How to Retire at 50 (2024)

By Jason R. Friday, CFP®, MPAS®, RICP®, CMFC Head of Financial Planning | Citizens

As Head of Financial Planning, Jason is a strategic partner who is responsible for developing the strategy, managing the planner teams, and coordinating personal financial planning activities across Citizens Wealth Management to help clients navigate and grow in changing circ*mstances.

Today, the average American retires at around age 63. But what if you're thinking about how to retire at 50 instead?

For some people, this type of early retirement is their top financial goal. Their dream is to work hard and sacrifice throughout their early years so they can live the rest of their lives on their own terms.

While it's possible to push your retirement date up by 10-plus years, it's bound to take more than living below your means throughout your 20s, 30s, and 40s. You'll also have to maximize your biggest accumulation years and make savvy investment decisions along the way.

There are lots of factors at play when trying to retire by 50. Here are eight considerations to get you started.

Everyone has different expectations for retirement. That's why there's no universal answer to the question of how much you need to retire.

One guideline is to expect to need between 60% and 100% of your annual pre-retirement income for every year of retirement. Where you fall in this spectrum depends on the type of retirement you envision. For example, if you plan on traveling around the world, you could easily spend 100% of your former annual income. But if you're envisioning a modest retirement lifestyle, you may only need 60% of your previous salary.

To get a ballpark figure of how much you'll need, start by estimating your expected income by age 50. Depending on the type of retirement you want, multiply that salary number by anywhere between 0.6 (60%) and 1.0 (100%) to get an idea of how much you'll need to finance each year of your retirement.

For a retirement lifestyle similar to your current lifestyle:

• Salary at 50 years old x 1.0 (100%) = Annual retirement allowance

For a more modest retirement lifestyle:

• Salary at 50 years old x 0.6 (60%) = Annual retirement allowance

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According to the Centers for Disease Control and Prevention, the average life expectancy in the U.S. is 76.4 years. It's an important statistic to know because an effective retirement plan factors in how many years after you stop working that your money needs to last. If you plan on retiring at 50, you'll likely need to save more money than those who are planning to retire another decade or so later.

You'll also want to factor in the effects of inflation — as the cost of living goes up, the dollar you saved in the past may not stretch as far as you hoped it would in the future. In part, this can be accounted for by how well your retirement accounts perform; ideally, they'll earn at least as much as inflation rises. But to ensure you have enough saved, you may want to take your retirement accumulation estimate and add another 2% to 5% — or possibly more considering inflation recently peaked in 2022 at around 9%.

Retiring at 50 isn't easy, mainly because you'll have fewer years to accumulate assets. How you can make up for that loss of time varies.

If you're fortunate enough to draw a large salary, you could afford to invest more modestly and still have enough wealth to retire by 50. If you don't have a high salary, you could use a more aggressive portfolio to help get you there. Just remember that aggressive portfolios are made up largely of stocks, which can be volatile.

Either way, success is dependent on a solid plan and your investment strategy. Investment-wise, you could work with a professional wealth advisor to help you create a plan. According to a recent study, 88% of people who work with a financial advisor have a positive view of the experience. They believe their financial advisors are helping them reach their financial goals so they can be prepared for retirement. Keep in mind that financial advisors generally charge fees or commissions, but if your plan of retiring by 50 is heavily dependent on a savvy investment strategy, then it could be money well spent.

Tax-advantaged retirement accounts like 401(k)s and IRAs have annual contribution limits. For people younger than 50, the 2024 limit for 401(k) contributions is $23,000 while IRAs are limited to $7,000. People age 50 or older can contribute $8,000 to IRAs. By maxing out one or all of your retirement accounts, you'll have more tax-advantaged retirement money that can compound over the years.

However, finding $23,000 to contribute to your 401(k) every year takes more than cutting back on discretionary spending. That's especially true when you're in your 20s and still climbing the professional ladder. In your 20s, consider living as far below your means as you can by holding off on lavish vacations and driving your used car as long as it'll run or going without one if possible. Direct all of those extra funds toward the future. The sooner you can max out your retirement accounts, the better. Some people find that automatically contributing to your 401(k) and IRA each pay period can help increase your savings over time.

Another tactic you may want to take advantage of if you’re in your 20s or 30s and in good health is putting what you can afford to spare into a health savings account (HSA). HSAs are typically touted as a tax-efficient way to save cash for any health care needs not covered by insurance that you have today or in the near future. Not only do you contribute pre-tax dollars to an HSA — which may even be matched by your employer up to a certain percentage — but it the earnings on those dollars grow tax free, and anything you spend remains tax-free as long as it’s used for qualified medical expenses.

The important thing to know about HSAs, though, is that they don’t expire or need to be used by a certain point in time. Unspent money at the end of the year simply rolls over, and you can still keep adding more to the account.

More importantly, however, is that your HSA balance only remains limited to use for qualified medical expenses until you reach age 65. At that point, you can use the money for nonmedical expenses without paying a penalty, although you will have to pay your regular income taxes on it upon withdrawal. In this way, it works almost like a traditional 401(k). It can be a great way to save up money on the side so you can retire early, knowing you have it to access as another source of retirement income down the road.

You won't be able to take Social Security benefits until you reach 62 or qualify for Medicare until age 65. Retirement accounts also have a 10% penalty for withdrawals taken before you turn age 59½. Therefore, if you retire at 50, you'll need to tap into other resources to finance those first 10 to 12 years.

Those other resources will have to come from traditional savings or by withdrawing from your brokerage accounts. Since there are no withdrawal dates for brokerage accounts, you could begin withdrawing money at 50 when you enter retirement. All withdrawals are subject to taxes but only on the return portion of your investments.

Just because you retire doesn't mean your money has to stop working. As you get closer to 50, come up with a plan to stretch your money through retirement. A few ways you can continue to bring in money after you retire include:

• Pursuing a second-act career, such as:
  • Seasonal or temporary work for hire
  • Part-time job for a dependable employer
  • A side business based on your talents or interests
  • Charging for consulting work
• Maximizing conservative investment options, such as:
  • Coordinating your withdrawals between different kinds of tax-advantaged accounts, like a Roth IRA and a 401(k)
  • Timing your initial Social Security benefit access to delay as long as feasible to get a larger benefit amount
  • Systematically withdrawing a certain percentage of your retirement savings per year based on factors such as balancing investment growth potential against projected inflation rates (you may be able to avoid the 10% premature distribution by taking a systematic withdrawal that’s based on life expectancy)
  • Creating a revolving reinvestment system such as CD ladders that keep your money available to you but also take advantage of the leading current rates

When executed properly, these strategies can help you maximize your money. These are areas where a financial professional can help you come up with solutions based on their educated insights into your specific situation.

Figuring out how to retire at 50 isn't easy. You're trying to build more wealth in less time, so naturally, that's challenging. It involves making financial sacrifices in your 20s, 30s and 40s, then using those savings wisely to build wealth.

Consulting with a financial professional can help you create a plan to proceed wisely and confidently during your younger years, so you can reap the benefits of an early retirement.

Looking for the right advisor to be your partner? Learn how a Citizens Wealth Advisor can help you reach your financial goals.

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