6 Tips and Investing Strategies to Retire Early (and Without Penalty)

Ready to quit work or begin a financially independent lifestyle? Laura covers six tips and strategies to help you amass enough money to retire early and on your terms.

Laura Adams, MBA
10-minute read
Episode #561

My favorite way to invest is to put it on autopilot so I don’t have to think about it. With any type of investment account, you can set up automatic contributions on a set schedule, such as daily or monthly.

Increase your savings rate until it hurts and then reach a little higher. If you’re investing 5% of your income, push it to 10% by the end of the year or increase it by 1% every month. Some investing platforms can even automate your savings increases.

Try cutting back on the largest expenses in your budget first, such as housing and food. It’s also smart to reduce unnecessary small expenses, but slashing big costs are bigger wins that can intensify your investing results.

Also, supplement your savings with additional income when you earn a raise, bonus, or receive a cash gift. You can create more income by starting a side business or getting a second job to consistently boost your retirement account.

Retiring early is an aggressive goal that you’ll need to attack with gusto to pull off. It won’t be easy—but it’s possible.

See also: 14 Tips to Stop Impulse Buying and Save Money

3. Watch your investment fees.

Fees are important because they impact your retirement account’s investment growth and how quickly you can retire. Various fees get deducted right out of your account, which reduces the amount of money that can compound.

While no one likes the idea of paying fees, they’re largely unavoidable. Companies that manage investments and administer accounts have lots of expenses to cover. For example, if you participate in a company 401(k), you pay a fee to the investment firm that manages the plan, and you pay fees on each of the investments you choose inside the plan.

Over time even a small difference in fees, such as paying 1% instead of 0.25%, can really add up. Your job is to choose investments that leave as much of your earnings as possible in the account so you can hit your early retirement goal.

See also: How to Tell If You’re Wasting Money on Hidden Financial Fees

4. Minimize taxes.

As you know, taxes take a big bite out of your income. To keep more money and protect your future investment earnings, do everything legally possible to cut your tax liability.

Tax-advantaged accounts, such as workplace retirement plans, IRAs, and health savings accounts, were designed to help you save and pay less tax at the same time.

With a traditional retirement account (such as a traditional 401(k) or a traditional IRA), contributions are made on a pre-tax basis, and then your withdrawals of contributions and earnings are taxed based on your ordinary income tax rate.

With a Roth account (such as a Roth 401(k) or a Roth IRA), contributions are taxed upfront, but your withdrawals of contributions and earnings are generally tax-free.

The more you defer or eliminate taxes the more you can invest now to reach an early retirement goal. Additionally, having tax-free accounts to withdraw from in retirement leaves you more money to spend.

The allowable contribution limits for tax-advantaged accounts increase with the cost of living index, so check each year for the maximum amount, and plan to hit it. If you max out these accounts first, you’ll get the biggest bang for your buck.

Also, make sure to claim as many legitimate tax deductions and credits as possible each year. These might include deductions for:

  • home mortgage interest
  • student loan interest
  • state and local taxes
  • charitable contributions
  • medical expenses
  • child tax credits

Keep detailed records so you know when you should itemize deductions to save money, instead of claiming the standard deduction.

Working with a qualified tax accountant to minimize your tax liability can really pay off. If you’re not sure what expenses are tax-related, or you have a complex situation because you own a business or rental property, be sure to consult with a tax pro.

See also: 7 Financial Accounts You Need for a Richer Life


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.