Early Retirement on a Middle-Class Salary: Strategies for Secure Financial Independence

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For middle-class folks who plan to retire earlier than the average age of 67, you need to be strategically prepared to afford retirement because you’ll be paying for a longer stretch of years than the average retiree.

It’s possible to achieve financial independence that enables you to retire early on a middle-class salary, even if you fall on the lower middle-class end, around $55,001, and not just on the upper-middle-class end of $149,131. You just can’t leave that to chance. Starting your retirement savings earlier will make that goal more likely. 

Financial experts explain how to make an early retirement possible without sacrificing your financial goals.

Save Aggressively

To retire early on a middle-class salary, you need to save aggressively, preferably in tax-advantaged retirement accounts, like 401(k) plans, Roth IRAs and even HSAs (if applicable), according to Ashley Rittershaus, a CFP and founder of Curious Crow Financial Planning.

To do this, she said, you must “identify your most important values, spend money on what aligns with those values, and eliminate spending in any areas that do not.” 

Bridge the Gap

For early retirement, you’ll also need a plan for bridging the gap to the traditional retirement age, including paying for health insurance and figuring out a plan to access funds to support your lifestyle before the traditional retirement age, Rittershaus said. 

“This might include building up assets in savings and taxable accounts, planning to withdraw Roth IRA contributions, completing Roth conversion ladders, or could even include planning to pay early withdrawal penalties on retirement accounts.”

A financial advisor can help you decide on the best approach.

Invest to Your Time Horizon

Additionally, how you invest your portfolio will look different than someone who is retiring later, Rittershaus said. 

“Your portfolio should be invested based on your time horizon, risk tolerance, and goals. You will need to ensure your money is invested appropriately so it lasts your whole retirement… and allows you to support your lifestyle now,” she said. 

You’ll also want to hold onto cash that you’ll need before you retire, to ensure it doesn’t lose value in the stock market, so keeping an emergency fund in a high-yield savings account is a good idea, too.

Test Out Retirement 

Another strategy Rittershaus recommended, if possible, is to “test out retirement before taking the plunge, to make sure the amount you’ve budgeted for retirement will be sufficient for your desired lifestyle.”

She suggested taking an extended period of time off from work and living how you expect to live in retirement. 

“Transfer the amount you’ve budgeted to live on in retirement monthly into your checking account and see if that amount feels comfortable to you. You may discover important insights that could alter your plans for retirement.”

Put a Higher Amount Toward Retirement

To reach this early retirement goal the middle class needs to “[a]im for [putting] 15%-20% of your income toward retirement. Think of it as paying your future self first,” according to True Tamplin, CFP, and founder of Finance Strategists.

Brandon Galici, CFP with Galici Financial, suggested that to be able to pull that much or more (he recommended 25%) of your income toward retirement, you’ll need to make sure you’re putting less of your income toward debts and unnecessary expenditures.

“I use burn rate — annual spending not including debt payments [divided by] annual gross income — to determine if your spending is healthy. If it’s too high, then it’s going to be challenging to obtain the savings rate that you need to retire early,” Galici said. 

For context, a burn rate of around 50% would be normal for a middle-class income, he explained.

Invest Wisely

Tamplin also said it’s a good idea to invest in a mix of stocks, bonds and real estate — if comfortable — for potential long-term growth, he said. 

“Remember, higher returns often come with higher risks, so find a balance that fits your comfort zone.”

Free Up More Cash

To free up yet more cash to save, Tamplin suggested you track your expenses and identify areas to trim.

“Maybe it’s that daily latte or unused gym membership. Every little bit saved adds up.”

You might also consider downsizing your living, he said.

“Think smaller house, cheaper rent, or even cohabitating. Lower housing costs free up more cash for your future self.”

Also, try to DIY as many things as you can.

“Learn basic home repairs, cook at home, and find free entertainment,” he said. “Every penny saved is a penny toward early retirement.”

How Do You Know If You Can Retire Early?

You can save all you want, but how do you know if you can retire early?

Galici said that rather than focusing on a specific number, consider your “total term ratio,” which is your net worth divided by your annual spending. 

“While each situation is unique, having a total term of around 30 is typically sufficient for you to retire,” he said.

For example, if you want to retire at age 62, spend $70,000 per year, and have a $2 million net worth, your total term would be 28.5, he said.

“This indicates that you have about 28 years’ worth of spending with your current net worth. This is something that you’ll want to monitor throughout your retirement to give you the security you desire.”

While everyone’s strategy for early retirement will look different, on a middle-class salary, being targeted and intentional will make it more likely.

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