How to Retire by 40 According to People Who Have Done It

Before the “FIRE” (“financial independence, retire early”) movement invaded the U.S., before there were iPhones, before there was even the internet (gasp), Billy and Akaisha Kaderli retired at the ripe ages of 38. Now entering their 33rd year of retirement, the Kaderlis have more money than ever.

“For us, it was a bit of a leap of faith because we didn’t have anybody to mentor us or to follow,” says Billy Kaderli, who was the vice president of investments and a branch manager at Dean Witter Reynolds before retiring in 1991. “Today there’s so many more apps and online calculators to help you with your finances that it’s gotten much easier to retire early.” Their blog,, offers articles on how to get your financial house in order based on their experiences and includes links to over 100 financial tools and calculators on its “preferred links” page.

While early retirement may be easier today than in the ’90s, it’s still not “easy.”

“It’s important to think about the FIRE concept through the lens of 2023,” says Rich Guerrini, president and CEO of PNC Investments. “If your goal is really to retire at 40, you are certainly facing more headwinds than you were even just a few years ago.”

From high inflation to market volatility, compounded by the global pandemic and now the possibility of an impending recession, FIRE-ees may face a lot of obstacles in 2023.

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To retire by 40, you need to be prepared to make sacrifices today that will allow you to provide for your future. And even then, that future likely won’t be shrouded in luxury.

FIRE early retirement isn’t about accumulating mass wealth. It’s about “buying back your time,” Akaisha Kaderli says.

If you want your time back, here are tips on how to retire by 40, according to people who have made it happen:

— Choose if you’ll LeanFIRE or FatFIRE.

— Calculate how much you need to save to retire.

— Don’t forget health care.

— Save 50% or more of your salary.

— Avoid lifestyle creep.

— Invest aggressively and economically.

— Have a contingency plan.

— How the SECURE Act 2.0 affects early retirement.

— Early retirement in times of COVID-19.

LeanFIRE Versus FatFIRE

The first step to retiring by 40 is choosing your FIRE style. There are two forms of FIRE early retirement: LeanFIRE focuses on keeping retirement expenses low (according to the LeanFIRE Reddit community, that’s under $50,000 per year) so you can retire with less in savings.

FatFIRE, on the other hand, is for early retirees who want a more cushy retirement lifestyle (think an annual expense budget of $150,000 and up) and are willing to save up to provide for it.

“LeanFIRE types would benefit more from setting up side-hustle income streams before retirement,” says LeanFIRE-ee Steve Adcock, who retired at 35 and started Think Save Retire and now writes about personal finance and lifestyle on

But while the larger financial cushion of FatFIRE means you’re less likely to need supplemental income in retirement, you may have a higher hill to climb pre-retirement to build up your savings.

How Much Do I Need to Retire by 40?

Two factors go into how much you need to retire early: your anticipated annual retirement expenses and the percentage of your portfolio those expenses make up.

According to the Trinity Study, retirees can withdraw up to 4% (adjusted for inflation) each year in retirement without depleting their portfolio over a 30-year period. If you’re planning to retire by 40, however, you may be looking at a lot more than 30 years of retirement.

To compensate for a longer retirement, some early retirees target a 3% withdrawal rate, or an even more conservative 2% annual withdrawal rate. The Kaderlis withdraw 1% to 2% on average each year and have successfully grown their portfolio throughout retirement after spending and inflation.

“Between Social Security and dividends, we do not need to withdraw anything from our current portfolio, thus letting it grow,” Akaisha Kaderli says.

To calculate how much you need to retire, Akaisha Kaderli says to start with your gross wages then subtract your payroll taxes and work-related expenses. “This should give you a rough idea of what your current lifestyle is costing you,” she says. Then multiply that number by 25 to get the amount of invested capital you’d need to maintain your lifestyle.

Another way is to take your anticipated annual expenses and divide it by your target withdrawal rate. For example, if you plan to spend $50,000 per year in retirement and want to withdraw 2%, you’d need $50,000 divided by 0.02, or $2.5 million, to retire.

Don’t Forget Health Care

When calculating how much you need to retire, it’s important to include a line item in your anticipated budget for health care. If you retire early, you’ll face more years of health care costs without employer-sponsored health insurance.

