Retire at 45: Why It’s Achievable and How You Can Do It Too

The median retirement age in the United States is 65, per the Social Security Administration’s website.

The retirement plans of many, however, are more ambitious.

So if you’re among these determined folks, I’ve compiled a list of ideas that will help you retire sooner.

Why Retire Early? 

The most obvious benefit of early retirement is the extra time to focus on other pursuits.

The majority of people’s goals for the future include traveling and learning about world cultures.

US News, however, claims that retiring early provides a plethora of fringe benefits that anyone can enjoy. 

Health improvements, new hobbies, the ability to cut costs, extra free time, and the independence to pursue other sources of income are just a few of the many benefits.

It’s no surprise that lots of people try to get to retirement age a few years early.

Tips For Retiring By 45

tips for retiring by 45

Shift your mindset about money. 

An article from Psychology Today provides a concise explanation of what money is.

As defined there, money is “having a certain kind of worth that can be traded for other goods.” That’s about as plain as it gets.

Money is just worthless paper and metal, but we treat it way more than that.

It’s undeniable that the ability to buy food and shelter with these pieces of paper and metal is essential to our survival.

That doesn’t mean we should completely disregard the value of money; rather, it means we should adjust how we use and think about money. 

We need to change our mindset about personal finance and how we spend money in order to retire early.

A better way to improve quality of life is not to spend money on it but to eliminate wasteful spending.

Income savings goals are typically between 5%-15% of take-home pay.

However, Early Retirement Extreme claims that if people save 40%-80% of their income, they may retire earlier and achieve a “six-figure net-worth” within a few years.

Examine your budget carefully to find the extra money you’re spending.

Paying off debts other than the home, such as those for a car, a student loan, or credit cards, is also beneficial. 

Some of the “luxuries” you’re used to, like going out to restaurants or participating in leisure activities, may have to be sacrificed in order to save enough money for early retirement.

The money you save on these seemingly insignificant items may prove crucial in the long run. 

In the end, you’ll need to save more actively and invest more carefully if you want to retire early. 

After all, you’ll be living off the savings you’ve amassed by the time you’re 45.

You’re going to need quite a bit.

Envision Your Dream Retirement 

The next step is to think about and write down your goals for retirement.

This could include doing something new, like taking on a trip, trying a new hobby, beginning a business, or even going back to school. 

And to create a strategy for reaching your goal, you must first calculate its cost.

In order to minimize financial difficulties in retirement, it is important to create a budget

Compute your bare-bones monthly costs here.

Then there is the additional outlay you may incur later in life, like your children’s college tuition or the cost of medical care. 

Using a retirement calculator, you may estimate how much money you’ll need to put away for retirement.

Boost Your Earnings ASAP 

In most cases, people’s earning potential doesn’t fully materialize until they’re in their 40s and 50s.

To be able to retire at that time, you will need to speed up your income growth now.

Ways of dealing with this can vary.

Either ask for a raise or promotion at your current employment or look into getting a second job. 

If neither of those options is feasible, you may always try your hand at self-employment.

With a bigger salary, you’ll have more room to save for comfortable retirement years ahead of schedule. 

The time you need to save and invest to cover your living expenditures beyond age 45 also depends on your annual earnings.

And if your income rises, instead of spending more extravagantly, put more money into your retirement savings. 

Since you are already reducing your basic living expenses, extra money from your paychecks probably won’t make a difference in your present life.

INVEST Wisely 

Investors under the age of 30 are generally considered to be too young to take on excessive risk. 

Even if the market crashes when you’re in your twenties or thirties, your investments should have plenty of time to rebound before you need access to the money. 

An early retirement complicates that reasoning.

You should be more cautious if you have your sights set on retiring by age 45.

Be mindful of spreading your risk while adding to your portfolio.

Think about the costs associated with each investment as well. 

You should try to keep your fees as low as possible because they have the potential to eat into your returns over time.

If most of this goes over your head, sign on a certified financial planner to help with your retirement accounts.

Related Reading: Investing VS Enterpreneurship – Learn More Here.

Deal With Your Tax Liability

When saving for retirement early, it’s important to rebalance your portfolio on a regular basis and take advantage of tax losses. 

To offset the capital gains tax, you would owe on a separate investment that has done well, you can engage in a strategy known as “loss harvesting,” which entails selling an asset that has decreased in value.

Investing in tax-deferred accounts is another option worth exploring.

