Financial independence by 40 is an ambitious but increasingly common goal for high earners seeking greater freedom. See the strategies that may help make it attainable.

Strategies to Help Achieve Financial Independence by 40

Today, the traditional idea of retiring at 65 is being redefined. A growing number of high-earning professionals and entrepreneurs are instead striving for financial independence by age 40, unlocking the freedom to decide how, when, and why they work.

Defining Financial Independence at 40

At its core, financial independence means having sufficient assets for your investments to cover living expenses without relying on earned income.

A common framework is the “25× Rule” (or “4% Rule”), which suggests that individuals may need roughly 25 times their annual spending invested to support a sustainable withdrawal of about 4% of their portfolio’s value in the first year of financial independence, with that amount adjusted for inflation in subsequent years.

For example, someone with annual living costs of $150,000 might target $3.75 million in invested assets.

Achieving financial independence does not necessarily mean stopping work entirely. Rather, it is about creating the ability to reduce hours, focus on passion projects, or pursue new ventures without financial pressure.

The Importance of Starting Early

Starting to build wealth early amplifies the power of compounding. Contributions made in your 20s and 30s can generate greater progress toward financial independence than identical amounts invested later. An early start also provides more time to recover from market downturns and prepare for unexpected expenses.

For high earners, the combination of strong income and disciplined saving can accelerate progress. Working with a financial planning advisor can provide helpful guidance on tax strategies, investment decisions, and risk management.

Strategies to Pursue Financial Independence by 40

1. Aggressive Saving and Reinvestment

Those pursuing financial independence by 40 typically target high savings rates, often 50% to 70% of after-tax income. Achieving this level of savings requires living well below one’s earning capacity and consistently channeling excess income into growth-oriented investments such as equities, real estate, or business interests.

For high earners, this approach is often more attainable since essential living expenses may represent a smaller share of total income.

Reinvesting investment returns allows compounding to accelerate over time, turning consistent savings and disciplined reinvestment into powerful long-term growth.

2. Tax-Efficient Investment Strategies

Taxes can significantly erode long-term returns, particularly for high earners in elevated tax brackets. Maximizing tax-advantaged accounts such as 401(k)s, Roth IRAs, and Health Savings Accounts (HSAs) helps preserve more of each dollar invested.

Beyond traditional retirement accounts, strategies like tax-loss harvesting, charitable giving, and the strategic use of municipal bonds can further enhance tax efficiency.

For high-net-worth individuals, incorporating tax-aware strategies into investment planning can help drive early financial independence.

3. Diversifying Income Sources

Relying exclusively on a salary can limit the pace of wealth accumulation. Developing multiple income streams — such as real estate investments, private business ownership, or partnership interests — can provide opportunities to create greater financial resilience and help accelerate asset growth.

If one source underperforms, other income streams may help sustain momentum and keep long-term financial goals on track.

4. Avoiding Lifestyle Inflation

As income increases, so does the temptation to expand spending on homes, cars, and travel. This tendency can quietly undermine even the best savings plans.

Individuals who achieve early financial independence tend to maintain moderate fixed expenses, even when income rises. Budget reviews, spending limits, and delaying discretionary purchases can help preserve a high savings rate and keep wealth-building efforts on course.

5. Balancing Growth and Resilience in Portfolios

Portfolios designed for early financial independence often emphasize growth assets, while maintaining a disciplined approach to risk management. Equities may form the foundation, complemented by allocations to bonds, real estate, or cash to ensure liquidity during market downturns. Alternative investments such as private equity or venture capital may also be appropriate for investors with the resources and knowledge to assess them thoroughly, understanding that these assets involve different risks than traditional investments.

6. Early Tax and Estate Planning

Accumulating wealth at a young age often brings tax and estate considerations sooner than expected. Proactive planning around capital gains, trust structures, and wealth transfer strategies can help minimize future tax exposure and preserve long-term value.

Maintaining adequate liquidity is equally important, as concentrating too much wealth in illiquid assets can create challenges during market downturns.

7. Remaining Flexible

Even with a strong plan, assumptions about returns, inflation, and tax laws can change. Regularly reviewing asset allocations, reassessing spending targets, and adjusting savings rates allows individuals to adapt when markets or personal circumstances shift. Flexibility can help keep long-term goals within reach.

Modeling a Path to Financial Independence by 40

Tracking progress is critical for assessing whether early independence is achievable. This often involves monitoring net worth over time, projecting savings rates, and stress-testing different return scenarios. Incorporating major life costs such as housing, children’s education, and healthcare helps create realistic projections.

Stress-testing plans against less favorable market assumptions ensures that strategies are not overly dependent on best-case outcomes.

Common Challenges

Even with disciplined saving and investing, there are challenges that can derail progress toward financial independence by 40:

• Underestimating taxes, fees, and inflation can lead to overly optimistic projections and portfolios that do not meet future funding requirements.
• Allowing spending to rise too quickly as income increases can erode savings capacity and reduce long-term compounding potential.
• Taking on concentration risk by relying heavily on a single stock, business, or property can expose wealth to significant volatility.
• Delaying tax and estate planning can create complexities and limit available strategies.

An Illustrative Scenario

Consider a professional who begins their career at age 25 earning $300,000 annually. By saving 60% of income annually after taxes and expenses and investing primarily in equities with an assumed after-tax, after-inflation return of 5–7%, this individual may accumulate assets around 8–10 times annual expenses by age 35. By age 40, the portfolio may reach around 25 times annual expenses.

At that stage, passive investment income and other revenue sources may provide sufficient support for living costs, allowing the individual to scale back active work and pursue interests that align with personal priorities.

This hypothetical scenario is intended solely for illustrative purposes and does not reflect actual client results. Actual outcomes will vary based on personal circumstances, investment strategies, market conditions, taxes, and expenses.

How EP Wealth Can Help

Pursuing financial independence by 40 requires discipline, planning, and consistent review. At EP Wealth, we support high-net-worth individuals in building strategies around aggressive savings goals, diversified investing, and proactive tax planning.

Our team also provides guidance in estate planning and business planning, which become critical as wealth grows. While reaching financial independence by 40 is challenging, an integrated strategy may help make the path clearer. Contact an advisor near you to start the conversation.

DISCLOSURES

• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
• Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
• Hiring a qualified advisor and/or financial planner does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
• The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.      
• EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
• All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
• An estate plan is a helpful tool that can assist individuals in managing and arranging affairs in the event of death or incapacity. However, the scope and extent of the plan varies depending on the unique circumstances and desires of the individual client. It is for this reason, that the analysis encompassed herein is not intended to be comprehensive in nature nor should it be interpreted as legal advice. Please consult a legal professional to determine the extent, scope, and the drafting and creation of the appropriate estate documents. EP Wealth Advisors is not in the business of providing legal advice or preparing legal documents. Our review is limited to and in association with Financial Planning only.
• There is no guarantee or warrantee that a client or prospective client that engages EP Wealth Advisors, LLC in Business Planning services will experience investment success and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied service, offering, report, or analysis represented here will be offered or delivered. The services offered to clients will vary and depend on several factors.