“Unexpected — and rising — medical expenses have always been a reality, but the COVID-19 pandemic really put a spotlight on it and illuminated just how quickly and drastically things can change,” Guerrini says. “If you’re eligible, a health savings account can help supplement or cover health care expenses, and it might be a good solution for some, but that’s more money that needs to be saved aggressively prior to retirement.”

Save 50% of Your Salary or More

Early retirees face a unique challenge to saving for retirement: Salaries for most college graduates peak in their 40s. If you retire at 40, you’ll be handicapping your savings by not contributing to your retirement accounts during your peak earning years and potentially missing out on employer match contributions.

Retiring at 40 also leaves you without access to Social Security or Medicare for 22 to 25 years into retirement, leaving you with one less source of retirement income and one more bill to foot.

And when you do reach full retirement age, your Social Security benefit will be reduced due to your lower average earnings. Billy Kaderli recommends creating a My Social Security account at to compare how much retiring early will reduce your Social Security benefit.

“When we did this 35 years ago, the difference between what we would receive if we continued our 9-to-5 (jobs) for another 25 years or if we pulled the plug then was not a large enough amount to make it worthwhile,” he says. “So, we decided to go for it.”

All these savings hurdles mean early retirees need to be saving 50% or more of their salaries each year. “It sounds hard and initially it is,” Adcock says, “but when you look at what you’re spending on, so much of it is stuff you either don’t need or don’t use.”

The last couple years before retirement, he and his wife saved 70% of their income.

To ramp up savings, “attack the biggest expenses first: housing, cars and food,” says Chris Mamula, who retired at age 41 after burning out in his career as a physical therapist. He now shares his FIRE retirement wisdom on the blog “By optimizing those areas (of your budget), you can develop a high savings rate,” he says.

[READ: 7 Ways to Lower Your Retirement Income Risk]

Avoid Lifestyle Creep

Essential to keeping your expenses down, and by extension your savings rate up, is keeping your lifestyle in check. Most people let their lifestyles and spending be defined by their income. If they earn $70,000, they spend $70,000. And when they get a $5,000 raise, they find $5,000 worth of additional things to spend it on.

“Once you inflate your lifestyle it’s hard to go back,” Mamula says. “Dissociate spending and earning. What you need to live has nothing to do with what you earn.”

He and his wife (neither of whom made a six-figure salary) always lived off only one salary and “never felt like we were sacrificing.”

“Lifestyle creep is very deceiving because you don’t know it’s happening until it gets to be too much,” Adcock says. If you want to retire early, you need to be living well below your means and investing every bonus and raise.

How to Invest to Retire by 40

Investing is essential to retiring by 40. Early retirees need the compound long-term growth that these investments provide. Without it, they’re likely to run out of money in retirement, or never reach their retirement savings goals.

In general, be as aggressive with your investments as you can tolerate before retirement. A “50-50, stock-to-bond portfolio probably won’t work because you have such a long time frame and need to account for inflation,” Mamula says.

That said, he believes bonds are still an “integral part of most people’s portfolios most of the time.” When rates were near zero, they didn’t make much sense, but now that rates are back to within historical norms — where bonds can provide some income and potential for price appreciation if rates drop again — they make sense again, he says.

The key is to keep bonds within the right proportion for your current situation. And, most important of all, to not panic and pull out of the market, he adds. If you can’t tolerate the choppiness of a 100% equity portfolio, don’t use one.

This highlights an important facet of early retirement: It’s not for the risk averse. The stock market historically returns about 7% per year after inflation.

“It doesn’t go up in a straight line,” Billy Kaderli says. To accommodate for this, he tells early retirees to keep a couple years’ worth of expenses in cash so you don’t have to sell in a down market.

“Through our three decades of retirement, we have weathered four bear markets, including the current one,” he says. “It is through these periods that you need to have the confidence that times like these will pass and that folks who are investing today may well become millionaires in the next bull market.”

The Kaderlis had their entire portfolio in Vanguard’s S&P 500 index fund (ticker: VFINX) when they retired. Today, at 70 years of age, they’ve shifted to a 60-40 stock-bond/cash allocation, with the majority split between the following exchange-traded funds, or ETFs, to create what they call a “growth/dividend-growth portfolio:”

— Vanguard Total Stock Market ETF (VTI)

— SPDR S&P 500 ETF (SPY)

— SPDR Dow Jones Industrial Average ETF (DIA)

— iShares Select Dividend ETF (DVY)

— Schwab U.S. Dividend Equity ETF (SCHD)

The key is to start investing as early as possible. The longer you give your investments to grow, the more likely they are to match the stock market’s long-term average return. Looking back, the Kaderlis both wish they had started investing earlier.

