Boost Your Savings Rate
The standard 10 percent to 15 percent of annual income financial advisors recommend saving is based on the assumption that you'll be putting away that amount over a period of 40 years and withdrawing 4 percent a year in retirement.
"If you're going to retire early, you have to change the time your assets have to grow and how long assets will last," Tresidder said. "You're not going to compound your way to wealth."
Individuals who are planning to retire by 40 or 50 need to save more than 15 percent annually. In fact, Doug Nordman, founder of The-Military-Guide.com, recommends saving at least 40 percent of your income from age 20. That savings rate assumes that you have an investment portfolio with a 6 percent annual rate of return.
Nordman, who penned "The Military Guide to Financial Independence & Retirement," retired from the U.S. Navy's submarine force in 2002 at the age of 41 by saving at least 40 percent a year for 20 years. Based on Nordman's math, aspiring retirees' assets need to be equal to 25 times their expenses in order to withdraw 4 percent annually from savings in retirement.
It's important to note that the assets in your portfolio should have a growth rate that's greater than the inflation rate. For those seeking early retirement, Nordman recommends holding a portfolio of passively managed index funds with low expense ratios and an asset allocation of at least 80 percent stocks.
Said Nordman of how he achieved his goal, "We saved aggressively and invested in mutual funds."
You'll likely need to save money in a taxable account, such as an investment account, in addition to a workplace retirement account or IRA. The maximum you can contribute to a 401k is $18,000 a year. So, if you earn $45,000 or less a year, you'll only reach an income savings rate of 40 percent with a 401k. The maximum you can contribute to an IRA is just $5,500 if you're under 50.
Additionally, if you withdraw retirement money before age 59½, you might have to pay the 10 percent early retirement penalty. To avoid this fee, leave some money out of retirement funds to access before you hit 59½.
Related: How to Retire Before 50