How much money you need to take early retirement depends on 2 factors

You've seen the stories, touting the hard-earned feat of early retirement – "self-made millionaire retires early in his thirties," "millennium retires early after seven years of work."

Many can not help but wonder: how did they do it? And more importantly, can this egg really last a lifetime?

Save enough of the time. Money to retire early involves diligence, planning, strategy and usually some lifestyle changes.After all, $ 1 million is not what it was – or what that it will become.In 2016, Time magazine estimated that with an inflation rate of 3%, savings of $ 1 million in 40 years would have the same purchasing power. that 306 000 today.

How much money you need to take early retirement depends on two things. [19659008] Your cost of living

It makes sense that the location plays a role in determining early retirement savings. The cost of living in a place like New York or Los Angeles is much higher than in the Midwest, like Wichita, Kansas, or in the south, like Birmingham, Alabama.

Living in a place where the cost of living is lower means that it's easier to live below one's means. Chris Reining, a self-taught millionaire who retired at the age of 37, earns only 2% of his investment accounts a year (half of the recommended 4% should be financially self-sufficient) – but it's because he's frantically living Madison, Wisconsin. The location also plays a role in taxes, depending on the kind of accounts in which you have money.

"If all your money is in IRA and 401 (k), you will not only pay federal tax and you can also pay a 10% penalty for premature withdrawals (under 59 and a half years old). ), "Mari Adam, a Florida-based certified financial planner who founded Adam Financial Associates, told Business Insider.

Keep in mind that nine states do not have income tax.

Adam recommends keeping a balance between saving in retirement accounts like IRAs and 401 (k) s, tax-free growth accounts like Roth, and already taxed accounts like brokerage accounts individual.

The growth potential of investment and passive income

It is not because you took early retirement that you will never see any cash again. You can save enough knowing that there is still room for your savings to grow through lucrative investments and hobbies.

Justin McCurry, who retired early at age 33 with a $ 1.3 million investment portfolio, reports some monthly income through his blog, Root of Good. Coupled with strategic investments, its portfolio has since grown to more than $ 1.7 million over five years.

McCurry is not the only early retiree to make money from a blog after leaving the business world. JP Livingston, who retired at the age of 28 with a nest egg of over $ 2 million, was surprised to learn that she could still earn an income after taking her early retirement.

She runs The Money Habit personal finance blog; after his first year, he made over $ 62,000 in passive income through affiliate commissions and advertising.

"I ended up becoming active again with different hobbies and projects," she told Business Insider. "Eventually, one or more of these projects generated revenue, it's hard to stay awake for more than 60 hours a week and not find a nice way to make money."