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China, Guanxi, Yangshuo, Tourist on bamboo boat on the Li river looking at famous karst peaks
Tourist on bamboo boat on the Li river looking at famous karst peaks, Guanxi, Yangshuo, China, .
Matteo Colombo—Getty Images

Retiring by 40 might seem like a pipe dream to most people. But it’s surprisingly attainable if you apply the right knowhow and financial strategies early on to get there. With enough forethought and self-discipline, you could wake up one day with time to pursue everything you wanted to but couldn’t, whether it’s traveling to every continent or finally learning how to play the guitar.

We scoured the best advice from financial experts and young retirees alike to get a picture of how you can retire earlier than you probably expected—and how to put the plan into motion now.

1. Spend even less than you think you should, and save more than you think you’ll need.

It might seem obvious, but in practice, it’s not so easy to stash away your salary or bonuses when things are looking up. The first key to retiring early is strict adherence to guidelines: Spend only what you need to spend (you should still allow room for a little fun so you’re not miserable). Look for any way to cut out expenses. So, yeah, you might need to say no to that nice dinner with a friend, and say goodbye to your pricey cable package. Do you really need to own that many suits or that many pairs of shoes? Think about what items you can sell off, or avoid buying in the first place. If there’s any debt you can refinance, do it. Or better yet, try to avoid debt and consistently pay off any credit cards. You’ll discover just how much more you could be saving—and as you’ll find out, you’ll need it later.

“Start saving as early as possible,” David Cox, who retired at 47, wrote on his blog about retiring early “Even if it is not a big amount to start with, it gets you into the saving habit, and then as your career develops and your earnings grow, the amount you can save will increase as well.”

Unless you're in the top 5% or so of earners, saving enough to retire by 40 won't be easy. You'll be sacrificing just about everything except the necessities and any thrifty pleasures (it's never too late to take up hiking as a hobby).

2. The golden rule: You’ll need to replace about 80% of what you earned before you retired.

Of course, it helps to be a young millionaire, but you can make early retirement work even if that’s not the case. The general rule of saving enough so that you can replace 80% of your preretirement income with investments or other sources of income means that you’ll likely have to put away much more than people who exit the workforce at an older age—after all, you'll likely be retired for 40 to 50 years, versus the standard 20 to 30. Depending on how much you make, you may need to save half of each paycheck to retire early.

If that seems impossible, it might be time to go after another job or ask for that raise you’ve been thinking about. Maximizing your earnings now means it’ll be easier to retire later.

3. The other rule: Plan to live on 4% of your investment portfolio annually—or less—once retired.

The 4% rule for retirees (adjusting for inflation) has come under scrutiny as analysts warn of potential diminishing market returns and longer lifespans. But it’s still a useful marker, and if you can manage to make do with even less than that per year in retirement, you’ll be in a much safer position.

So if you put away $1.5 million in a diversified investment portfolio, and you're planning for a long retirement starting at 40, you'd be better off taking out $52,500 per year from the portfolio, or 3.5%, and continuing at that same percentage as it grows.

If you're not residing in one of the richer metropolitan areas of the United States, you can have a comfortable life with that amount of money. In Albuquerque, New Mexico, you can rent a one-bedroom apartment for $702 a month and still have $44,076 left of your $52,500 for other expenditures across the year. In Tampa Bay, Florida, you'll be living above the median household income of $48,911, though you might want to avoid Washington, DC, where the average household makes $93,294 a year. If you have a house (or houses) already paid off, you'll be in an even better position.

4. Make a giant spreadsheet of your savings and how much you plan to spend in retirement.

One necessary step before you retire is asking yourself what retirement looks like for you. Are you going to mostly keep things low-key at home and tend to that garden you’ve been neglecting? Or are you going to travel far and wide and eat out every week?

Understand exactly how much you have before retiring and run the numbers on how much you’ll have to spend when you’re no longer working (remember, try to keep it below 4% annually of your investment portfolio if you can). Make sure you have a target.

“This is real-life data which you can use and then adjust to suit your own lifestyle and arrive at a realistic figure,” Cox wrote. “Once you have worked out your planned date of retirement and the annual income you require, then you can use a retirement calculator to help calculate your savings targets.”

Sydney Lagier, who retired at 44, told Bloomberg that she plotted out her and her husband’s spending and investments to take them to age 100, and each quarter, they review how things are going. Doing the same will help you stay on track and avoid nasty surprises.

5. Don’t be afraid of the stock market.

In general, you should diversify your investments, and while you’re working full-time, take advantage of your employer’s 401(k) plan and any matching it might offer. That can then be rolled into an IRA and a brokerage account. Think about investing in real estate properties that could provide other sources of income in the future.

But also—and this is big—don’t shy away from stocks. Equities are the surest way to grow your investments. “You're probably going to want to be a little bit riskier in your investments than the average person so your money can work as hard for you as possible,” money expert Kimmie Greene told CNBC.

Just keep in mind that equities come with volatility. Don’t invest all your savings in one stock or one sector, and be prepared to ride out a sudden, steep drop. “You do have to be comfortable with, and understand, the potential for huge losses in the stock market,” Justin McCurry, who retired in his thirties, told Bloomberg.

6. Always have a backup plan.

If a financial meltdown hits, especially if it’s on the scale of the 2008 recession, you could find yourself facing a major loss. Be prepared to live on even less than you planned for, and in case things start to look really gloomy, you should keep open the option of finding a new stream of income—like part-time work in your previous field or renting out a second home—and figure out how you can pull that off.

Of course, you can't expect to wake up at 35 and hope to have this done in five years. You'll have to start implementing these practices early in your career. And you can't tap your 401(k) funds without penalty until you're nearly 60. But with some strategic moves, you can leave the rat race behind.