If you want to retire at a reasonable age and not have to work until you have reached the age where you can qualify for Social Security, you need to have a solid plan. If you want to retire early, you need to start planning how you spend your money. Retiring early requires long-term planning.

Start Living on a Budget Now

First, you need to start living on a budget now. Early retirement is not going to work if you wait to start living on a budget. You need to learn how to live on a budget now. One of the primary principles behind early retirement is not just earning enough money to live on for the rest of your life, but also being able to budget that money carefully, which is why it is important for you to learn how to live on a budget now.

Learning how to live on a budget now will allow you to determine what type of annual income you can live on when you retire. Keep in mind that you may actually need more money during your early retirement years as you pay for health care costs out of pocket.

Consider Medical Costs

Second, you need to seriously consider how much money from your annual budget you are going to need to go toward medical costs. It is smart to maintain health insurance when you retire early. If you retire early, you will not qualify for Medicare, and you will not be getting insurance through your job anymore, so you need to make sure that you budget for your annual premium and deductible until you qualify for Medicare. You also need to budget for all the out-of-pocket medical costs you will have to pay.

It is a smart idea to put money into a Health Savings Account (HSA), as you can allow that money to grow tax-free over time and can use it for medical costs when you retire early.

Start Building Your Retirement Portfolio

Third, you need to start building your retirement portfolio. Use the annual budget income you need to live on to figure out how much money you need to retire on. Usually, when people retire, they try to save money to live on for at least thirty years, assuming one retires at 60 or 65.

You need to add on the additional years between regular retirement age and when you retire to figure out what size of portfolio you need. For example, if you plan to retire at 45, you need to save money to live on for 50–55 years, and you need to use your annual budget to figure out how large of a portfolio you need to build.

A financial advisor can help you build your portfolio and help you figure out where to invest and how much to invest for you to reach your early retirement years.

Early retirement is possible if you learn to live on a budget, plan for your future medical needs, and start building a retirement portfolio that will give you the money you need to live on. For more early retirement strategies, speak to a professional.