Investing for Early Retirement (BEFORE 65!)

Tired of the nine-to-five grind and dreaming of early retirement? The right investments could set you free much sooner than you think. In this article, we’ll show you how to invest to retire early, whether you’re starting from scratch or already on track for FIRE (Financial Independence, Retire Early)!

Summary:

• To retire early (before 65), you will need investments that deliver strong returns and enough passive income to live on.

• Rental properties, index funds, treasury bonds, REITs, and syndications are some of the best options when investing for early retirement.

• Turnkey rentals can fast-track your retirement, especially if you take advantage of Rent to Retirement’s 5%-down loans.

What is Early Retirement (FIRE/FI)?

If you’re interested in personal finance and investing, you’ve probably heard of terms like FIRE (Financial Independence, Retire Early) and FI (Financial Independence). Both terms indicate that you have enough money invested that you are no longer dependent on the income you earn from your job. Those pursuing FIRE have a more specific goal of retiring early.

Early Retirement (Before 65) IS Possible!

62 is the average retirement age in the US, but don’t let that number trick you into thinking you can’t retire in your 50s, 40s, or even 30s. With the right strategy and a focus on smart, safe investments, you could retire decades earlier than you would otherwise.

How to Invest to Retire Early: 5 Options

All of these assets are either semi-passive or completely passive, making them optimal for early retirees who want more time.

1. Rental Properties 

Rental properties are single-family homes or multifamily buildings you rent out to tenants. This allows you to earn regular monthly income, while tenants pay down your mortgage for you. What’s more, property values tend to increase over time, growing your investment!

Why They Work for Early Retirement 

Rental properties offer many different benefits for the early retiree:

• Passive(ish) Income: Depending on your strategy, your rental property could bring in anywhere from a couple hundred dollars to thousands per month in profit.
• Long-Term Wealth: Home values tend to increase, and with tenants paying down your mortgage, you could have a paid-off property that’s worth more in retirement.
• Tax-Advantaged Cash Flow: Real estate tax benefits range from depreciation and mortgage interest deductions to deductible repairs and operating expenses. This, to some extent, shields your cash flow, leaving you with tax-advantaged income! 
• Leverageable: To buy an investment property, you only need a 15%-25% down payment, and with Rent to Retirement’s 5%-down loans, you could put even less down!

Buy your first investment property for just 5% down!

Who They’re For (and Who They Aren’t)

Rental properties combine the benefits of almost all major asset classes—cash flow, appreciation, tax benefits, leverage, and more. However, only turnkey properties come with tenants and management in place, giving you an investment with fewer headaches and more time in retirement!

Invest in headache-free turnkey rentals with tenants and property management in place!

2. Index Funds

Index funds are exchange-traded funds (ETFs) or mutual funds that follow a specific market index. Over the long term, these “baskets” of stocks tend to appreciate, and many of them pay dividends to shareholders, which you can reinvest or distribute as cash for additional income in retirement.

Why They Work for Early Retirement

Index funds are a staple in many retirement portfolios for these reasons:

• Diversified Appreciation: Index funds give you broad market exposure, reducing your risk and giving you “safer” returns than an individual stock might.
• Completely Passive: Index funds require very little work beyond performing some initial research and occasionally rebalancing your portfolio.
• Highly Liquid: You can sell index funds at any time; just be sure not to withdraw money from a retirement account too early or you’ll incur penalties.

Who They’re For (and Who They Aren’t)

Index funds have a long time horizon due to their moderate returns (roughly 10% per year, not adjusted for inflation). To build wealth for retirement, you either need to start investing early or invest a lot of money. If your goal is to retire early, make sure you have an after-tax brokerage account you can withdraw from before traditional retirement age without penalty!

3. Treasury Bonds

Treasury bonds (or “T-bonds”) are long-term securities issued by the US government. You are essentially giving the government a loan, and in return, they pay you interest every six months, providing you with predictable income until they reach maturity (typically 20- or 30-year terms).

Note: Shorter-term Treasury notes (or “T-notes”) range from two to ten years, offering investors a medium-term option compared to both short-term Treasury bills and long-term Treasury bonds.

Why They Work for Early Retirement

Looking for a safe, low-risk investment? Treasury bonds provide the following:

• Completely Passive: After purchasing bonds from TreasuryDirect.gov or via your preferred broker, just sit back and receive that semiannual check!
• Very Safe: Backed by the “full faith and credit” of the US government, treasury bonds involve very little risk.
• Flexible Lengths: Treasury bonds have term lengths of 20 or 30 years.

