6 Things To Do If You Want To Retire In Your 40s

Hello guys, it's Chelsea, your host, founder and CEO of The Financial Diet.

And this week is week two of our little two-part mini-series around the brass

tacks of personal finance,

specifically around debt and wealth,

which are kind of the two wolves inside all of us,

two sides of the same coin.

But anyway, last week we talked all about what to do

if you are in debt,

specifically um high-interest consumer debt,

which is something that used to be not just my case,

but literally dominated my life

and is literally the reason I started TFT was

because I was just getting out of the worst of my debt payoff,

and I was like, "Okay, wow,

I have literally been

so singularly focused on either being constantly uh under an enormous amount of stress

financially cuz I'm being hounded by debt collectors constantly,

and or just focused on throwing

as much money as I could at debt

so I could stop the bleeding

and get out of it,

that I didn't even know what to really do beyond that."

Like, in some ways, the idea of becoming stable, let alone becoming wealthy,

was almost more intimidating because I only knew how to be in crisis mode,

in survival mode, and it seemed really intimidating to do the things

that it requires to maintain really good financial hygiene on a day-to-day basis to

the extent that you can one day build wealth.

So, I want this week's episode to be about the flip side.

What comes after, you know, getting out of debt,

putting the right habits in place, etc.,

and how to kind of think about leveling up your financial strategy

when the basics are taken care of.

Of course, I have to give the big disclaimer

that this video is going to be more for people who have a level

of financial privilege,

period.

Like, it is very,

very hard to think about potentially retiring early

or building this kind of wealth

if you are not either a higher earner

or have other assets,

um or at least have the potential of being a higher earner.

Um so, this video isn't going to be for everyone,

but it is definitely

while last week's video definitely applied to me a a ago,

this video applies to the me

that I am today

and the way I'm thinking about money.

So, we are going to talk about six things you need to do

if you want to retire in your 40s,

which is an aggressive goal, but not an undoable one.

Like, there is tons of these people on Reddit

and I'm on those forums every day,

so I see that they're achieving it.

But, before we get into the video,

I want to give a quick shout-out to advisor.com,

who we are making this video with.

Advisor.com is one of the few partners

that we work with here at TFD.

They are specifically a financial advisory service.

I'm someone who's been working with a planner for the past few years now.

It has enormously leveled up my financial game, so to speak,

in part because it's been a very chaotic few years uh in the economic

market.

I don't know if you guys have heard.

And so, having another person in the room that I can talk to,

ask questions to, learn from, um and get, you know,

advice from is enormously helpful.

Advisor.com in particular, they work on a totally flat fee model,

meaning everyone pays the same regardless of their net worth.

And it means that they work transparently,

they're working for you and not for commissions.

And um yeah, we just really endorse them.

We love them.

We work with them on tons of projects.

We know them really, really well.

And they're a little small business, so we love to support that.

Anyway, if you've ever been curious about talking to a financial advisor,

um or even wondering what they do,

you can use the link in our description to set up a completely free

phone call with them

and ask away.

But anyway, let's talk about early retirement.

So, I want to get the elephant out of the room and say,

on this channel and in my own life,

I have talked a lot of crap about the {quote} "fire movement,

financial independence/retiring early movement."

And I stand by that.

In the sense that I think

that a lot of FIRE

as a concept is really First of all,

it's like a lot of it is very male-dominated.

It is not only men doing this,

but like especially when you go into a lot of the online spaces around

early retirement,

it's a lot of men.

And one of the things

that you will often find

as a result of it being men who are typically higher earners,

a lot of them will work in things like tech or finance or law.

Is that a lot of the things

that they do not have to pay for

or they don't even have to really think about is domestic labor

that is being outsourced to,

one assumes, a woman who's just out of frame, typically their wife.

And I think that the assumption in early retirement

that all of these forms of labor

that make life not just possible

but also enjoyable are sort of valueless

or that,

you know, they're not something

that necessarily needs to be budgeted for

because they're being taken care of,

in many cases taken care of to the point

that this person is able to earn such a,

you know, high income as a result and really focus on their career.

I find that to be very tone-deaf {slash} off-putting,

but I also think unless you're in what people call fat fire,

which is like where you um are wanting to retire in a sort of

very lux way and are living pretty luxuriously throughout the process,

um a lot of those people will be on the forums talking about like,

"Should I charter a plane or or fly first class?"

I'm like, "What is going on in this forum?"

But anyway, for the most part, a lot of fire, and again,

I think a lot of this comes down to it being pretty male-dominated in

a lot of online spaces,

like a lot of early retirement comes down to like living

as minimally as possible in the time leading up to retirement.

Like you would be shocked at some of the things these people are doing

to save the absolute maximum amount of money.

