Many people dream of retiring early but don’t have a plan to make it happen. While wise consumers know that spending less and saving more is the “simple” first step in achieving early retirement, that’s not always enough. It often takes a combination of strategies—some obvious, some not—to reach the threshold that will allow you to exit the workforce early.
The experts at Forbes Finance Council understand that it takes more than cutting some weekly costs for you to be adequately prepared to retire early. Below, 15 of them share some smart strategies that can be particularly effective when you’re building a nest egg in anticipation of early retirement.
1. Brainstorm Additional Income Streams
To reach financial flexibility and early retirement, consider additional passive streams of income rather than solely relying on a job. Think about diversifying your investment portfolio. Consider purchasing a rental property that pays a monthly income or becoming an investor in a business. Write a book or start a blog that can be advertised across online platforms to create additional income. – Letitia Berbaum, The Zandbergen Group
2. Stick To The Basics
Early retirement requires one’s passive income to be greater than one’s expenses. If I were to boil it down to just one effective tip, I would advise people to stick to the basics and diversify on those. Beating inflation is not quantum physics: Start investing in blue-chip stocks, real estate, precious metals such as gold and exchange-traded funds. – Marcus Schulz, Volume-Trader
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3. Do A Trial Run
Pretend you are retired before you quit! If you calculate your expected retirement income and then force yourself to live on that (presumably) lower amount before you quit, you can see if that lifestyle works for you. If it does, great—you can quit. If it doesn’t, consider working a little longer until you can reach a retirement level you are happy with. – Tim Clairmont, Clear Financial Partners
4. Automate Your Savings
A recent Bankrate survey found that 51% of Americans have less than three months’ worth of emergency savings. It’s hard to actively save from each paycheck. That’s why I recommend automating your savings so you can set it and forget it. Pick a number you’re comfortable with (anything is better than nothing), and have that amount automatically deducted from your paycheck and put into a retirement account. – Kathleen Craig, Plinqit
5. Ensure You’ll Have A Monthly Income
The key to retiring early is cash flow. Remember, income is the desired outcome for retirement. There is such a heavy focus on wealth accumulation that savers forget that they need a monthly income to retire—and most traditional investments are not income-producing. If you want to retire early, begin the transition to investments that provide cash flow well in advance of retirement. – Will Duffy, WD Wealth Strategies
6. Leverage The Power Of Compound Interest
Compound interest is an important tool to consider in your retirement savings calculations. Make sure to keep track of your savings and how they’re growing over time. Throughout your career, whatever you can put aside will be a bountiful way to provide you with stability as you approach retirement. – Sonya Thadhani Mughal, Bailard, Inc.
7. Track Your Spending
Track your spending—not just over the last year, but over the last two years. And I’m talking about every penny. There are many tracking apps and services now to help you. This will help you gain insight into what your spending will look like in retirement, as well as how it might look different. After all, your estimates of what you might need in retirement could be way off. – Bill Keen, Keen Wealth Advisors
8. Prepare For Healthcare Expenses
Don’t overlook—and be sure to proactively prepare for—healthcare expenses in retirement. Leveraging a health savings account can help you level up your retirement planning to be sure you’re prepared for those expenses come retirement, early or otherwise. With an HSA, you can reap the long-term rewards of tax-free investment account growth, and you can always access your funds whenever you need them. – Tom Torre, Bend Financial
9. Build Out A Spending Plan
A major item that is often overlooked is building out a spending plan and forming a bucket of assets that can be used to cover 12 months of expenses. Knowing what a client’s spending plan is makes structuring a solid investment portfolio for the long term easier for everyone. – John King, Dakota Wealth Management
10. Live Frugally And Develop A Well-Rounded Plan
Live well below your means. Pay your future self during your entire career. Research different perspectives on investing. Come up with a plan, and execute on that plan without fail. Modify your plan if necessary, but always have a plan to follow. Companies that offer a generous 401(k) match as a percentage of salary could really advance your savings for retirement. Always evaluate your investment options. – Dave Sackett, Visibility Corporation
11. Set Up Post-Retirement Income
We can hope to win the lottery, but as they say, hope is not a strategy. In addition to spending cuts, debt avoidance and retirement savings, you can set up multiple sources of post-retirement income, including passive income such as rental properties or investing in small businesses. You can also consider side jobs. These additional sources can contribute to meeting your cost-of-living expenses. – David Kelley, Mailprotector
12. Invest In Assets That Outpace Savings
Early retirement is possible when you invest in assets that could, potentially, outpace savings alone. For example, using debt to buy a business that you could grow for an eventual sale or creating passive income by purchasing real estate are great ways to leverage your resources. Such strategies can help you reach your early retirement goals. – Justin Goodbread, Heritage Investors
13. Understand The Difference Between Good Debt And Bad Debt
To retire early, avoiding debt is not the end-all key; in fact, it’s understanding the difference between good debt and bad debt. Debt that creates cash flow and guaranteed monthly income—such as purchasing a property to rent on Airbnb—is good debt. Debt used for vacations, expensive cars or even a massive home should be avoided. Focus on smart debt that creates income. – Leo Kanell, 7 Figures Funding
14. Create ‘Mailbox Income’
Look to diversify your investment portfolio to provide an income stream, including such options as dividend-paying stocks, bonds, real estate investment trusts, money markets and so on. If all your investments generate wealth and not income, then you will have to sell those investments to provide yourself with an income in retirement. Investments totaling $1 million and paying an average 5% annual dividend generate $50,000 in annual income. – Joseph Orseno, Tiltify
15. Discuss Your Money Goals Early And Often
Unfortunately, there’s no silver bullet that will magically get you to early retirement—unless, of course, you hit the lottery! The essential parts are essential for a reason. If there is one thing I advise clients, it’s to talk early and often about your money goals with your partner. And hire a financial advisor to keep you on track and accountable. – Daniel Machnik, Willis & Machnik Financial Services