The New Graduate's Guide to Retiring by 50

Hoping to retire by 50? Here are some of the key steps you should take now to make sure you're ready.

Did you just graduate? Congrats! You've got lots of exciting adventures ahead of you -- and you also have the chance to accomplish some lofty financial goals.

When you're setting these goals, perhaps early retirement is one you want to aim for -- even very early retirement. Leaving work by 50 would give you the chance to travel the world, to sip mai tais on the beach for decades, or to chart your own course and have big adventures. And you have time on your side when it comes to saving, so the goal of retiring by 50 is definitely achievable if you're willing to work for it.

Not sure how to start? Just follow this guide!

Figure out how much you need to save

The first step to retiring by 50 is deciding how much money you'll actually need to save up by then. This can be difficult to estimate. After all, most of the methods for figuring out your retirement income require you to project how much money you'll need in 30 years or so.

Fortunately, there are lots of retirement calculators online you can use to estimate your desired retirement savings number. Remember, though, that you need to aim high. If you retire at 50, your retirement savings will need to support you for a long time -- likely 30 years or more. You'll also need to provide your own health insurance from age 50 to age 65, when you become eligible for Medicare. That alone could cost you $100,000 or more. And even after they're on Medicare, most Americans spend several hundred thousand dollars on healthcare throughout retirement, so be sure to factor that into your future income needs.

Set a monthly savings goal

Once you have a total savings target, you need to decide how much to save each month to reach that goal. Since you have a shorter time frame than most when you retire at 50, it's especially important to start saving immediately and aggressively. You'll need to save way more than 10% of your income if you want to retire that young.

Say you're 21 years old and have decided you want to retire at 50 with $2 million. You have 29 years to save. If you invested $20,000 annually at a 7% return, you still wouldn't hit your target; you'd end up with about $1.75 million. That seems like a lot, but when you adjust for inflation, it's only around $722,000 in today's dollars, which is not enough to sustain you for 40 years.

Again, you can use a retirement savings calculator to figure out how much you need to save each month to hit your target. You can always scale up your savings and don't necessarily have to start saving $20,000 per year at age 21, but remember that the longer you wait, the less time you have to use the power of compound interest.

Compound interest is almost like magic, because it helps investments grow exponentially. When you earn a return on an investment, these gains grow your pot of invested funds, and you begin to earn returns on the investment gains. This has a snowball effect, because even if you don’t put in any more money, you’re earning returns on a bigger investment balance all the time. That's why saving aggressively when you're younger can put you at a huge advantage.

If you want to hit that $2 million goal by age 50, you could do it if you saved $22,850 per year starting at 21. But if you waited a decade and started saving at age 31, you'd need to raise your savings to $53,500 per year to reach the same target. That's more than double!

Figure out what account you'll save in

All of the above savings calculations assumed you'd be putting money into a tax-advantaged retirement account, such as a 401(k) or IRA. The only problem is, while these accounts provide generous tax breaks for retirement savings, they also come with restrictions. And one of those restrictions is that you can't take out money until you're 59 1/2 without incurring penalties.

There is a way to tap your funds early, but it’s complicated and you probably won’t be able to withdraw as much as you need. To avoid the hassle of complying with difficult rules, you'll need to invest some money in a regular brokerage account that you can live on from age 50 to age 59 1/2, when you can start dipping into your retirement accounts. Unfortunately, ordinary brokerage accounts don't come with any big tax breaks, which can make it harder to reach your savings goals.

If you decide to invest in a regular brokerage account, split your savings so the brokerage account only winds up with enough money to cover your first 9 1/2 years of retirement -- and then invest the difference in your 401(k) or IRA.

Set up automatic contributions

Once you know how much to save -- and in what accounts -- you should automate transfers to your retirement savings so you can ensure you hit your goal. If your money goes into savings before you have the chance to spend it, then you'll have far better odds of achieving your financial goals.

You can retire by 50 -- but it will take work

To retire by 50, it's best to keep your expenses as low as possible and avoid lots of consumer debt. This will not only ensure you can invest more for retirement, but also allow you to live on less after you leave work so your nest egg lasts longer. It will take effort and sacrifice, but if financial freedom is worth it to you, then you'll have no regrets.