Early Retirement, FIRE Movement and Student Loans

Everyone aspires to be financially independent. We would all like that to happen soon. Getting an early retirement is one way by which that could happen. Learn about the FIRE saving strategy and how to deal with federal and private student loans when you wish to retire early.

Updated by B Harshitha on 28th February 2020

Being financially independent is something we all aspire to be someday. Most of us would want to attain a state of financial stability sooner than later, understandably. Retirement is widely presumed to be a state of financial stability. And since we all desire to get financially independent fast, early retirement is something that is sought after these days.There is even a movement that supports and propagates the cause of early retirement called the FIRE movement. FIRE stands for Financial Independence/Retire Early. The idea is to save more during people’s years of employment to retire in a secure manner earlier. Quite a lot of people wish to be retired by the time they are 40. 

Retiring early is no easy feat, though. It is important to keep your finances mapped out for the rest of your life. In most cases, people are forced to lead a very frugal life to save up for an early retirement, which, unsurprisingly sounds difficult. 

To top it off, it is no secret that millions of Americans have student loans that needs to be taken care of. The concept of an early retirement might sound absurd and impossible to achieve for most people with bulky student loans.

But the reality is that an early retirement is neither impossible, nor too difficult to pursue. This is especially true for people who have taken out federal student loans. There are also a few strategies that people with private student loans can explore and adopt.


Planning for Early Retirement

The math that it takes to plan for an early retirement is pretty straightforward. How much you can set aside as savings on a monthly basis is a key factor in deciding how and when you will retire. How early you can retire is directly reliant on how big a savings you put aside. fIf your savings are large, you may retire early and vice-a-versa.

If you spend all of what you make, retirement is a long shot. On the other hand, if you are able to save all of what you make, you are already considered to be financially independent.

Let us take a look at some real numbers to see how this works:

  • If you save 5% of what you make, you will be able to retire after about 66 years from where you are.

  • If you are frugal enough to set aside a good 20%, you can retire in 37 years, which as you can see is 29 years less than with 5%.

  • If, with any luck and perseverance, you are able to save 50% of what you make, you will be able to retire in just 17 years. This is a far cry from the 66 years that a 5% savings can bring and even 12 years less than what can be achieved with a savings of 20%.

We have assumed $0 in social security and a 5% return on investments post-inflation as given in the Mr. Money Mustache article on the math behind Early Retirement.

Worried about your educational student loans? Learn more about the best student loans.

Student loan debt as a hurdle to early retirement

Quite a number of student loan borrowers pay a considerable portion of their income towards their student loan debt. We also can not forget essential expenditure such as food and accommodation. All these expenses put together make saving for early retirement a challenge.

But actually, with both federal and private student loans there are ways to save up for retirement that are not hard to pursue. With federal student loans, monthly payments can be brought down to an amount as low as 10% of your discretionary income

We all know that small payments do not help much with speeding up student loan repayment. But having to set aside a relatively small amount for student loans gives borrowers more money to save up for an early retirement. Borrowers can even look into student loan forgiveness

With Public Service Loan Forgiveness(PSLF), your loans can be forgiven in a period as small as 10 years. One perk that comes with PSLF is that the forgiven amount is not taxed.

Income driven repayment plans allow borrowers working in the private sector to pursue forgiveness as well. The only difference is the repayment term. Here, it may take up to 0 or 25 years. The only downside is that the forgiven amount will be taxed.

Federal student loan, 401(k) and retirement

Income-driven repayment plans calculate borrowers’ monthly payments depending on their income. Their most recent tax return is taken into consideration.

Borrowers who have access to a 401(k) can save more and get their student loan payments reduced by making contributions to 401(k). 401(k) contributions take place before tax and it can reduce a taxpayer’s Adjusted Gross Income.

With a 401(k), a borrower can:

  • reduce their tax bill,

  • save more money for retirement, and;

  • reduce their student loan bill.

These benefits can be great for government and nonprofit employees. 

These benefits also come with other IRA contributions, Health Savings Accounts and other retirement plans.

Private student loans and minor federal student loans

With private student loans, borrowers have few options other than paying off the loan in full. This is also true for smaller federal loans. Often, people shell out more money trying to pursue forgiveness on small federal student loans than they would if they were to pay them off.

Scenarios involving private student loans and smaller federal student loans can be quite challenging. Saving up for an early retirement by making smaller payments on your loans can cause your interest to grow to a mammoth amount. Doing the alternative, i.e. paying off your loans can make you end up with very little for your retirement savings.

The strategy that you choose to adopt will depend on your tolerance for risk and your priorities. The interest rates on your loans also play a deciding role.

If your loans come with a low interest rate, saving up more for retirement will be a good idea. This is because such loans can be made up for with good investment accounts.

On the other hand, borrowers with high interest rates would want to pay off their loans faster. 

For borrowers who belong on the intermediate range of the spectrum things can be tricky. Decisions will have to be made carefully.

Refinancing is one of the best ways by which borrowers can save any money. Private lenders offer to refinance student loans for rates and terms that are very appealing. The only downside is that these loans will not be eligible for forgiveness anymore. Borrowers will need to have good credit and debt-to-income ratio.

If you are consider refinancing, find the best places to refinance student loans.

Things to remember before an early retirement

The following are some things you might want to think about before deciding to pursue an early retirement.


The value of money varies with time. This is a very important factor to remember. Money that may seem like a lot now can have very little value later. So it is important to qualitatively assess how much money you will need in the future for different expenses.

Spend frugally

People who wish to retire early would have to be very frugal with their money, both before and during retirement. A good part of your income will have to be set aside as savings for retirement. People will have to resort to some extreme measures to save pennies. An early retirement is not a luxury that comes easy.

Increase your savings

Most jobs do not pay enough for people to retire securely early. Hence, it is important to look out for investments and other streams of income. 

Plan out your finances and set up a strategy in place so you do not run out of money even when you are not earning. You may even want to explore sources of passive income. You could rent out your property or house, for example.


Investing in tax-advantaged retirement accounts like a 401(k) or IRA may not be a good idea if you are planning to retire early. This is because the minimum age at which you will get any money from these accounts is almost 60. People incur heavy penalty fees if they try to access money in these accounts any time before the minimum age.

Making sure that you have money safe to be accessed in the present is important. Save more in taxable investment accounts and on a timely basis put a portion in tax-advantaged accounts.

Also plan out your taxes for the long-term.


People do not become eligible for Medicare until they reach a certain age. So if you are planning for an early retirement, you may have to plan out your medical expenditure without any income for years to come.

You may want to invest in a Health Savings Account (HSA). For as long as the money is used for medical expenses, your HSA can help you pay your bills. It has numerous tax benefits and does not have any age restriction. 

It is also advisable for you to look into private health insurances.

In conclusion..

Student loan debts can make planning for an early retirement quite challenging. But with careful planning and strategies in place to take care of financial concerns in the future, early retirement is definitely a possibility even with student loans.