How to retire at 40: Start saving in your 20s

Is it possible to retire at 40?

Retiring at 40 means reaching financial independence, where years of saving and investing have built enough to support your daily life without relying on a paycheck. It doesn’t always mean never working again but having the choice to work on your own terms. Some people shift to passion projects, freelance work, or small businesses. Others focus on family, travel, or simply rest after years of long hours.

Achieving this milestone requires a structured plan that begins early. Those who start in their 20s gradually raise their savings rate as income grows, live below their means, and invest consistently in growth-focused portfolios. They also treat financial freedom as a lifestyle decision, not a finishing line. Reaching financial independence early may be possible for some, but it typically requires consistent discipline over many years.

How much you need to save by 40 to retire early

The amount required to retire by 40 depends on how early you start and how you plan to live. A simple way to estimate it is to multiply your expected yearly expenses by 25. This formula, derived from the 4% rule, assumes inflation-adjusted withdrawals of 4% a year, based on historical market data rather than a guarantee, and was historically sustainable in many scenarios over 30-year periods.

If you plan to stop working at 40, your time horizon is likely to be much longer, spanning 40 to 50 years. That means your savings must stretch further, so a lower withdrawal rate is safer. For example, if you expect to spend EUR 40,000 annually, the 4% rule would suggest EUR 1 million in invested assets (EUR 40,000 × 25), which would last approximately 30 years. But for an early retirement, a 3% withdrawal rate is more conservative for a 40–50-year horizon. In that case, you’d need about EUR 1,333,000 (EUR 40,000 / 0.03) to have a higher chance of sustaining your lifestyle well into later life.

Overall, benchmarks can help, but they don’t tell the whole story. A person living mortgage-free in a smaller city may need far less than someone supporting a family in a high-cost area. Also, healthcare, taxes, and inflation can change the target quickly. The real test is how much your lifestyle costs today and how flexible you can be once work becomes optional.

How to retire early at 40

Reaching financial independence at 40 requires consistent saving, smart investing, and habits that start early in your career. It’s the result of habits built over years of discipline.

Here are some general principles often used by those aiming for early retirement:

Set a clear early-retirement goal

Define the lifestyle you want and calculate the annual spending it requires. If your goal is EUR 40,000 a year, everything else, such as your savings rate, investment mix, and timeline, flows from that number.

Increase your savings rate

Many early retirees save between 40% and 60% of their income. They either trim unnecessary expenses or find ways to raise their income through side work or career advancement. The higher your savings rate, the faster you buy back your time.

Invest for long-term growth

Cash savings are useful for short-term needs and emergencies, but relying on them alone makes it difficult to build long-term wealth. Diversified portfolios built around global equities, index funds, or ETFs have the potential to allow compounding to work over decades. Growth assets carry risk, including sequence-of-returns risk early in retirement, but without them, inflation will quietly eat into your progress.

Plan for healthcare and safety nets

Healthcare is one of the most significant expenses for individuals who leave full-time work early and medical costs can rise faster than general inflation. Without employer coverage, you’ll need to arrange private insurance or join a public scheme where available. Costs can vary significantly by country, so factor in realistic medical expenses when creating your annual budget. Additionally, set aside an emergency fund that covers 6 to 12 months of living expenses to protect your investments from early withdrawals. If part of your portfolio sits in tax-advantaged accounts with age limits or withdrawal penalties, ensure you have taxable or accessible savings to bridge the years until you can access those accounts.

Protect your progress

Financial freedom depends as much on consistency as it does on returns. It can be useful to review spending habits, debt levels, and savings progress regularly. Early retirement is about maintaining your direction even when life becomes unpredictable.

These steps serve as a guide for those considering retiring at 40.

How to sustain your income after retiring at 40

Early retirement can last four or five decades. After years of building savings, the next challenge is keeping that money flexible without draining it too soon.

Here are the main ways to maintain financial stability if you manage to retire at 40:

Structure your investment withdrawals

Fixed inflation-adjusted withdrawals can be risky over very long retirements due to sequence-of-returns risk. A flexible system, such as taking a set percentage of your portfolio each year, lets your spending adjust to market changes. When your investments perform well, you can withdraw slightly more; after weaker years, you reduce the amount to preserve capital.

Build passive income streams

Income that doesn’t depend on active work helps maintain freedom. Examples include rental properties, dividend-paying stocks, royalties, or licensing income from digital products (for example, ebooks, courses or software). Even a modest recurring income reduces how much you need to withdraw from investments each year.

Consider side projects

Many early retirees continue to earn a living through part-time projects, consulting, or creative ventures. Occasional income gives flexibility and keeps you connected to something you enjoy while protecting your savings.

Factor in future pension income

Even if your retirement starts at 40, state or employer pensions can become part of your income later. Knowing roughly when and how much you might receive can help you plan your withdrawals more confidently and stretch your savings further.

Plan for taxes and inflation

Withdrawals, dividends, and property income all face taxation, and inflation will slowly erode your purchasing power. Regular reviews can help ensure your plan stays aligned with changes in taxes and inflation. Slight increases in withdrawals, or shifting part of your assets into inflation-linked bonds, can keep your real income consistent over time.

Conclusion: Start early and stay consistent

Reaching financial independence at 40 doesn’t happen overnight. It’s the result of decisions made early, long before most people think about retirement. However, it is essential to remember that achieving financial independence doesn’t guarantee peace of mind. Life is constantly changing; families grow, markets shift, and healthcare costs rise. The real reward is that money gives you space to deal with it on your own terms.

Early retirement allows for time to breathe, focus on what truly matters to you, and handle uncertainty without fear. Discipline, patience, and self-control are the habits that can help you reach your goal, as well as the ones that will keep your freedom intact after achieving it.