Contributions to traditional IRAs and 401(k)s are normally tax-deductible, and withdrawals in retirement are taxed at the individual’s ordinary income tax rate. 

In contrast, Roth IRA donations aren’t tax-deductible.

Withdrawals from a Roth IRA are tax-free after age 59.5, and those from a health savings account (HSA) are tax-free if used to pay for qualified health care expenses.

Explore Out-of-the-box Options 

You can find solutions to reduce your monthly living costs if you’re ready to be creative.

Those who wish to retire in a place with a lower cost of living and access to affordable healthcare may do so by relocating to another country. 

With a monthly budget of $1,500 to $1,825 for rent alone, for example, a couple can have a comfortable lifestyle in Ecuador.

In 2022, the Annual Global Retirement Index found that retirees might get a good deal by moving to Mexico, Panama, or Costa Rica.

If you are a homeowner, you might also consider selling your property and putting the money you make into savings. 

You could then decide between renting, purchasing a smaller home, relocating overseas, or purchasing a recreational vehicle and touring the United States.

You may want to think about getting yourself one of those trendy tiny homes. 

The Drawbacks of Retiring Early

the drawbacks of retiring early

Since I like to cover all bases, I also want to discuss the possible drawbacks of early retirement. 

While retiring by 45 seems like a dream to most people, there are some reasons why you might want to pressure yourself that much. 

It’s possibly hazardous to your health. 

Retirement is associated with worsening mental and physical health, as well as an increase in cardiovascular disease and stroke, according to research published by the National Bureau of Economic Research.

While that’s a valid point in favor of putting off retirement, it’s not a given. 

The report authors found that seniors who kept themselves busy with hobbies and social activities were less likely to experience negative health outcomes.

It could lessen your Social Security income.

Retirement benefits are reduced if you begin receiving them at an earlier age.

Let’s say you were born in 1960 or later and begin receiving benefits at the earliest age of eligibility at 62. 

Your monthly payments will be reduced by 30% compared to if you wait until your full retirement age of 67. 

An 8% increase is added to your retirement income if you delay it by one year, from age 67 to age 70.

Once you reach age 70, the benefit of waiting diminishes significantly.

You’ll need to get good health insurance. 

Until you are 65 and eligible for Medicare, you will need to find and pay for your own health insurance on your own time unless your former employer provides it.

Expect sticker shock if you do since employers typically footed the bill for your health insurance in the past.

You may find that your rates have increased by a factor of two or three since leaving the workforce.

And unfortunately, health insurance premiums increase with age, reaching four figures per month for those over 55.

Retirement might not agree with you. 

Retirement can be a difficult adjustment for many people because it lacks the structure of working life. 

And sometimes, they even miss the boss and wish they could go back to work with them.

Re-entering the workforce after an absence, whether voluntary or involuntary, is not an easy task.

According to research published in 2012 by the United States Government Accountability Office, job seekers over the age of 55 require more time and resources than their greener counterparts.

Related Reading: How To Retire By 40 – Get To Know Here.

A Happy Medium 

how to retire by 45 - a happy medium

If you’re having trouble figuring out when to retire, you have a couple of options.

One is to arrange a reduced work schedule with your employer, making use of some of your financial independence.

This is called a “phased retirement.”

Or, if possible, try spending a part of the week working from home to see how you feel about being alone, having a less rigid schedule, and staying in.

You could also use a chunk of your accumulated vacation time to go to the places in the world you’ve always wanted to see.

You could then imagine living that way from 45 and see if you like it. 

Related Reading: Best Financial Literacy Books – Check Them Out Here.

Final Thoughts: Striking The Right Balance 

To avoid the potential downsides of both retiring too soon and waiting too long, there is a middle ground to strive for. 

With any strategy, you’ll need commitment and self-control to retire when you want to. 

You can achieve your goal of retiring early with some careful financial planning and adjustment to your current way of life.

If you follow the advice above, I’m sure you can pull it off. 

Disclosure: This article might contain affiliate links to the resources I refer to. It's at no cost to you, and it's how we pay the bills. Get more info here.

Brooks Conkle Banner Image
Brooks Conkle

Brooks is an entrepreneur, father, husband, & follower of the golden rule. He has over 15 years of experience as an entrepreneur after graduating with a Finance degree from Auburn University. Addicted to starting new business projects, he believes in creating multiple income streams and a life of flexibility. Business should work around your life, not the other way around. He creates content on his website, sharing his projects to help other hustlers in marketing, personal finance, and online business.