How to retire early: Your guide to early retirement

Early retirement means leaving full-time work before the traditional retirement age of 65, often in your 40s, 50s or early 60s. To make it work, you need enough savings and income to cover living expenses before Social Security starts at 62 and Medicare begins at 65. You also need a tax-aware withdrawal strategy and a way to pay for healthcare in between.

That's the short answer.

Early retirement isn't only about your age or your account balance. It's about readiness on every front. You need the financial cushion, yes. But you also need a plan for how you'll spend your time, handle surprise expenses and stay fulfilled once the paychecks stop.

"I've seen people retire as early as age 40," says Ryan Peters, Senior Wealth Planner with U.S. Bank Private Wealth Management. "Ultimately, it depends on their lifestyle goals, financial readiness and whether they have a meaningful plan for what comes next."

What does early retirement mean?

Early retirement means leaving full-time work before age 65. It doesn’t always mean stopping work entirely. Some people shift to part-time work, consulting or a second career. What matters most is having the financial flexibility to choose and a clear plan for what comes next.

How much money do I need to retire early?

The amount you need depends on how much you plan to spend each year and how long your retirement may last. A common starting point is the 4% rule, which involves taking your planned annual spending and dividing it by 4% (0.04).

Retiring early can stretch that number further. A traditional retirement might last 20 to 25 years. Retire at 55 and you could need income for 35 years or more. Longer timelines can mean more exposure to inflation, market swings and unexpected costs. Your appropriate withdrawal rate may vary depending on your retirement timeline, spending needs and investment strategy.

Peters offers a practical safeguard: overestimate.

"Being conservative and overestimating future retirement expenses can help," he says, "because many times people underestimate how much they're spending annually, whether it's their monthly expenditures or large purchases. Make sure you're accounting for those future goals and expenditures as well."

According to the U.S. Bank 2025 Wealth Report, 61% of Americans expect to be retired for more than 15 years, yet fewer than 6 in 10 feel confident their savings will last. A larger buffer can help you stay flexible if life changes.

What are the biggest benefits of retiring early?

Retiring early can give you more time for the things that matter most to you, whether that's travel, family, creative pursuits, or simply living on your own terms.

• More time and flexibility: You can pursue passions, travel, volunteer, or live life on your own schedule.
• Potential health benefits: Reduced workplace stress and more time for exercise and self-care can support your long-term wellbeing.
• Greater sense of purpose: With intention and planning, early retirement can open space for meaningful work, community involvement, or a second act of your choosing.
• More time with family: Retiring early can give you years back with people who matter most, especially during milestones you might otherwise miss.
• Tax planning opportunities: Lower-income years in early retirement may allow for Roth conversions, strategic capital gains harvesting, and a more efficient withdrawal strategy.

What are the biggest risks of retiring early?

Early retirement can bring more freedom, but it can also introduce risks that a longer working life may absorb. Planning for these upfront can help you stay on course.

• Outliving your savings: A longer retirement means your portfolio may need to last longer.
• Healthcare costs: The gap before Medicare at 65 can be a major expense.
• Market downturns early in retirement: Poor returns early on can reduce how long your savings last (known as sequence of returns risk).
• Taxes and withdrawal missteps: Drawing from the wrong accounts at the wrong time can increase taxes.
• Unexpected expenses: Home repairs, health events or family needs can disrupt even a strong strategy.
• Spending more than expected: Lifestyle costs in retirement often surprise people.

Which accounts help fund early retirement?

Early retirement often means drawing from a mix of account types. Some accounts offer tax advantages, while others provide flexibility. Using a blend can help you access money when you need it and manage taxes over time.

Withdraw from a traditional 401(k) or IRA before age 59½ and you'll typically owe an early withdrawal penalty plus ordinary income taxes. That can keep some retirement funds out of reach for several years.

This is where a taxable investment account can help. Money in a standard brokerage account has no age restriction on withdrawals, giving you flexibility to fund those early retirement years.

"If you're younger than 59½, for example, contributions to a taxable investment account would provide flexibility to your financial picture and be very beneficial when retiring early," Peters notes.

A few ways to bridge the gap:

• Taxable brokerage accounts you can draw from at any age.
• Roth IRA contributions, which you can often withdraw tax- and penalty-free (rules apply).
• Rule of 55 may let you withdraw from your current 401(k) penalty-free if you leave your job in the year you turn 55 (ordinary income tax and plan rules apply).
• Catch-up contributions if you're age 50 or older, allowing you to save more in eligible retirement accounts. Individuals ages 60 through 63 may qualify to contribute even more.

Example: How early retirement income may work

Your withdrawal strategy often shifts across life stages. Here's how two scenarios might look in practice.

Scenario 1: Retire at 55
You retire with $1.6 million and plan to spend $64,000 a year.

• Ages 55 to 59½: Draw from taxable brokerage accounts and Roth contributions.
• Ages 59½ to 62: Add penalty-free 401(k) and IRA withdrawals.
• Age 62 onward: Social Security may supplement your withdrawals and ease pressure on your portfolio.

Scenario 2: Retire at 60
You retire with $1.2 million and plan to spend $55,000 a year.

• Ages 60 to 62: Bridge primarily with taxable accounts and Roth contributions.
• Age 62 onward: Social Security may become available.
• Age 65: Medicare begins, which may help reduce healthcare costs.

In both cases, sequencing your income sources can help you avoid drawing down retirement accounts too quickly. 

How do you pay for healthcare before Medicare?

If you retire before 65, you can use a Marketplace plan, COBRA, a spouse’s plan, or an HSA to pay for healthcare. Without a plan, this gap can expose you to high premiums and out-of-pocket costs.

