Some people credit German Chancellor Otto Von Bismarck with the invention of modern retirement all the way back in 1881.
How so?
In a shrewd political move, Bismarck ordained that anyone over 70 years of age would be forced to retire, and the German government would pay them a pension.
He did this to minimize the influence of the popular opposition party by opening up jobs to lower the high unemployment rate of the youngest generation of German workers.
With well over two decades combined spent working with clients from Gold River, Folsom, Roseville, and East Sacramento, California, to help them maximize their retirement savings and live life on their terms, one of the most popular questions we hear is: How can I retire earlier?
Retirement has traditionally been viewed as the culmination of a long career, often reached in one’s 60s, or later. Two decades ago, early retirement typically meant stepping away from work at 50, an ambitious but achievable goal for some. Today, however, a societal shift is occurring. Professionals in their 30s, early 40s, and 50s are experiencing burnout from the relentless grind, and are increasingly seeking financial independence to escape traditional work earlier.
Many people retire and start their own businesses.
Having achieved what I call “partial retirement,” a phase marked by financial freedom that allows you to prioritize passion over paychecks, I’ve come to understand what it takes to achieve this milestone. The reality is there’s no universal roadmap, as every person’s situation is unique, but there are actionable strategies and formulas that can make early retirement a feasible goal for some.
Building Your Early Retirement Blueprint
One of the first questions people ask is, “How much do I need to retire early?” While this is a natural starting point, the idea of a one-size-fits-all “magic number” is a myth. Your financial independence number will depend on your unique lifestyle, goals, and priorities. Take my husband as an example. Before we met, he lived an incredibly minimalist lifestyle, spending about $2,500 per month. For someone with his approach to life, the math is simple: multiply $2,500 by 12 to find annual expenses, then divide by 0.04 (a commonly used safe withdrawal rate). This formula calculates the amount of invested assets needed to generate enough income to sustain a lifestyle indefinitely. For him, this would have been $750,000:
Contrast this with our current life, which involves a home with a mortgage, three dogs, international travel, and raising our daughter. Our monthly expenses now total $9,000, which requires a much larger financial cushion to sustain. Additionally, taxes and healthcare add another $3,500 per month. When factoring in taxes, health insurance, and other costs, our total monthly need is $12,500, therefore our financial independence number comes to approximately $3.75 million. The calculations are straightforward when you have a good understanding of your total monthly expenses:
However, even this number varies based on geographic location, spending habits, and individual risk tolerance. Retiring abroad in a lower-cost country could significantly reduce this number, but it might also mean giving up proximity to family or the comforts of home. For those considering this route, exploring resources like Nomad List or the IRS guide for expatriates can provide valuable insights into cost and tax implications.
To determine your own retirement number, the first step is to assess your annual expenses. Total your monthly costs, including housing, healthcare, discretionary spending and taxes, then multiply by 12. For example, if you spend $6,000 monthly, your annual expenses are $72,000. Divide this by 0.04 to estimate the assets required to sustain your lifestyle, which in this case would be $1.8 million. Tools like Right Capital’s Retirement Planner or FIRECalc can help you refine these calculations based on specific variables like inflation or market fluctuations.
Once you’ve identified your target, achieving it requires a disciplined approach to saving, tax planning, and investing. During my accumulation phase, I allocated one-third of my income to lifestyle expenses, one-third to taxes, and the remaining third to investments. This strategy allowed me to grow my wealth consistently while maintaining a balanced lifestyle. A key focus was building a “gap account,” which is an after-tax brokerage account designed to bridge the income gap between early retirement and the age when I could access traditional retirement accounts penalty-free.
Consider Tax Efficiency when Funding Your Investment Accounts
Tax efficiency is another critical factor in achieving early retirement. Maximize contributions to tax-advantaged accounts like 401(k)s and Roth IRAs but also consider the value of Health Savings Accounts (HSAs) if eligible. HSAs provide triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. Learn more about these benefits through the IRS HSA guide. For those retiring early, strategies like Roth contributions and utilizing the 72(t) rule for penalty-free withdrawals can also play an important role. Additionally, you should place emphasis on funding an after-tax account with no age limitations for withdrawals prior to age 59.5.
The journey to financial independence also involves smart investment management. Diversification across asset classes, balancing growth and risk, and rebalancing regularly are essential to maintaining a portfolio that can withstand market volatility. Resources like Morningstar’s Portfolio Manager or Orion Risk Intelligence can help simplify this process.
Exploring Flexible Retirement Options
I’ve had the privilege of working with clients who’ve achieved remarkable financial independence milestones. One client, a tech entrepreneur, reached his $10 million goal in just nine years. The approach we created combined building a high-growth business, saving aggressively in a defined benefit plan, and strategically investing in a low-interest-rate environment. Another couple decided to experiment with early retirement by moving to Portugal, where they leveraged tax benefits for expatriates. Renting out their California home allowed them to live comfortably on Social Security and investment returns, all while enjoying a lower cost of living. For those curious about this route, Expat.com offers comprehensive resources for planning an international move.
The question of whether retiring between 40 and 55 is achievable comes down to mindset, discipline, planning, and strategy. Early retirement isn’t about quitting work entirely; it’s about creating a life where work becomes optional, not mandatory. Whether your dream is traveling the world, pursuing a passion project, or spending more time with family, the key is to build a financial plan that supports those goals.
If you’re ready to take the first step, start by evaluating your current financial situation and defining what financial independence looks like for you. Use tools like RightCapital, or consult with a 100% fiduciary Certified Financial Planner™ to create a customized roadmap.
With the right plan, early retirement isn’t just a pipe dream, it’s a tangible goal that can lead to a more meaningful and fulfilling life.
Please contact us if you have any questions, or if you’d like a complimentary, no obligation analysis of your progress toward retirement.
