How to Retire Early With Excellent Credit and No Debt

Nicolas Cesare  | 

Many people started to look forward to retirement their very first day out of school. In the classical American lexicon, retirement is the well-deserved “me time” in a person’s life after decades of hard work. We all hope to retire and pursue and personal goals and dreams, whatever they may be.

However, retirement has become more elusive in recent years. Harsh economic conditions and unclear expectations abouts saving for retirement have caused concern for many in the American workforce. For some, the recent hullabaloo has been a wakeup call that it’s time to start saving, no matter how late you start. However, a select few individuals are ready to make the push to secure enough wealth for an early retirement.

Early retirement is the ultimate way to exit the workforce. Those who are skilled and disciplined enough to pull it off can enjoy rest and relaxation during their golden years. Are you one of those people? Let’s find out about the makings of retiring early.

Paying Your Debt

Ongoing debt is undoubtedly one of the biggest hurdles for anyone looking to retire. As long as you have outstanding debt, you need a job to make money and pay it off. Let me be clear about this: it is impossible to retire early if you are still in debt. If you’re at the age where early retirement is starting to seem like an option, the sort of debts that are likely affecting you are your home mortgage and possibly leftover student loan debt. Paying these off should be your first priority, in case you haven’t already.

Settling Your Credit

Once your debt is cleared up, the next thing to check is your credit score. If you’ve payed off past debts in a timely manner, then your credit score is probably already great. However, if you’ve had a rocky financial past or even been the victim of identity theft, then your credit score is probably not what it could be.

Credit score matters for retirement because economies are fickle things. Although you may have a solid plan at the time of your early retirement, changing economic winds could send you back to the workforce. A solid credit score could be critical if you need to take out a second mortgage in order to get back on your feet after an economic catastrophe.

If you don’t already have a great credit score, repairing your credit should be one of the first things on your checklist for early retirement.

Adopting a Minimalist Lifestyle

Like almost all financial activity, early retirement mainly revolves around two factors: spending and income. We’ll touch on the latter in a minute, but let’s talk about spending right now.

If you’re retiring early, then you’re probably going to have to spread out your retirement savings over more years than someone who retired at the traditional age. A person who retires at 65 might have 20 or 30 years of spending ahead of them, but someone who retires at around 50 could have 40 years or more of retirement to plan for. This means that simple cuts to your routine spending can go a long way in your retirement. Let’s do some math on that:

  • Suppose you can find a way to spend $20 on your average week. This could mean that you eat out less often, spend less on luxuries, or move into a more modest home.
  • That’s $1,040 that you’re saving every year.
  • If you retire early and expect retirement to last 40 years, then that’s $41,600 that you don’t need to have in your retirement savings.

That was just one minor weekly savings. Imagine what a more drastic change could do. Changing your lifestyle is hard, but it is definitely worth it for anyone considering early retirement. An additional upshot to having a minimalist lifestyle is that you can repair your credit quickly by pouring more of your income into paying off debt.

Securing Enough Income

When it’s all said and done, it’s impossible to retire early if you can’t get together enough money to pay for it. Whatever your calculated retirement savings is, the only way to reach that number is through income.

If you’re in luck, then you’re probably in one of the highest paying careers around. The situation may seem dire if you don’t see your career on that list, but there is some luck for those of us who aren’t brain surgeons. You see, the income game is not a “you either have it or you don’t” scenario.

If your career isn’t shaking out in such a way for you to retire early, freelancing is always an option. Freelancers can apply their work skills or even their hobbies to pull in additional income, making the dream of early retirement a little clearer.

Early retirement doesn’t have to be a pie in the sky. With smart savings, good credit, and reliable income, it’s possible to create a plan that lets you retire early and enjoy the world on your own time.

Need more information on what goes into the calculations of a credit score and how to keep a high score? Visit our credit score resource center for more tips and tricks.

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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.

This post was updated December 18, 2017. It was originally published July 31, 2017.