How to cut 20+ years off your road to retirement in one graph

early retirement, personal finance, retirement, savings

Congratulations! You have listened to the financial experts, the pundits of society whose wisdom will lead to a beautiful life and retirement! They say you should save 10% to 15% of your income for savings and retirement. Maybe your savings rate is there now, maybe just a little below (you’re going to save more after that next promotion and raise right?)…

According to the National Institute of Retirement Security, almost 45% of Americans in the labor force have saved $0 for retirement. Overall, Americans were saving on average less than 6% of our income. For those Americans, 10% to 15% would be great! But there are very manageable, controllable items that can EASILY increase this saving percentage. But, why would you save more than the experts are telling you to?

Your savings rate is the #1 determinate for when you can retire. Small changes in your savings rate can either add or take off significant years until you are financially independent and able to retire.

Let’s take a look at this relationship in the graph below. As you will see, increasing your savings rate percentage significantly decreases the time to retirement, especially at the early stages of savings. It’s a simple calculation:

Total amount saved / income (net) earned

This chart shows the relationship between your savings rate and how quickly you can retire (click to enlarge).

Savings Rate and Years to Retirement

So per a 15% savings rate, you should be able to retire in 43 years. If you started working at the age of 22, you will then be 65 years old at retirement, the prototypical retirement age. At least there is some validity to mainstream media, albeit at the cost of working 43 years until your mid-60s! However, the curvature of the graph is most exciting and worth exploring further.

  • Increasing your savings rate from 10% to 20% will decrease the years to retirement from 51 years to 37 years. That’s 14 less years of work with making some easy changes to your lifestyle.
  • Going further to 30% savings rate, you are now down to 28 years to retirement, yet another 9 years off of the total. So to take 20+ years off your retirement, increase your savings rate from 10% to 30%.
  • This is also how the extreme early retirement folks were able to retire at such a young age, extremely high savings rates. (Don’t be jealous, be one of them.) At a 70% savings rate, you can retire in just about 10 years. Simple math all illustrated by the graph.

Now that you realize how impactful your savings rate is, you will no longer look at making the requisite lifestyle changes as sacrifices. You are paying yourself to be free from obligations and work stress, enabling you to explore whatever it is you are passionate about and hopefully at a youthful age! We’ve provide  some examples on how to achieve a high(er) savings rate in another article. To make these changes you can control both the numerator (savings) and denominator (income) by changing your income and spending habits.

With anything looking into the future, there are assumptions that need to be made in order to make these calculations. MrMoneyMustache first exposed me to this idea of changing your savings rate for early retirement. Here is a link to the article that also includes some of the assumptions:

With this knowledge, hopefully savings is no longer a dirty, untrusted word to you. Seeing the simplicity of the impact of your savings rate is monumental and will give you a realistic and concrete model that will motivate you to propel your savings rate and get to the level of financial freedom long before your coworkers or you would have imagined before!

11 thoughts on “How to cut 20+ years off your road to retirement in one graph

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