Like they are living, I mean, they're really living like, you know,

monks in a monastery all the way up until whatever their fire date is.

And then I guess even then they're unless they're, you know,

saving a ton of money, they're probably still going to live like a very,

very frugal lifestyle even in early retirement.

I'm not saying there's anything inherently wrong with that.

I'm more saying that like even from the perspective of like I don't know

how many years are going to be granted to me in in life.

Like, not to be morbid, but like I could get sick.

I could get into an accident.

The same could befall my husband.

Like, I never like to live with a mentality

that like life will start

when or I will enjoy myself

when.

Like, I want to travel now.

I want to eat good food.

I want to enjoy my life.

I I'm not necessarily saying I want to overspend or be outrageous with it,

but I also don't want to be living in such a way

that like all of my,

you know, joy and indulgence is saved for this period of time

that literally may not even be given to me.

So, all of that is to say,

I have just never really vibed with the FIRE movement as, you know,

a community, so to speak.

But all that said,

I am someone who definitely wants to achieve FIRE in my 40s.

I don't think I would ever not work.

Like, I definitely think

that I'm just someone who enjoys working

and I work in fields

that are largely creative

and also happen to be lucrative,

which is a rare combination and one that I'm very grateful for.

But I'm just someone who I think will always want to work to some

extent,

but I very much want to be in a position where I don't have

to work full-time.

A lot of people who are pursuing financial independence,

um they're not necessarily looking to completely retire.

They're looking to, for example, only have to work part-time,

which I think is very appealing.

But I would also like to do a lot more work

that is not-for-profit,

that is, you know, uh charitable or volunteer-based.

I already do volunteer a fair amount,

but only a fraction of the time that I'm actually working for financial gain,

and I would really like to see those numbers flip.

So, I don't want to,

although I don't necessarily vibe out with the FIRE communities online,

I also want to say

that I very much understand the appeal of not having to work full-time in

order to afford your life

and also being able to do more

that is of service with your time.

That's the other thing.

I think a lot of these people are not necessarily focused on turning

that time outward or passing it along.

I think a lot of them are just like,

"I can't wait to you know, get my catamaran and sail around the Caribbean."

I don't know what they're doing.

A lot of them are doing stuff like that.

There's a lot of people who want to go live in the mountains.

All of that is to say,

I and my husband are definitely interested in achieving some form of financial independence

in our 40s.

We are aided by the fact

that both of us are relatively high earners

and don't have children

and have relatively low expenses all things considered.

But again, everyone is going to be different.

It's just very important

that if you are interested in potentially retiring by your 40s,

here are six things that you need to do and that I'm doing.

Number one is you have to decide what retirement actually means.

So as I said,

not all retirement means you literally never work to earn another dollar in your

entire life and you only strictly live off of your investments.

That is something that some people do,

but it is also the hardest possible way to pursue financial independence.

For a lot of people it just means retirement from having to work full-time

or at least to earn the amount of money you're currently earning.

Because for example, there is also a growing trend called barista fire

which typically involves higher earning individuals quitting stressful careers after building up a sizable

portfolio but still working in lower paying

or hourly rate jobs like for example becoming a barista to cover their day-to-day

living expenses.

So before you actually change your entire financial plan,

you have to ask yourself what it is.

And I want to say like I think we also have to think about

what we consider a passive versus active stream of income

when it comes to planning out our income.

For me for example,

so my salary at The Financial Diet in 2026 is $108,000 a year,

which is already a pretty good salary.

But through my books,

which I do separately

as my own LLC

and a few other freelance projects

that I do through

that LLC as well,

um I also earn another about let's say 100 to 125,000 a year.

So, my total income is about 220,000,

or will be about 220,000 this year if all goes according to plan.

And of that, a lot of that is actually pretty passive.

So, for example, my books,

some of them I'm more paid on an advanced structure,

but for the ones I publish myself, I'm entirely royalty paid on those.

So, once the book's out there in the world

and it continues to sell

or it gets,

uh, licensed for different things, uh, different publications, or, you know, other other media,

those checks just kind of passively come uh,

from the same work that I originally did now, you know,

a year or several years back.

So, I will say that currently, as of today, leaving like investments aside,

leaving home equity and things like that aside, even just of my actual work,

already probably about 30%, and maybe a little less,

maybe 25% of my income is from what are technically passive streams of income

because the work is already done.

And now it's just kind of collecting the checks.

Conversely, a lot of people, when they think about retirement,

tend to think about things like real estate as a way to make,

{quote} "passive income."

I'm going to say this.

There is almost literally no income less passive than real estate.

And I'm talking about specifically renting out real estate that you own,

whether for short-term or long-term rentals.

Either you are paying someone to take care of everything for you.

