What You Can Do Now in Your 20s to Retire Early

Sometimes, when I’m watching a recently retired early 40-something couple agonize over which Italian villa to choose on a certain international house-hunting show, I sit and ponder, “What did these people do right to get them to this place in life so early?” Or, more pointedly, “What am I doing wrong?”

Everyone dreams of retiring one day, and most of us assume it will be in our twilight years. That doesn’t mean, however, that we don’t keep our fingers crossed in hopes of retiring early and doing fabulous things like cavorting the globe. If only making it happen was as easy as wishing it would, eh?

The reality is that retiring early, like most things worth doing, takes planning and—no surprise here—hard work. Since you’ll be out there hustlin’ either way, though, you may as well set yourself down the path to early retirement now.

Committing to smart planning and taking small steps in your 20s can help you reach retirement early. Here are some things you can do to move toward that milestone—including advice from people who’ve actually done it.

When you think of retirement planning, saving money is naturally one of the first things that comes to mind. But it isn’t merely a matter of dropping spare change into an empty pickle jar from time to time. If you want to get serious about early retirement, you must be strategic and intentional in your savings—which basically boils down to cutting back on big expenses.

In an interview with Business Insider, 28-year-old JP Livingston shared that her key to retiring with $2 million in the bank was simply cutting back on spending, with a specific emphasis on trimming her housing costs.

“You really should focus on the biggest needle-movers to your spending,” she said, explaining her personal approach, “You’ve just graduated college, you’re used to not-the-most-luxurious accommodations. That was my biggest thing. I know my contemporaries were probably spending $400 to $600 more on rent per month, so that’s $7,000 more a year.”

Such smart frugality literally paid off—in her twenties, Livingston had accrued a $2 million nest egg comprised of 40 percent from investing and 60 percent from pure savings.

While shaving chunks of money from big expenses like housing adds up fast, it doesn’t mean you should throw caution to the wind where all the little expenditures are concerned. After all, all those little things add up over time.

It’s no mystery that the less money you actually spend, the more money you can save. The way to spend less is to create a budget and stick to it. Track your spending so that you know where your money is going every month. You may be surprised just how much that latte habit could save you if you cut it out (or at least cut back).

When it comes to squirreling away money, it can be much easier said than done. Which is why putting your savings on “autopilot” is a solid idea—the money goes into a savings account or investment account automatically every month, and eventually you don’t even miss it. You grow accustomed to the transfer to the point that it doesn’t even faze you.

To give you added incentive to set up your savings autopilot, consider compound interest. If, right now in your 20s, you start putting around $250 per month into a tax-deferred retirement account that earns, on average, 8 percent per year, you could be looking at over a quarter of a million dollars by your forties.

Quick— close your eyes and picture a couple of millionaires. What do they do for a living? Odds are that your answer wasn’t “teach in the public school system.” Because, despite the fact that teachers deserve all the monies, being a teacher isn’t considered a particularly lucrative career.

However, that didn’t stop Joe and Ali Olson from retiring in their early 30s with a cool $1 million in the bank. So how did they do it? Easy—they just lived frugally and were content with less. Even as their bank account balance began to climb, the couple stayed the course, stashing away 75 percent of their income.

“For me, financial independence was really easy to get because we were happy just living in our fairly small place, and eating at home, and just being efficient with how we spent money,” Joe told Business Insider. “And so our high savings rate was just because we enjoyed simplicity. And we didn’t have to cut our budget. We didn’t have to deprive ourselves.”

In 2014, at only 28-years-old, computer engineer Kristy Shen retired with a tidy sum of $1 million in the bank. How did she do it? By not falling prey to FOMO.

“People are just making decisions, not because it’s a good investment, but because they’re getting emotionally pulled into saying, ‘Oh no! I’m going to miss out! What if other people are in the market and I’m not in the housing market?” Shen told host Farnoosh Torabi on the So Money podcast.

“It’s separation from FOMO, which is based on feelings rather than fact, and then stepping up and doing the math and realizing, ‘Wait, I don’t want to do what everyone else is doing. Maybe they’re not right. Just because everyone is doing it, it doesn’t mean it’s correct.”