Early retirement: tips to help you make it a reality

Key Points

  • Whether you want to pursue old passions and new hobbies, travel the world, or spend more time with family, many of us dream about an early retirement.

  • The amount of money you will need to retire early depends on your goals, lifestyle and a range of other factors.

  • There are emotional and financial components to planning for an early retirement.

How to retire early: 3 key questions to ask yourself.

How much do I need to retire early?

This is the answer everyone is looking for, the magic number in savings and investments that will allow you to retire earlier than expected. The reality is that there is no one-size number that fits all — but there are some techniques your financial advisor may show you to hone in on your equation.

“One old standby is the 4% rule, which is to take out 4% of your retirement portfolio every year,” says Marcy Keckler, Vice President of Financial Advice Strategy for Ameriprise Financial. “But that’s for a 30-year retirement. If you’re thinking about early retirement, you could be looking at a 40-year span, and that can change the equation significantly.”

  • Consider an adaptive withdrawal strategy. This allows for flexible distributions from your retirement fund. After ensuring that your essential needs are covered, your Ameriprise financial advisor can help you adjust distributions of your remaining assets to adapt to factors such as investment performance or your age. That way your withdrawals can be flexible enough to absorb unforeseen market and life events.
  • Make sure you have access to cash. “It's a good idea to have one to three year's worth of lifestyle expenses in cash or liquid assets,” Keckler says. “Really, it comes down to your distribution rate and income goals, and those estimates can be made by sitting down with your advisor and working on a plan.”

Key takeaway: The “magic number” for retiring early really depends on your goals, your lifestyle and a range of other factors. Sound planning with your advisor should consider those factors and can help alleviate anxieties about having enough money in the long term.

How do you want to spend your time?

Retiring earlier means you’ll be younger — and probably more active. Just keep in mind that doing more might also involve spending more and working with your financial advisor to ensure your goals are incorporated in your financial planning.

“There’s the savings part of it as well as the emotional preparedness part,” says Keckler. “I think it’s wonderful when people want to retire early, but you have to ask yourself: How are you going to spend 168 hours a week for the next 40 years?” That’s a lot of time to fill.

What type of future do I see for myself?

While you might enjoy cruising the Caribbean or taking care of your grandchildren for a while, if you’re like many retirees, you may find that you want to continue putting your skills and knowledge to use — but on your schedule.

“Behavioral psychology plays a role,” Keckler says. “When you work hard your whole life, it’s hard to just switch that off.” It’s not surprising that many people find themselves filling their 168 hours with an entrepreneurial move. 

Key takeaway: Think three steps ahead. At the end of the day, the process for planning an early retirement should be an exciting one. “I always say to people, Congratulations! Now explain where you want to be in the next five years, 10 years, 30 years, and we’ll help you get there,” Keckler says.