How Can I Retire Early Without a High Salary?

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I retired in my mid-30s after working a 14-year career in information technology. My high-tech salary played a big part in my early retirement, but that doesn't mean earning a big income is required to quit work on your terms and retire early. 

While you may not be able to retire in your 30s with a lower salary, that doesn't mean you can't retire early. 

If you bail at 45 or 50, that's still early retirement. Heck, I believe quitting work at 55 counts as early retirement. And people are always leaving their careers early without earning huge paychecks. 

Let's take a look at how this works. 

How To Retire Early Without a High Salary

Retire early without the high salary
Image Credit: Johnstocker Production and Shutterstock.

Let's start at the beginning. Consider what that means to you before you even think about early retirement. Does it mean leaving the workforce entirely at 50? Or does it involve transitioning to part-time work or a less demanding job? Clarity about your goals will help shape your financial strategies. 

Sometimes, working backward is a great way to approach big goals like early retirement. 

But once you know what early retirement needs for you and your family, it's time to start putting the pieces into place. 

Embrace Frugality

Living below your means is the cornerstone to retire early, especially for those with a modest income. This doesn't mean you have to live a life of austerity. Instead, focus on cutting unnecessary expenses and finding joy in simpler, less costly pleasures. Every dollar saved is a step closer to your goal.

This also means understanding where your money is going and using a budget is a great way to do that.

Create a budget that prioritizes savings. Track your expenses meticulously and identify areas where you can cut back. Consider using budgeting apps or tools to make this process easier. Remember, a budget is not about restriction but about making your money work effectively towards your goals.

Don't like budgeting? Try the Pay Yourself First Method instead. 

Maximize Your Savings Rate

The key to retiring early isn't just how much you earn but how much you save. Aim to save a significant portion of your income – some early retirees manage to save as much as 50% or more. My wife and I saved 70% of our combined salaries leading up to our early retirement. While this may not be possible for everyone, it does show what's possible.

This might seem daunting, but it's achievable with the right lifestyle and budgeting habits. 

However, early retirement is more than just “saving” money. It requires owning assets through investments. 

Consider low-cost index funds, which provide a balance of risk and return. The power of compounding interest means your investments will grow over time, helping you build a substantial nest egg faster. Maximize contributions to tax-advantaged retirement accounts like 401(k)s and IRAs. These accounts offer tax benefits that can accelerate your savings growth. If your employer offers a 401(k) match, ensure you contribute enough to get the full match.

Real estate can also be a valuable part of your retire early strategy. Owning your home outright by the time you retire reduces living expenses significantly. Additionally, rental properties can provide a steady income stream in retirement.

Manage Debt

High-interest debt, like credit card debt, can be a major obstacle to early retirement. Focus on paying off such debts as quickly as possible. Once you're debt-free, redirect what you were paying in debt towards your savings and investments.

Nothing murders your chances of an early retirement quite like getting into debt.

Create Multiple Streams of Income

Don't rely solely on your day job. Consider ways to generate additional income, like side hustles or passive income streams. This could include freelance work, an online business, or investment income.

Plan for Healthcare

Healthcare costs can be a significant burden in retirement, especially if you retire before being eligible for Medicare. Research your options for health insurance and factor these costs into your retirement savings plan.

In addition, your health is your wealth, especially as you age. Before you retire early, invest in your physical and mental health by maintaining a healthy lifestyle. This improves your quality of life and can reduce healthcare costs in the long run.

Be Flexible

Your path to early retirement might require adjustments along the way. Be prepared to adapt your lifestyle, spending, and saving habits as needed. Flexibility also means being open to working longer if required or adjusting your retirement age based on your financial situation.

 Being flexible often stems from improving your financial knowledge. Financial literacy is crucial in the journey to early retirement. Educate yourself about personal finance, investment strategies, and retirement planning. The more you know, the better equipped you'll be to make intelligent financial decisions.

Consider Geographic Arbitrage

Living in a high-cost area can make saving for retirement more challenging. Consider relocating to a lower-cost area where your dollar stretches further. This can mean moving to a different city or even a different country.

Wherever you live, be sure you share a community with others. 

Surround yourself with people who share your goals and values. A supportive community can provide encouragement, advice, and inspiration. Consider joining online forums or local groups focused on early retirement and financial independence.

Maintain a Long-Term Perspective

Early retirement requires a long-term perspective. Stay focused on your goals, even when faced with setbacks or temptations to stray from your plan. Remember, your sacrifices today are for a more secure and enjoyable future.

Create a Retirement Budget

Plan your retirement budget. Estimate your living expenses in retirement and ensure your savings can cover these costs. Consider creating a withdrawal strategy that minimizes tax liabilities and maximizes the longevity of your savings. 

Hire a financial adviser to help you with this process. 

Retiring early without a high salary is challenging but achievable. It requires discipline, planning, and a willingness to make sacrifices. By embracing frugality, maximizing savings, investing wisely, and planning thoroughly, you can realize your dream of early retirement. Remember, the journey is as important as the destination, so find joy and celebrate your progress.