• Marketplace plans through Healthcare.gov. Depending on your income, you may qualify for premium subsidies.
• COBRA, which extends your employer plan temporarily, usually up to 18 months.
• A spouse's plan, if your partner still works.
• A health savings account (HSA), if you have a high-deductible plan. HSA funds grow tax-free and can cover qualified medical costs in retirement. In general, HSA funds can’t be used to pay most health insurance premiums, although certain exceptions apply, including COBRA coverage and some Medicare-related premiums.

Costs can vary widely, so it’s important to build a realistic estimate into your strategy. 

What are the tax implications of early retirement?

Taxes don’t stop when your paycheck does. The accounts you draw from, and when, can affect how much you owe. Coordinating withdrawals across account types may help reduce taxes over time.

• Taxable accounts: You pay capital gains tax on investment growth, often at lower rates than ordinary income, depending on your situation.
• Traditional 401(k) and IRA: Withdrawals typically count as ordinary income.
• Roth accounts: Qualified withdrawals are generally tax-free.

Lower-income years early in retirement may create planning opportunities. For example, you might consider a Roth conversion or capital gains planning. A coordinated withdrawal strategy can help you keep more of what you’ve saved. However, as you approach Medicare eligibility, it's also important to consider how income may affect Medicare premium surcharges.

"Plan for how taxes will affect your retirement finances," Peters advises. 

What is the FIRE movement?

FIRE stands for Financial Independence, Retire Early. It focuses on saving aggressively, often 50% to 70% of income, to reach financial independence sooner. While some followers aim to stop working early, others use FIRE principles to create more flexibility and choice in their careers.

The core principle is simple: build a portfolio that can support your spending over a long period of time. Most FIRE plans lean on the 4% rule as a starting point.

You don't need to embrace an extreme savings rate to borrow FIRE's best ideas. Living below your means, controlling spending and investing consistently are strategies that benefit any early retirement plan.

Are you emotionally ready to retire early?

Early retirement changes more than your finances. It also changes how you spend your time and how you define purpose. Planning for that transition can help you feel more prepared.

“I've seen some early retirees struggle with the transition because their careers provided structure, identity and purpose,” Peters explains. “Without a plan for how they'll spend their time, retirement can feel less fulfilling than they expected.”   

Planning what you're retiring to, not just what you're retiring from, is just as important as your savings target. Think through how you'll stay active, engaged and connected.

“I believe it’s never too early to begin planning for retirement,” he explains. “If you start budgeting now, you can set a trend for the future and better understand where you are and where you want to go.” 

8 steps to prepare for an early retirement

If you’re working toward early retirement, these steps can help you build a strategy that supports both your finances and your long-term goals.

• Estimate your target savings. Know your number, build toward it with intention and revisit it as your life changes.
• Max out retirement accounts. Take advantage of annual limits and catch-up contributions if you're 50 or older.
• Avoid early withdrawals. Penalties and lost growth both chip away at your nest egg.
• Control your spending. "If you want to continue living the same lifestyle, make sure you're budgeting properly and keeping your spending in check," Peters says.
• Reduce debt. "If you're retiring early, debt is not your friend," Peters warns. "In fact, it can drain your accounts over time."
• Plan for taxes. Build a withdrawal strategy that coordinates account types and minimizes your lifetime tax bill.
• Secure healthcare coverage. Bridge the gap to Medicare with a marketplace plan, COBRA or an HSA, if eligible.
• Build a diversified, inflation-protected portfolio. This can help manage sequence of returns risk and inflation over a longer retirement.

Should you work with a financial professional to retire early?

Even a strong strategy needs flexibility. Life events, market changes and unexpected costs can affect your timeline in ways you can’t fully predict.

Stress testing can help. A financial professional can run what-if scenarios against your strategy, pressure-testing it for inflation, weak market returns and surprise expenses. This can help you know where your plan holds and where it needs reinforcing.

The research backs this up: people who work with a financial professional often feel more confident about retirement outcomes. Among those with an advisor, 78% say they feel confident they'll have enough savings to live comfortably in retirement, compared to 48% of those without one.

"The biggest return you can expect from good planning is peace of mind, and that's invaluable," Peters says. "Implementing your planning strategies can feel like a weight has been lifted off of your shoulders, knowing that you're well prepared no matter what the future holds."

Frequently asked questions

Can I retire at 55?

Yes. Retiring at 55 means planning for a retirement that could last 35 years or more. You'll likely need a bridge strategy for the years before Social Security at 62 and Medicare at 65, plus a plan for healthcare costs and a withdrawal sequence that helps you  avoid unnecessary penalties.

How much should I save to retire early?

There’s no single number. Retiring early often means saving more aggressively than a traditional timeline. Increasing your savings rate over time, trimming expenses and investing consistently can help.

What is the Rule of 55?

The Rule of 55 may allow you to withdraw money from a current employer’s 401(k) without the 10% early withdrawal penalty if you leave your job in the year you turn 55 or later. Ordinary income taxes still apply. Not all plans support this provision, so confirm eligibility with your plan administrator.

How does early retirement affect my Social Security benefits?

You can claim Social Security as early as age 62, but doing so typically reduces your monthly benefit. Waiting until full retirement age or longer can increase your monthly amount. Your claiming strategy should reflect your income needs, health outlook and broader financial picture.

How young can you retire?

There’s no minimum age to retire young. Some people leave their careers in their 40s. Retiring young means a high savings rate, low fixed expenses, and a portfolio large enough to cover spending during retirement. Many who retire young follow the FIRE principles, save aggressively, and build taxable accounts they can use before retirement age.

Are you on pace to retire on your terms? Track your progress with our retirement calculator and connect with a U.S. Bank wealth specialist for a no-obligation conversation about your retirement goals.