In many cases, you might not be earning much of anything at all

because all of your money is going to pay the intermediary who's actually taking

care of the property,

or you are the property manager.

And also, to be clear,

in the case of anything going wrong at scale with that property,

that still falls to you.

Like, a management company can fix a toilet, but like,

if the roof gets knocked over by a tree during a storm,

that's on you, baby.

But, generally speaking, things like real estate, especially short-term real estate,

that is an incredibly labor-intensive kind of income.

Not to say it can't work.

I know for many people that is a part of their retiring early strategy.

I just want to stress

that income that is {quote unquote} passive does not just mean income

that you don't have to clock into a shift at a job for.

Things like real estate are still very labor intensive.

So, when you're planning out your retirement,

you have to keep all of those things in mind.

Next is you have to actually come up with a number

that you need to live on for your ideal lifestyle in retirement.

So, that means how much will you need to spend per month {slash} year

to maintain your ideal lifestyle in retirement.

Where do you want to live?

Do you want to be nomadic or split your time?

Do you want to own your property or do you prefer to rent?

What are other major expenses that you'll have?

Things like child care, elder family care, health care, housing, etc.

You need to estimate approximately how much you'd want to have annually to live

that lifestyle.

So, is it more or less than what you're currently making?

So, then you have to find your retirement number by applying the 25x rule.

Now, keep in mind

that this specifically applies

if you are trying to live entirely off of your investments,

entirely off of passive income.

If some of your lifestyle is going to be supplemented by still making money

in one way or another,

working part-time, working a different job, etc., it will be less than this.

But, if you want to strictly live off investments,

you need to take your annual number

that you want to live on in retirement

and apply the 25x rule,

which means multiplying it by 25.

So, for example, if the life

that you want to live in {quote unquote} retirement costs $150,000 a year,

you need to multiply that by 25, meaning that in order to comfortably retire,

you would need to have $3,125,000.

So, this tells you how much you would need to have invested

and saved by your ideal retirement age.

With the big caveat

that the 25x rule may not even account for your entire retirement

if you do end up retiring in your 40s.

If you retire that young,

you may need to multiply the number by 30

or 35 to stretch for the entirety of

that retirement.

As of this point, I actually don't have my specific number yet,

in part because I don't know exactly what the life I will be living

is and or what my professional situation is going to be in

that time.

It's something that my husband

and I have been talking about a lot over the past year

because I think we both have slightly different visions of what we want our

lives to look like in our 40s

and 50s.

But suffice to say, I feel closer now to understanding what my number is.

And the most important thing for me is

that I know that I want at least a certain percentage of my money

each my living costs each year to be coming from money

that I'm earning.

So, again, it's not necessarily that I'll be fully retired,

it's just that I will not have to work nearly

as much as I currently do.

Um but personally, I feel very intimidated

and stressed out at the idea of only ever living off of my investments

past a certain age,

especially a really young one because I don't know if all goes well,

that's a really, really effy long time to be living off of your investments.

Next, number three is you need to look at your current savings rate

and determine how much more you need to be saving for your ideal retirement

age.

So, there are plenty of online calculators

that can help you do this

and we'll link to one below.

And it may seem obvious, but it's worth spelling it out.

The sooner you want to stop working, the more you need to be saving.

Many FIRE seekers save 50% of their income or more.

And a retirement calculator can help you determine

if your current savings rate is actually enough to get you to your ideal

retirement age.

Again, most people end up needing to significantly increase their savings rate in order

to get on track for early retirement.

According to the calculator we linked below,

we wanted to see what it would take for someone starting from zero,

making $100,000 a year after taxes to retire in 20 years.

Assuming an investment return rate of 7%

and projected annual expenses of $80,000 in retirement,

they would need to save 45% of their after-tax income in order to retire

in 20 years.

It may not be realistic for you right now,

but you do need to know what you need to be saving.

Next, number four is once you've run those numbers,

really decide whether this is something that you want to commit to.

Committing to this big of a savings rate is not a small task,

and even if it is technically possible,

you will still want to be able to enjoy your life.

It may go without saying,

but saving on half of your income for someone earning a high six-figure salary

is going to feel very different than someone making $50,000 a year.

So, there's a reason retiring early is typically a conversation reserved for the already

reasonably wealthy or at least high earning.

Everyone has a different standard of what constitutes enough,

and for you that may or may not fit within the FIRE strategy.

And it doesn't make you bad with money or unsuccessful.

I would argue that it's actually better to be happy in your life now

than to constantly be working toward a one day

when you finally get to live how you want,

but we already talked about that.

Next, number five is you need to determine what investment strategy you need.

So, retiring early means utilizing more than just your typical retirement accounts,

especially because retirement accounts like a 401k or an IRA have age thresholds.

