When can I retire?

One of the big questions people have when they come and see me is 'Georgie, when can I retire?'.  For people who are burnt out, and desperate to walk away from work as they currently know it, there are often some tough decisions to make.  But getting to the position of being able to stop working is mathematically quite simple; it depends upon how much of your earnings you are able to save.  And that depends upon how much of your earnings you spend. I follow a blog written by a chap (he calls himself Mr Money Mustache) who embraced the simple life, saved 65% of his salary for ten years and retired aged 30.  It makes for fascinating reading.  In a recent piece he wrote:

If you are spending 100% (or more) of your income, you will never be prepared to retire, unless someone else is doing the saving for you (wealthy parents, social security, pension fund, etc.). So your work career will be Infinite.

If you are spending 0% of your income (you live for free somehow), and can maintain this after retirement, you can retire right now. So your working career can be Zero.

In between, there are some very interesting considerations. As soon as you start saving and investing your money, it starts earning money all by itself. Then the earnings on those earnings start earning their own money. It can quickly become a runaway exponential snowball of income.

As soon as this income is enough to pay for your living expenses, while leaving enough of the gains invested each year to keep up with inflation, you are ready to retire.

Simple right?

There are two main ways that you can save more; 1) earn more money, 2) spend less.  I have always been an advocate of number 1, but the problem with number 1 is that when people earn more they tend to spend more - it's called lifestyle creep.  You HAVE to avoid lifestyle creep because the key is to earn more money whilst not wanting more stuff.  Mr Money Mustache makes a good point about this - he says that cutting your spending rate is much more powerful than increasing your income.  The reason being that every permanent drop in your spending has a double effect:

  • It increases the amount of money you have left over to save each month

  • and it permanently decreases the amount you’ll need every month for the rest of your life.

As Mr Money Mustache points out:

Your lifetime passive income goes up due to having a larger investment nest egg, and it more easily meets your needs, because you’ve developed more skill at living efficiently and thus you need less.

In his blog, Mr Money Mustache has a fascinating (and perhaps scary) table showing the number of years you will have to work before being able to retire based on your savings rate, and starting from a net worth of zero.  There are a few assumptions behind the table - click here to read the post, or see below*.

Savings rate Working years until retirement
5 66
10 51
15 43
20 37
25 32
30 28
35 25
40 22
45 19
50 17
55 14.5
60 12.5
65 10.5
70 8.5
75 7
80 5.5
85 4
90 under 3
95 under 2
100 zero


It's pretty amazing that boosting your savings rate from 10% to 20% brings retirement 14 years closer.  Let's think about this...if you earn a salary of $100k, in order to boost your savings rate from 10% to 20%, you would have to save an extra $10k per year, or $833 per month, or $27.40 per day (if you are earning $200k, double that figure, ETC).  Saving an extra $27.40 per day would bring you 14 years closer to retirement. Putting it another way, is the cost of a couple of coffees and lunch worth working an extra 14 years for?!

Food for thought, I say.

Assumptions in the table:

  • You can earn 5% investment returns after inflation during your saving years
  • You’ll live off of the  “4% safe withdrawal rate” after retirement, with some flexibility in your spending during recessions.
  • You want your ‘Stash to last forever, you’ll only be touching the gains, since this income may be sustaining you for seventy years or so. Just think of this assumption as a nice generous Safety Margin.