I’m a finance expert: How to budget to retire 10 years early

Some 30 per cent of Americans believe they don’t have enough in retirement plans to live well into their golden years, according to a 2025 study from wealth management firm TIAA. But what if you could flip the script and actually retire in comfort - and a decade sooner than planned?

While it may seem impossible to avoid an underfunded retirement amid high inflation and concerns over Social Security’s future, that’s not always the case.

In fact, those who want to retire 10 years early can typically reach their goal if they plan ahead and talk with a financial professional, said Kelli Smith, executive director of financial planning at Edelman Financial Engines, a wealth management firm with offices nationwide.

Smith, a certified financial planner and chartered retirement planning counselor, shared her strategies for retiring 10 years early withThe Independent. The interview below has been condensed and lightly edited for clarity.

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When planning to retire 10 years early, the first step is recognizing the “why” behind the decision.

Some people retire early because they just don't want to work. They have an idea about a lifestyle they want and what they're going to do when they no longer work.

Others want to volunteer and give their time. And, honestly, some people just don't want the stress that they have in their current job.

It’s really important to identify the “why” because that’s how we can start estimating the expected costs someone will face in retirement based on the lifestyle they want.

If you don’t identify the reason behind retiring early, what ends up happening is we get bored in retirement, and we end up spending money on travel, shopping and other things to fill the void we feel. For those people, it becomes difficult to estimate what their expenses will be in retirement.

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That’s why knowing the motivation for retiring early is probably the most fundamental thing to lock in when doing retirement budgeting and planning.

Once we know the why of early retirement, then it’s time to envision what you want life to look like at retirement time. Is it a couple of years off from working and then return part-time to free up time to care for grandkids? The scenarios can differ from person to person.

Somebody who wants to travel the world exclusively is going to have a lot more expensive lifestyle than someone who wants to stay home and be a grandparent.

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Other things to consider while budgeting for retirement is whether or not moving is in the plans - which can impact cost of living calculations - and if you’ll have to support family members such as parents or kids. All these scenarios come under consideration when formulating a budget.

So once we get to the point of kind of identifying what that lifestyle is going to look like, it's much easier to estimate how much an early retirement is going to cost.

From there, we can create a budget that includes any Social Security payments, retirement plan withdrawals, other sources of income and the expenses related to the desired lifestyle.

A lot of what makes a successful early retirement is the sacrifices that somebody is willing to make to their budget now so they can have a sufficient budget later.

The main goal here is to live below one’s means. If you can live on less than what your income demands, two things happen.

Number one, the cash not spent will help build savings. Number two, it's going to help set boundaries for lifestyle creep - spending more as you earn more. Lifestyle creep can erode the best intentions to save and derail early retirement. The discipline learned can also help foster smart spending in the golden years, too.

Another part of building a budget to retire early is anticipating healthcare costs. That’s a big concern right now. Those who retire at 55 will likely have to rely on Healthcare Marketplace coverage until they’re eligible for Medicare at 65 (in most cases). Since enhanced subsidies for those plans have expired, premiums are higher for older applicants than they used to be.

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So, as we’re budgeting, we have to consider those additional healthcare costs for the first 10 years, then calculate Medicare premiums once they hit 65.

Life insurance is another key part of a retirement budget, but it’s one that’s usually not talked about enough. If someone is married and both spouses are retiring soon or early, then it’s important to have a big enough policy to make sure one spouse doesn't have to go back to work if the other spouse passes.

Once you’ve worked with an advisor to build a budget that allows early retirement and a comfortable lifestyle, the next step is to project how that budget and any changes to it will impact retirement.

We typically do a test called a Monte Carlo simulation, which runs thousands of scenarios about longevity, inflation rates, investment returns and other factors to show how a financial plan will perform.

What’s great about the test is that we can run scenarios that show how much flexibility or wiggle room there is in a budget and financial plan based on predictable and unpredictable outcomes while working and when retired.

We can compare the things that we know to be true today, the things we can control and the things we can’t control.

The test usually generates a confidence level, expressed as a percentage, that shows how sufficient a financial plan is compared to a future retiree’s goals.

Once I get a really clear view of whether a client’s plan is on track or needs changes, we can start adjusting their choices today to help them get to where they want to be 10 years before retirement age.

At this point, I’ll ask, “Okay, can you spend less in retirement? Can you save more today? Are you willing to work longer?”

When we’ve answered those clarifying questions, we can model new scenarios showing how these changes impact their long-term financial picture. These planning moves really help bring a realistic view to budgeting and early retirement.

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