So, if you withdraw funds before you're 59 and a half,

you'll be hit with a penalty on top of paying income tax on your

withdrawals,

depending on the type of account, but more on that in a bit.

There's still an order of operations,

so it's important to do your own due diligence

and to seek out the help of a financial advisor

or at least to do a ton of research

when necessary,

especially if you have less than three forward goals.

Many people max out their retirement accounts first,

and then they invest further through taxable brokerage accounts,

which don't penalize you for withdrawing funds at any point,

but you'll also want to determine your asset allocation.

Typically, the further out you are from actually retiring or needing the funds,

the riskier allocation your portfolio can handle, i.e.,

a greater ratio of stocks to less volatile assets like bonds.

We'll link to an explainer on this, but again,

determining the best allocation for your own portfolio

and situation is a good question for a licensed financial planner.

Lastly, number six is to widen the gap between your income and your spending.

Ultimately, this is the most important part when it comes to planning for retirement.

Not just to save more,

but to also be content with living on less than you have,

so you're not spending beyond your means.

There are two ways to do this.

Either lower your spending or increase your income.

As I said earlier,

the main issue I take with the FIRE movement is how it encourages competitively

low spending.

I think Americans do spend way too much in general,

but this kind of hyper cheap lifestyle can often go against one of my

personal biggest values,

which is a generosity of spirit.

Like, I am so sorry,

but it is very annoying in these forums to like watch these like objectively

very wealthy people be

so ludicrously cheap with everyone,

their friends, their spouses, even their children.

Like, it's I don't know.

The vibes are so off for me in a lot of these forums.

And again, it's going to be much harder to increase your savings without substantially

increasing your income,

at least for most of us, which is why again, for example,

although TFD is not just my full-time job, my source of my salary,

my insurance, my 401k, etc.,

and it is of course a company of which I own 60%.

So, it is also an asset in that regard for me.

I do not personally want to just be limited by the salary

that I can take from my company.

That's why I like having my other work, my books, my freelance stuff,

because that gives me a sense of control over my income.

And given that we only work a four-day work week,

I do have time to dedicate to it.

But also, it just it allows me to go into each year feeling like

I don't necessarily know what it's going to be financially in a good way.

I know not everyone is motivated that way.

Some people really prefer just like the stability and consistency of a salary,

but I like the feeling of knowing that I have control over my earnings,

and that if I play my cards right and work hard,

like I can earn drastically more in a given year than I initially thought

I would.

But either way, like

if you are not willing to be very proactive about increasing your income

and diversifying it,

you are going to have to live a very, very, very,

very spartan lifestyle in order to meet the savings goals.

Again, not impossible.

I know some people prefer that, and some people are very good at it,

but I personally find it easier and more motivating to focus on earning more.

And to be clear, when it comes to not being overly frugal,

I want to say you don't have to spend money to be a generous

person,

but if you are obsessed with penny-pinching for your goals

that are ultimately only self-serving,

it doesn't always result in the best character.

And remember, when it comes to what you think you'll actually need to live

a fulfilling life,

it is always better to overshoot than undershoot.

So, at the end of the day,

I am someone who has long been skeptical of the FIRE movement,

but I do genuinely see the value on reducing your reliance on any given

job or income generally

as you get older,

and especially doing it ahead of our standard retirement age of, you know, 60,

whatever.

Not that there's anything wrong with that age, certainly,

as we've learned on Just Getting Good,

it is a fabulous age as any other, but for many of us,

we would like to, if possible,

start taking our feet off of the gas pedal of work a little bit

earlier than that.

If you've managed all your financial basics,

and if you have the ability to focus on something like this,

I do think that achieving financial independence at a younger age can be an

incredibly motivating and clarifying goal for your wealth-building strategy,

but you just have to remember to be realistic and honest with yourself,

because especially when you're talking about your 40s, these can get to become really,

really big numbers.

So, making it as customizable for your life, not just to your future life,

but your current self, is crucial to the game.

Anyway, I'm sure I'll do another update on my personal FIRE journey

as it starts to crystallize for me.

Um this year is a pretty big one as far as my own income.

For the past several years at TFD,

my salary was only $75,000

because we were in a rebuilding phase financially

as a company.

So, now is the first year

that I'm like over six figures at the company,

which is very exciting, and plus my freelance income,

so I'm focused a lot more >> >> um now on building my financial

future from a wealth perspective

and so yeah stay tuned for more of

that if anyone cares maybe no one does

but anyway I'll be here thank you for joining our little two part series

that wealth again the two wolves

that live inside all of us financially I wish you well on all of

your journeys be they debt payoff

or fire and I will see you back here on the channel very soon.

Bye.