Early Retirement

Many people dream of leaving the workforce early to travel, spend time with family or pursue a passion project.

But early retirement isn’t easy to achieve. Experts agree that leaving the workforce before age 62 requires discipline and proactive planning.

Investing at an early age is crucial to early retirement.

When you start investing in your 20s, your money has more time to grow and enjoy the snowball effect of compounding interest.

This is when the interest you earn on savings and investments builds on itself.

You can also take greater risks — and reap potentially greater returns — when you’re young.

When you first start out, investing in index funds or ETFs is a good way to build your portfolio. As your financial knowledge grows, you can expand your portfolio with individual stocks or real estate.

Investing in your company’s 401(k) plan or opening a Traditional or Roth IRA are other smart, proven ways to grow your money.

Your biggest hurdle will be saving and investing enough money by the time you retire. That’s true at any age, but early retirement makes this even more challenging.

Your money has less time to grow and it needs to last longer, too.

You’re also more likely to take Social Security as soon as possible at age 62 if you’re no longer working. But doing so greatly reduces your monthly benefit compared to people who wait until full retirement age (between age 66 and 67) or even later at age 70.

Tapping into retirement account money may also be difficult. The IRS levies a 10 percent tax penalty for 401(k) and IRA withdrawals before age 59 and a half.

Knowing what age to retire is an important decision. Early retirement may sound ideal, but it isn’t realistic for everyone.

An aggressive strategy to achieve early retirement has emerged in recent years. It’s called the FIRE movement, or Financial Independence, Retire Early.

It encourages people to be frugal, cut expenses, maximize savings and leave the workforce as soon as possible in their 50s, 40s or even younger.

There are two main camps in the FIRE community: “Lean FIRE,” or extreme frugality, and “Fat FIRE,” where people spend and save at a more average rate.

The FIRE movement has attracted a lot of criticism over the years. It’s often only practical for the wealthy, who can afford to sock away 70 to 80 percent of their income.

It also leaves followers vulnerable to potential pitfalls. The longer you spend in retirement, the more likely unexpected life events may derail your plans.