Early Retirement Strategies

And that assumes you have time to plan ahead. If you lose your job in your 50s and are thrust into early retirement before you’ve had time to build up other savings, it’s important to understand special rules that let you tap your 401(k) before age 59 1/2 without an early-withdrawal penalty.

Here’s what you can do to prepare for early retirement, as well as a rundown of your options if you suddenly find yourself out of work.

Getting your ducks in a row

Figuring out whether you’ve saved enough to retire early is the first step. Then you need to make sure you have enough money that’s accessible before age 59 1/2.

Fritz Gilbert spent more than 30 years working in the aluminum business, rising from sales to plant manager to global management, and he saved in his employer’s 401(k) the entire time. He and his wife, Jackie, saved “diligently,” Fritz says, “and we avoided lifestyle inflation by automatically increasing our savings rate with every pay raise.” Whenever he received a raise, he added two-thirds of it to his 401(k) before he had a chance to spend the money on anything else.

When he turned 50, he started using retirement calculators to estimate when he could stop working. He had saved enough money to retire at 54, but it was all in his 401(k), and he’d have to pay a 10% early-withdrawal penalty to get it out. So instead of contributing the maximum to his 401(k) for the last few years before retirement, he reduced his contributions to 6% of his income, which enabled him to get the full employer match, and used the extra money to build up a taxable account he could tap at any age. “We recognized that we had to beef up the after-tax savings to bridge to 59 1/2,” he says.

He also adjusted his target retirement date from 54 to 55 so he’d have one more year of peak earnings, which would increase his safe withdrawal rate. “I had an uncle who told me 10 years before I retired that once you retire, you’ll never make the money you’re making in your peak earning years,” he says. And leaving his job at 55 also made him eligible to tap his employer’s 401(k) without penalty before age 59 1/2.

Now 61 years old, he’s happy with the results. “Generally, on the financial side, we’re very pleased with the way we planned it,” Fritz says. The biggest surprise was on the psychological side — “your loss of identity, your loss of purpose,” he says. Documenting his retirement progress on his blog, “The Retirement Manifesto,” has helped. Meanwhile, Jackie started a charity, Freedom for Fido, which builds fences for low-income dog owners so they don’t have to tie up their dogs on chains. “That’s turned into a huge part of our retirement,” he says.

The following steps can help you prepare to fund an early retirement:

Build up savings in accessible accounts.

The Gilberts added to their savings when they sold their 4,000-square-foot home in suburban Atlanta three years before Fritz retired and moved to a cabin in less-expensive Blue Ridge, Georgia. They reduced their expenses by using some of the home-sale profits to pay off the mortgage on the cabin, which they had purchased several years earlier and had been renting out occasionally. They added some of the proceeds from the sale to the taxable account they could tap penalty-free before age 59 1/2. Moving to an area with a lower cost of living also helps them keep their regular expenses low.

Consider other flexible sources of savings you can tap early, too.

For example, you can withdraw Roth IRA contributions at any age without taxes or penalties, and the first withdrawals from a Roth IRA are considered to be from contributions. Investment earnings withdrawn from a Roth before age 59 1/2 are generally taxable and subject to a 10% early-withdrawal penalty, but they are penalty-free and tax-free after that age, as long as you’ve had a Roth for at least five years.

You can contribute up to $7,000 to a Roth IRA for 2025 ($8,000 if you’re 50 or older) if your modified adjusted gross income is less than $150,000 for those with a tax-filing status of single or $236,000 for joint filers. The contribution phases out entirely at $165,000 for single filers and $246,000 for joint filers. You can’t contribute more than your earned income for the year, but even part-time or consulting work can count.

If you have an eligible health insurance policy with a deductible of at least $1,650 for single coverage or $3,300 for family coverage in 2025, you can contribute to a health savings account, which provides tax-free money for qualifying medical expenses, such as deductibles, co-payments and other out-of-pocket costs. You can withdraw money from the HSA without taxes or penalties at any time to reimburse yourself for eligible expenses — even years after you incur them — as long as you keep the receipts.

Start filling the buckets.

After Fritz Gilbert got a handle on his yearly retirement expenses, he divided his savings into three “buckets” based on his time frame.

He keeps enough to cover at least three years’ worth of expenses in the first bucket, which is in cash in his taxable account. That way, he doesn’t need to sell stocks for a loss in a market downturn to pay the bills. He filled that bucket with the money he needed from ages 55 to 59 1/2 before he retired.

The second bucket, which is for money Fritz will need in five to eight years, is invested primarily in bonds. The third bucket is invested mostly in stocks to provide long term growth to keep up with inflation. He reviews the buckets every quarter and refills them several times a year.

Continue to increase income and reduce expenses.

The greater your income and the smaller your expenses, the less money you’ll have to withdraw from your savings. Doing any work after retiring early, even for just a fraction of your previous income, can make a big difference in your long-term financial security.

Mark Whitaker, a certified financial planner and founder of Retirement Advice, in Provo, Utah, specializes in helping early retirees. He says the majority of his clients end up working again after a year or two of early retirement — but with much more flexibility than they had with their full-time job. Some engineers return as part-time contractors in their former field, he says, and retired nurses pick up a few shifts when they have time. Other clients have started a business or work at a fish and game store. It’s less about money, he says, and more about their social life and sense of self-worth. “As humans, we like to work — but on our terms,” he says.

Brian Lewis, one of Whitaker’s clients, originally planned to retire in his mid 50s, after a 21-year career as an aircrew member in the Air Force working primarily on airborne communications and 12 years at defense contractor Northrop Grumman. But his experience in information-technology project and program management was in high demand, and he ended up returning to work to help with short-term projects for several major corporations, including Lowe’s, L.L.Bean and Bank of America. Because he had Tricare health coverage as a military retiree, he could afford to take assignments that didn’t offer health benefits. But his earnings, although smaller than his previous income, helped increase his retirement savings.

Now age 64, he has been totally retired for about a year, and he uses withdrawals from his cash account, as well as his Air Force retirement pay, to cover monthly expenses. He’s not planning on taking on any new jobs, unless they’re short-term projects he can do remotely. He and his wife, Brandelyne, enjoy traveling across the country in their Airstream Trade Wind trailer, volunteering as weather spotters for the National Weather Service. Brandelyne works remotely as an executive administrative assistant, connecting to work via satellite internet service Starlink when they’re on the road.

The Lewises also saved money by moving to a less-expensive area after retirement. They compared state income tax rates, property taxes, housing costs and cost of living before deciding to settle in a rural area in northwest Tennessee, about 10 miles from the Kentucky border.

Kimberly Lankford is a contributing writer at Kiplinger Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.

©2025 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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