Who They’re For (and Who They Aren’t)

Bonds are some of the safest assets, but with low yields, they’re best for people who have a large nest egg to deploy and are primarily concerned with preserving their wealth. If you’re younger or don’t plan to retire for some time, you might consider an investment that involves a little more upside instead.

Get passive income, tax benefits, and long-term appreciation with turnkey rentals!

4. REITs

REITs (real estate investment trusts) are companies that acquire and manage investment properties. Like stocks, you can buy shares of these companies and receive fully passive income through dividends. What’s more, as the company appreciates, your investment typically grows!

Why They Work for Early Retirement

Here’s why REITs are some of the best retirement investments for passive income:

• Strong Dividends: REITs are legally required to distribute at least 90% of their taxable income to shareholders.
• Diversification Across Asset Classes: There are many different types of REITs, from residential to industrial, with many properties owned per REIT. 
• Low Upfront Investment: You can start investing in REITs with as little as $5!

Who They’re For (and Who They Aren’t)

REITs are a great option for those who are interested in real estate, and pairing them with turnkey rentals gives you industry diversification and tangible assets. While REITs can provide passive income in retirement, keep in mind that they don’t offer the same tax benefits as direct ownership.

5. Syndications

A real estate syndication is a group investment where multiple people pool their money together to buy one or more large commercial properties. This investment is usually managed by an “operator” (or “general partner”), with other investors acting as “limited partners” (LPs).

Note: Syndications can be risky, so investors must do their due diligence on the general partners and the deal itself before investing.

Why They Work for Early Retirement

A syndication could be a worthwhile investment if you want the following:

• Completely Passive Income: The operator purchases and manages the investment while you receive a share of the profits.
• Tax-Advantaged Cash Flow: Limited partners enjoy some of the same benefits as direct investors, like depreciation!
• (Potential for) High Returns: Returns are highly dependent on the operator and the deal itself, but many investors can earn 15%-20% annualized returns.

Who They’re For (and Who They Aren’t)

Many syndications require you to be an accredited investor, meaning you must earn $200,000 a year (or $300,000 with a spouse) or have a net worth of $1 million (excluding your primary residence). This makes them a popular investment option for high-income earners, real estate-educated retirees, and early retirees.

How Many Rentals Do I Need to Retire?

The below calculations are merely to serve as an example. Returns and initial investment can widely vary. 

First, determine how much income you’ll need in retirement based on your monthly expenses, lifestyle, and goals. You can then back into the number of rentals you’ll need using the retirement income formula:

Income = Money x Cash-on-Cash Return

For example, let’s say you need roughly $5,000 a month ($60,000 a year) to cover all expenses and maintain your desired lifestyle in retirement. Turnkey rentals often target 10% cash-on-cash returns, so plug these figures into the inverted formula below:

Money = $60,000 (Income) / .10 (Cash-on-Cash Return) = $600,000

With turnkey properties that cost roughly $250,000 each, you’ll need 12 rentals at 20% down ($50,000) to meet your retirement income goal!

For an even more detailed breakdown, check out our full guide on how many rentals you need to retire, or try our simple retirement calculator!

Ready to Retire Early? Do It Faster with Turnkey Rentals 

While rental properties are some of the best investments for early retirement, it can take a while to build your portfolio by continually saving and putting down 20% on each property. But it doesn’t have to!

With Rent to Retirement’s new build investments, you can put as little as 5% down, which could allow you to buy multiple rental properties much faster. Better yet, these turnkey properties are professionally managed, so you get a more passive income stream and all the other benefits of direct ownership!

How to Invest to Retire Early FAQs

What’s the Best Investment for Early Retirement?

There’s no one “best” investment for early retirement, as this largely depends on your retirement income goals and timeline. Rental properties (especially semi-passive turnkey rentals), index funds, treasury bonds, REITs, and syndications are some of the top options for early retirees.

How Much Money Do I Need to Invest to Retire Early?

There’s no set amount of money that every person can retire on, though many investors aim for a nest egg in the range of $1-$3 million. The amount you need will depend on your retirement timeline, the income required to fund your lifestyle and monthly expenses, and the levels of returns from your investments.

Is $2 Million Enough to Retire at 40?

Yes, with a safe withdrawal rate of 3%-4%, you could potentially retire at 40 with $2 million. However, this ultimately depends on several other factors, like your expenses and retirement lifestyle.