[SEE: 7 Dividend ETFs for Retirement Investors.]

Minimize Your Investment Expenses

Investing is another area to pay close attention to cost. Every dollar that goes toward investment fees is a dollar not being used to grow your retirement savings.

If your mutual funds charge a 1% expense ratio and your financial advisor charges an additional 1%, you’re already spending 2% per year on investment fees alone, Mamula says. Going back to the 4% rule, “if you have to pay 2% just to manage your money, you’re down to only 2%” left to spend in retirement.

If you’re investing in passive index funds, aim to keep your expense ratios at 0.1% or lower. Of course, the lower the better.

Have a Contingency Plan

Perhaps the best thing you can do for your early retirement is to have a contingency plan. Mamula recently began working 10 hours per week with an advice-only, virtual financial advisory firm after becoming a certified financial planner last year.

Adcock and his wife built flexibility into their retirement budget by keeping discretionary spending their largest expense. “Initially you might think we’re just wasting money on things we don’t need, but the benefit of increasing your discretionary money is you could also cut that stuff back when you have to,” he says.

Having a buffer in your retirement spending habits is key, he says, especially during times like the current environment of high inflation and heightened market uncertainty. “It’s nice to cut back on spending to help strengthen your cash flow position,” he says. He and his wife cut their spending by about 20% since the beginning of last year.

“My advice during the 2021 boom market wasn’t to spend but to save and invest because we knew the bull market wouldn’t last forever,” he says. “Those who heeded that advice are sitting pretty right now even though the market has been down.”

The Kaderlis minimize expenses by utilizing “geographic arbitrage,” living in areas with low costs of living like Mesa, Arizona, and Lake Chapala, Mexico, their current balmy residence. “The idea of living in a lower-cost country with a favorable currency exchange while our investments are in the States earning dollars was a no-brainer for us,” Billy says. “This by itself has been a remarkable benefit to our lifestyle and finances.”

While they’ve also monetized their blog, it’s really a labor of love. “If we stopped it tomorrow, it wouldn’t affect our lifestyle one bit,” Billy says. “However, we would not have met many of our wonderful readers.”

How the SECURE Act 2.0 Affects Early Retirement

Effective as of January 2020, the Setting Every Community Up for Retirement Enhancement, or SECURE, Act is impacting the way some Americans save for and live in retirement. While these changes will affect conventional retirees more than early retirees, there are a couple points to be aware of if you want to retire early.

First, the act increased the required minimum distribution, or RMD, age to 73 as of Jan. 1, 2023, and will increase the age to 75 in 2033. It also enables you to contribute to a traditional individual retirement account even after RMD age, as long as you have earned income.

The act also makes it easier to maximize your retirement savings while minimizing your working hours. Employers are now required to give part-time employees access to the company 401(k) plan. This is good news if part of your early retirement plan is to phase out of working or to work part time in “retirement.”

Early Retirement in Times of COVID-19

While the SECURE Act 2.0 was a boon to retirees, COVID-19 likely was not. And yet, the early retirees interviewed for this story all weathered the storm fairly well.

The Kaderlis took advantage of half-off pricing on hotels and empty planes and buses to travel throughout their home country of Mexico. “We made the best of a bad situation,” Akaisha says. “Our finances cratered along with everyone else’s, but because of the way we receive dividends, it didn’t affect our lifestyle.”

For Mamula and his wife, their lifestyle made things easier for them than for most. “We were positioned well to take on homeschooling duties with two stay-at-home parents,” he says. They also live in an area where they’re surrounded by their favorite outdoor activities.

“Likewise, the market events didn’t really impact our lifestyle, though our account values went down just like everyone else’s,” he adds. “We were aware of the potential for everything to go south at once” and planned accordingly.

Adcock reports that COVID-19 didn’t impact his and his wife’s retirement at all. “Yes, the value of our stocks is down — about $400,000 since the beginning of 2022 — but it doesn’t matter,” he says. They live in an area with a low cost of living, which helps keep expenses low. “We’re in the market for the long haul,” he says.

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How to Retire by 40 According to People Who Have Done It originally appeared on

Update 02/16/23: This story was previously published at an earlier date and has been updated with new information.

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