Early retirement is possible – if you do these four things right. (iStock)

While many Americans fear they will never be able to retire, a rapidly growing group of people in the financial independence movement, Retire Early (FIRE) not only plan to retire, but plan to do so decades before they are eligible have social security benefits.

One of the guiding principles of FIRE is to save up to 75% of your annual income in order to retire much earlier than the typical retirement age.

Retiring early can save you the headaches of working life, but you also miss out on the extra earnings that could make your retirement more enjoyable. With that in mind, you should plan carefully and make sure you have a solid financial plan before you retire.


Here are four signs that you are financially ready for early retirement:

  1. You have an emergency savings fund
  2. You have enough money in your savings account
  3. You are debt free
  4. You can easily access your money with no penalty

1. You have an emergency savings fund

Before you retire, be sure to monitor your cash flow and at least three to six months of personal financial savings rolled into one Emergency fund.

If you encounter unexpected expenses in retirement, you can get cash from your emergency fund. This is a better option than pulling money out of your retirement plan, which could result in a prepayment penalty.

If you keep your emergency fund in a high-yield savings or money market account, you can earn up to 10 times the annual percentage return (APY) than with a traditional savings account. These deposit accounts are FDIC insured and often have no monthly service fees or minimum balance.

Check out Credible to find out how you can do that Earn more money with a high-yield savings option.

2. You have enough money in your savings account

Before you retire, your savings should meet or exceed the 25 rule, which has an retirement savings target of 25 times your expected annual retirement expenses.


That said, if you estimate that you will be spending $ 50,000 annually in retirement, you must save $ 1.25 million before you leave your job.

To find out how much you should be saving for retirement, calculate your current expenses as well as your projected retirement expenses. These numbers will help you estimate your annual pension expenses.

3. You are debt free

Debt puts a strain on everyone’s budget, regardless of your retirement status. Mortgages, student loans, auto loans, credit cards, and other debts make it difficult to save and invest for retirement. And when you retire with debt, it can negatively affect your lifestyle and financial comfort.

On the other hand, if you are paying off a mortgage on any property and paying off your debt, you don’t have to worry about the payments in retirement. You have more flexibility with your retirement budget, less stress related to money, and more opportunity to enjoy retirement.

Consider consolidating high-interest credit cards with a low-interest personal loan. You can Check rates from multiple lenders without affecting your creditworthiness with Credible.


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Starting retirement life free of debt and with sufficient savings is better positioned for the additional years without work.

4. You can access your money without penalty

One dilemma for those looking to retire early is the inability to access their money. You have enough money in your 401 (k) or IRA account, but it can be years or decades before you can withdraw funds from your account with no penalty.

Most retirement accounts are of a minimum age with penalties of up to 10% for early withdrawals. For example, 401 (k) and IRA accounts are 59½ or older in most cases.

Diversifying your savings and investments is essential if you are looking to retire early and may wish to open an individual taxable investment account. While these accounts don’t have the tax breaks of traditional or Roth IRAs or 401 (k) s, they are age-free for withdrawals.

A high-yield savings account can also give you a degree of flexibility over a checking account. With a high-yielding savings account, your money in an FDIC-insured account can grow – without the risk of investing in the market – and you can access it anytime without penalty. Compare the savings rates of multiple high-yield savings accounts at the same time to one Online marketplace like Credible.

The bottom line

Early retirement planning is about saving enough money to meet your annual retirement expenses. Determining the exact amount of these expenses is a common obstacle for many. Take the time to calculate your projected annual expenses – you might consider seeking advice from a financial advisor or certified financial planner – including your home, health, transportation, auto insurance, groceries, utilities, life insurance, and health care.


With an accurate picture of your financial needs after retirement, you will be able to choose a suitable retirement date that is not so early that you risk running out of money or so late that you will work longer than necessary.

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