While 65 is the standard age for retirement, many people dream of crossing that finish line early. What was traditionally referred to as ‘early retirement’ has morphed into a more robust mission of financial independence, which provides the freedom to choose when and how to retire (or continue working) on your own terms.

Since social programs that support retirement are based on age eligibility, an early start must be self-funded. Retirees cannot receive Medicare until age 65 and they cannot receive full social security benefits until age 66 or 67. So to retire early, you must have enough money saved to pay everyday living expenses, as well as healthcare, taxes, and other expenses. This is where investing can make a huge impact.

Financial Planning for Early Retirement

When working towards early retirement, the financial goal is simple: you want to earn and save as much as you can, as early as you can. This effort is driven by a standard tactic of spending less, and making more. Squeeze your current budget as much as possible; get debt free and get creative on saving when it comes to daily life. Earn extra income through side hustles, odd jobs, and entrepreneurship.

After you’re established in a lifestyle that is aligned with your goal of early retirement, you’re ready to get planning. Use your current monthly budget to start estimating your retirement monthly budget. Make the necessary adjustments to account for expenses that will increase or decrease, as well as new expenses that will start or end, during retirement.

Don’t forget about health insurance! Many people overlook this detail when budgeting for early retirement because health insurance has always been provided through their job. But if you stop working and you’re not yet old enough to receive Medicare, you’ll need to pay out-of-pocket for medical insurance, and it can be a high-impact expense.

Estimating How Much You Need to Save

Once you have your annual expenses budgeted, you’re ready to set a savings goal. The standard rule of thumb is to save 25 times your estimated expenses. That is, of course, an estimate that will serve you for 25 years at a consistent annual rate. Another rule, called the 4% rule, states that you can spend 4% of your invested savings in the first year of your retirement, and then adjust that 4% each year for inflation. This rule is based on data from 30-year retirements.

Needless to say, both of these recommendations will need to be adjusted if you are planning to retire early, because you may need your money to last 40 or 50 years. Once you determine an annual budget for retirement, you’ll be able to use what you know about your budget, time, and investment capacity, to calculate how much you need to save.

Investing for Early Retirement

Investing is the best tool available to grow your savings for early retirement. You are hoping to spend less time “sitting” on savings and more time spending your savings, which means you need long-term, sustained growth from your investments. Because of this, you might be tempted to invest in a more conservative portfolio. But remember that high-risk portfolios typically offer higher growth potential. It’s critical to maintain balance and to remember that the time spent in retirement is still time during which your investments can grow.

Managing Investments During Early Retirement

Ideally, your investments are continuing to grow even as you’re starting to use money to cover your living expenses. This requires a careful management system, for which there are several strategies and recommendations. The main idea is to separate your short-term money from your long-term money, allowing most of your investments to continue growing as you start spending.

It is commonly suggested to create a short-term pool of money and investments that will serve to cover your living expenses during your first two, five, or ten years of early retirement. The swings of the market, while volatile and unpredictable, are natural and tend to balance out in the long term; so, if you can stomach the roller coaster, you can continue to collect returns on the bulk of your savings while it’s invested.

Early retirement doesn’t have to be a distant, ambiguous dream. With meticulous planning, self-discipline, and strategic money management, it can be an attainable goal. The impact of investing is irreplaceable on this journey, as it offers the potential for resilience and sustained growth. Early retirement isn't simply about escaping the workforce early—it's about building a future of freedom, fulfillment, and financial well-being. Objective Measure’s Investment Essentials Course teaches the building blocks and critical components of investing, allowing you to start building that future today.