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How to Retire at 40

Written by Jeff Rose on April 22, 2013 in Retirement  |   14 comments

Retiring by the time you turn 40 might sound impossible, but it most definitely can be done. With some careful retirement planning and creative savings strategies, you can begin your retirement while you are still young and spunky. Getting started on your retirement savings as…

retirement planning retirement savings budgetRetiring by the time you turn 40 might sound impossible, but it most definitely can be done. With some careful retirement planning and creative savings strategies, you can begin your retirement while you are still young and spunky.

Getting started on your retirement savings as soon as possible is most important. The longer you have to work toward your retirement plan, the closer you will come to meeting your retirement goal. If you have any debt, a top priority has to be getting rid of it. Meeting with a financial planner at least once is key to helping you figure out some of the areas where you might not be savvy. Being prepared to cut back and save everywhere will be paramount.

Mortgage and real estate

Paying off your mortgage or having very affordable mortgage payments is going to help significantly in your being able to retire early. Consider downsizing, refinancing, and increasing payments to reduce your mortgage debt as much as possible.

Purchasing real estate that can provide rental income indefinitely is another great way to increase your income potential for the future. That extra income can also help pay off other debt and mortgages while you prepare for retirement.

Conserve, reduce, and save

You are going to have to make sacrifices if you want to retire as young as 40. We have all heard about eliminating unnecessary expenses such as restaurant meals, coffee shop drinks, and luxury items. Retiring early is going to take a lot more than just that.

Consider moving the whole way you live to a minimalist existence. This means not only giving up the flat screen TV but also getting rid of the cable plan, the unlimited data plan on the phone, and the tablets, laptops, and desktops. Use one electronic device and take advantage of free WiFi.

Learn how to garden and grow your own food. Join a neighborhood co-op and share as much as you can. Take on a no-spending challenge for one year. Learn how to live with only the necessities. Cutting back and conserving during your early adult years will help get you closer to the goal of retiring at 40 because you will be able to invest the money you are saving.

Once you start cutting costs, it will become easier to find ways to save. If you go one year without buying any new clothes, for example, it might be easier for you to extend that for another year—or to make cuts to other areas of your budget.

Forget typical 10 percent savings plans—we are looking at saving closer to 50 percent of your income now. By saving this drastically, you can help guarantee that you will have the funds you need to retire early.

Retirement and savings accounts

Investing in accounts that will yield future returns is obviously a smart way to guarantee income for retirement.

  • Money market accounts are like a combination checking/savings account, except that the interest rate is usually much higher than you would get with a regular savings account. You are limited on your withdrawals each month, but that shouldn’t be a problem because the point is to leave the money alone.
  • CDs are another good choice as they also offer a decent interest rate and a way to increase funds over time. They have a fixed term and a fixed interest rate so you know what you are getting.
  • Stocks are a riskier investment, but the rewards can really pay off if you invest wisely.

Your typical retirement account is not going to be very beneficial right away because you won’t be able to access the funds until much later in life without penalty. However, if you are in good health and expect to live a long life, having these retirement accounts for later is still a good part of your early retirement planning.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.

14 comments

  1. Bob H. says:

    While I agree with Jeff Rose’s ‘minimal existence’, and 50% savings, this can be done…
    But as his surname implies, he must wear ‘Rose”-colored glasses when he discusses the “…higher..” and ” decent…” interest rates of Money Markets and CDs in today’s economy !!! (I have been quoted 0%, that’s ZERO, from some institutions. All I would be doing is parking my money safely. OK for rainy-day, but NEVER growth. Unfortunately, our government has taken financial restrictions to the point that the ONLY game in town is to invest in stocks! (Bonds are another financial disaster waiting to happen, WHEN the interest rates creep up.)

  2. "The Kid" says:

    I am a believer in saving early, often and investing wisely for the future. That means investing in many financial vehicles and being WELL diversify.

    I dont believe in sacrificing to the point of not enjoying a comfortable living and the things and activities you love. You live ONE life–be prudent, balanced and I believe if you make the RIGHT choices (most of the time), you will achieve your financial goals….40, 45, 50, 55…it’s doable by planning and taking action EARLY —thats the key.

    • EFX Moderator, EM says:

      That’s a good point. Saving is important but it shouldn’t keep you from living comfortably. Great advice, thank you so much for sharing.

    • reality says:

      I agree. You’ll wake up at 40, and although you’ll be able to retire, you’ll wonder where all of the years went living with nothing. So basically, you’ll start your life at 40. I’d rather live comfortably all of my years in existence and retire at 55.

    • Anonymous says:

      Totally agree!

  3. Rhonda Duffy says:

    Who wants to retire at 40? I say OK if you retire at 40 do something that you love next go around and then you are just working for fun!

    • EFX Moderator, EM says:

      Rhonda, You’re right. Even if you retire, it can be good to still be active, whether that be by creating your own project or getting involved in the community. Thanks for sharing.

  4. Texas says:

    I was fortunate to retire at 50, or better the option to retire. Yes, the author’s recommendations are valid in living within a spartan budget, savings/investing, paying off the home/debt…..

    But, the choices made much earlier in life, such as as my faith, education/learning a trade, the right career, the right spouse, having children were the most important decisions not only in the direction of my life, but reaching financial success to have the option to retire early. It is difficult to recover from wrong choices and decisions made early in life.

  5. PFDeals Admin says:

    Agree that with agressive savings strategy and reducing your expense burn rate you can retire at 40 or 45. But CDs and MMAs are not good for investing these days with very low rates.

  6. Doug says:

    I retired at age 44 to pursue an active out door life I thoroughly enjoy. Your body can’t do the same things in your sixties that it can in your forties. My key to success was saving and investing over 50% of my income during the twenty-six years I worked. I decided to retire in late 2007 when my house and stock portfolio were at a high. I then moved to a low cost state in the Rockies to pursue my dream life. While my timing was perfect, I also had a plan before hand to execute if I reached my net worth number. Yes, I could have had more things and lived a higher life when younger, but I am making up for it now plus some.

  7. A Person who Works 6 days a week says:

    There is no way you can retire at age 40 unless you have put away a sizable nest egg – and that is essentially impossible – that just can’t happen in today’s environment if you have kids, a mortgage, car payments, insurance, utility bills, food bills – there is no way for most people able to reitre prior to the age of 60 – it just can not happen (Unless you plan on dying at the age of 50).

    • Retired at 42 with little kids says:

      It’s most certainly not “impossible”. It doesn’t even require all the austerity mentioned in the article. As you say, it can’t happen if you’re laden with debt, but it can be done with kids while putting food on the table and paying the bills. It does require a good income before retirement combined with a moderate standard of living and a very high savings rate. A married couple with good jobs can get it done when all debt and living expenses are serviced by one income (preferably the lower of the two), and the other is banked & invested. The problem is the current interest rate environment and generating cash flow after retirement. However, interest rates won’t stay this low forever, or probably even much longer.

    • Anonymous says:

      Oh you are so wrong….I did and I did it at age 55

  8. Anonymous says:

    Great article and great thing to aspire for even if you’re moving from one job/career path to another one (and this time not chasing the almighty dollar but doing something you really enjoy).


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