Ask Matt: What should I do now so I can retire at 40?

• Investors looking to retire in their 40s need a solid game plan
• Cost prioritization and savvy investing are musts for extreme early retirement hopefuls
• There are risks to consider%2C such as unforeseen health problems

USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com.

Q: What should I do now if I want to retire when I'm 40?

A: While many Americans are just struggling to find jobs, some young workers in their 20s and 30s are hoping to to retire before they hit the big 4-0.

So-called extreme early retirees use a combination of thoughtful cost control, spending prioritization and savvy investing to create a plan that lets them retire early, some as early as 40 years old. Pulling this off is possible, but it requires the worker to start early and stick with a strict plan.

Workers still in their 20s and early 30s, looking to retire at 40, first off need to take a close look at their costs. Some people who have been successful with extreme early retirement need to find ways to save 60% to 70% of their pay. Controlling housing costs is vital, as many workers avoid the temptation to rent pricey apartments or buy luxurious and expensive homes. Living near the workplace is also a big help, as transportation costs can eat away at a savings plan. Another big factor to consider is avoiding costly recurring bills, such as expensive cable programs or cellphone contracts.

Next, investors with extreme early retirement in mind need to create a low-cost portfolio with a solid expected return of north of 8%. Typically, these investors load up on diversified exchange traded funds that own stocks and bonds, and avoid the temptation to sell when the market goes into a correction.

A basic rule of thumb for these investors is to find a way that they could live off their portfolios by taking 4% or even 3% of the value of the portfolio each year to live off of. A very basic rule of thumb to make this math work is for the investor to save at least 25 times the annual amount of money to live off of.

There are dangers, too. Health insurance, for instance, can be pretty pricey and those bills could make a serious dent in even a big nest egg. But being protected from a health disaster is critical as a major catastrophe could easily wipe out an investors' nest egg.

But for those hoping to retire early, the biggest advantage is starting very early. By starting early, investors get the advantage of the power of compounding and make the goal much more reachable.