Do You Want To Retire Early?

Savings rates in the US are tragic, but very few people realize how bad it really is.  Even as I save at a very high rate (almost 70% of income and growing), I didn’t realize what a low savings rate really meant with regards to retirement age.

The reason for this is simple. If you are saving at a high rate, you are filling up your retirement nest egg much faster.  But equally more importantly, you are also setting a precedence for spending less in retirement because you haven’t created a superficially high expense requirement.  The chart is sobering because it shows the average American will likely never retire without Social Security, not something I would bank on once the baby boomers are finished wreaking their financial havoc.

The x-axis shows the years until retirement.  Note: this is not the retirement age, this is the number of years one must work once setting up a savings plan.  The y-axis is the savings rate.  Besides 10% increments, I also added typical savings rates of 6% (3% 401K + 3% corporate matching) and 18% (common 401K max of 15% + 3% matching).  Let’s discuss the numbers:

  • Saving at 70% will get yo uto retirement in 12 years.  This is roughly where I’m at.
  • Saving at 50% will take 22 years.  Not bad, still a fairly early retirement if you start when you first begin working.
  • Saving at 18% will take 45 years.  This means if you start at 22 with 0 debt, it would take until 67.  Add in some college debt and it pushes out quite a bit because interest works against you.
  • Saving at 6% will take 79 years.  In other words, you won’t ever retire without Social Security or some loving children that will take you in.
The chart assumes 7% investment returns and 3% inflation.  It also assumes no salary growth.  This may seem unfair, but consider that most peoples spending scales with their income, so the charts actually get worse when that happens.

4 Responses to Do You Want To Retire Early?

  1. nice chart! It’s very impressive that you can save 70%.

  2. […] saving $2300/month, nearly half of his entire income.  At a 50% savings rate, he could retire in 22 short years.  At 38 years old this isn’t ideal, but it’s a hell of a lot better than never […]

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