retirees often need to save even more to sustain their lifestyle over a longer period. This means your retirement savings and investment strategy will likely need to be much more aggressive and could involve setting aside a substantial part of your income during your working years.  

Though a common benchmark for retirement savings is to set aside 10-20% of your gross income, it’s not uncommon for those seeking to retire early to save up to 50% (or more) of their income during their working years. 

3. Go beyond traditional retirement accounts 

When planning for a traditional retirement, it’s common to invest primarily in 401(k) plans and IRAs due to the tax advantages they provide. However, those accounts have limitations on how much you can contribute and generally do not allow you to withdraw funds until age 59½ without incurring penalties and tax consequences. That means you’ll also want to incorporate taxable brokerage accounts into your investment strategy. These types of accounts don’t have limitations on when you can withdraw your assets, what funds you can invest in or how much you can contribute. Taxable accounts may not have tax benefits, but they can provide you with the flexibility and liquidity needed to help you retire early. 

4. Diversify your investments and income streams 

The investment portfolio of a 45-year-old retiree will look very different from that of a 65-year-old retiree. The younger retiree, for example, will likely need more income streams to fund and sustain their lifestyle than the 65-year-old retiree, who can tap into federal benefits like Social Security and Medicare. 

As such, consider investments and insurance solutions that align with your early retirement goals. For example, you may want to consider how your portfolio may need to include assets you can tap for passive income, such as real estate, tax-exempt bonds, U.S. Treasuries and dividend-paying stocks. You may also consider funding a permanent life insurance policy, which — when properly managed and structured — can offer a tax-efficient way to build cash value that can help boost retirement savings.¹ 

5. Plan for the health care gap  

In the U.S., health insurance is often tied to your employer, and Medicare benefits don’t begin until age 65. This makes retiring early more complicated, but there are options to close the health care gap:  

• Spousal insurance: If your spouse or partner is still working and has access to an employer-sponsored health plan, you may be able to join the plan, provided the company extends coverage to spouses. This will likely be the most cost-effective option.  

• Public marketplace: You can access coverage via your state’s exchange or through healthcare.gov and see if you qualify for savings or tax credits. 

• Private plans: Private coverage is available through a broker or directly with an insurer, but you will not be eligible for any subsidies or tax credits if you obtain insurance this way. 

• COBRA: This can be a short-term option — albeit an expensive one — as federal law allows you to remain on your former employer’s health plan for up to 18 months after your employment ends. Instead of your employer supplementing the cost of this insurance, however, you pay the full cost. 

• Part-time job: If you want to continue working in retirement, consider employment opportunities that provide health benefits. 

• Retire abroad: If you plan to retire outside of the U.S., you may be eligible to access medical care through the health care system of your new home country.  

6. Understand the broader financial implications 

Early retirement can affect everything from taxes and Social Security to your ability to accumulate assets in tax-advantaged retirement accounts. For example, if you stop working earlier, you may pay less in Social Security taxes, which means your Social Security paycheck may be smaller when you become eligible to tap into your benefits. Further, if you don’t have any earned income, you are not permitted to contribute to an IRA.  

For these reasons and more, it’s smart to seek the guidance of a financial advisor who can help you understand your options and help decide on a strategy that makes sense for you. 

7. Create a sustainable withdrawal strategy 

Accumulating the necessary amount of wealth is critical to achieving your early retirement goals, but you also need an income withdrawal strategy that can handle a longer drawdown period. Whatever your early retirement age is, you’ll want to make sure your withdrawal strategy is sustainable and tax efficient.  

Achieve your early retirement goals 

Whether retirement is months, years or decades away, an Ameriprise financial advisor can help you evaluate your options and create a strategy that fits your needs and goals.