How Soon Can I Retire?

I think about retirement pretty often. Definitely more than I think about the Roman Empire. I also definitely think about the Spartans more than both. Who hasn’t wanted to phalanx with the homies??

If you haven’t heard me rant about early retirement before, buckle up for round three. Here are rounds one and two of my rant if you want to get up to speed.

Bottom line: If you’re intentional about investing your money throughout your working life, you don’t have to wait until you reach 65 to retire. The earlier you invest, the better off you’ll be.

When targeting early retirement, it’s understandable to focus solely on the sexy side of personal finance like investment selection, asset allocation, or tax-minimization strategies. These are all important, but they aren’t the most important factor in determining how soon you’re able to retire.

The single greatest determinant of financial success is the amount of money you save and invest. Point blank, period. The king of early retirement is the savings rate.

Your savings rate is the percentage of your after-tax income that you use to pay off debt, invest, and apply to other savings goals. If I invest $1,000 and spend $3,000 of a $4,000 monthly income, my savings rate would be 25% (1,000 ÷ 4,000).

Your savings rate is the accelerator that determines your pace toward retirement. If you spend 100% of your income, you'll never become financially independent unless someone else is doing the saving for you. If you could theoretically invest 100% of your income (living off the land in a sick off-grid cabin), effectively eliminating your living expenses, you’d be able to retire today. The more aggressively you save, the sooner you can retire.

I know what you’re sarcastically thinking: “very insightful, I never would’ve thought that having more money was helpful for retirement.” I never claimed to be a genius. Let’s get a little more specific.

What’s the right savings rate?

Traditional financial advice often advocates investing 10-15% of your income to prepare for retirement. I think generalized advice like this is dumb.

Your savings rate should reflect your retirement goals. If your goal is to go from $0 to financially independent in 10 years, a 15% savings rate isn’t going to get you there. Unless you’re all in on GameStop stock and it finally goes to the moon (don’t hold your breath).

However, if you plan to retire in 40 years, a 15% savings rate may be enough to set you up for a comfortable retirement. The "right" savings rate is the one that meets your goals on your timeline, whereas the "wrong" savings rate does not.

Estimating your timeline toward financial independence is easier than you probably think. Let’s say you decide to go all in on stock market investing and you start your journey with $0. Assuming a conservative inflation-adjusted annualized return of 5% (8% yearly stock market returns minus 3% inflation) and that your annual expenses won't increase in retirement, the table below shows how your savings rate directly impacts your timeline to retirement.

Although this table is just a reference and your results will vary based on market conditions and fluctuating savings rates, it can serve as a helpful guideline for determining your target savings rate based on your desired timeline to retirement. If I want to become financially independent in 25 years, I’ll need to aim for at least a 35% savings rate (if I am starting with $0 invested).

But like I said above, this chart assumes your current expenses won’t increase at retirement. From vacations to medical expenses, there are many reasons to account for additional spending in retirement. Once you retire, you may find yourself very bored if you have little to no fun money. 

This table can also serve as a reality check on whether your savings rate generally aligns with your financial goals. If your savings rate isn’t where you want it to be, you have two options to get there: cut your spending or increase your income and invest the additional money you’ve freed up. Easier said than done, but it is absolutely possible. There are quite literally a million ways to make money. People legitimately make more money than Wilson and I combined by selling feet pics to strangers.

I'm not suggesting that everyone needs to sustain a 75% savings rate, nor do I think it's productive for most people. But if you want to retire in 20 years, you’ll need to make sacrifices to get there. If you want to die in your work cubicle, then you can spend shamelessly without remorse. Decide what you want out of life first, and then align your finances to get there.

Theory is nice, but this all requires action to matter. All the financial knowledge in the world is good for nothing if you don't take action. In the wise words of Shia LaBeouf…

Call to Action

Decide when you want to retire, and check out what savings rate you need to aim for to get there. Compare that to your current savings rate (look at October’s spending or another month that isn’t a general budget dumpster fire with holiday shopping). Are you on track?

What We’re Reading/Listening To:

Set for Life by Scott Trench. Full disclosure, I literally downloaded this book today and have read nothing but the description so far, so don’t come at me if it’s bad. But I’ve seen a ton of people recommend this book, so I have high hopes!

Debrief on Deck

Next week, Wilson is going to talk about the anti-budget. There are lots of hip alternatives to regular ole budgeting, and this is one of them. What is it? Does it work? Does it support Wilson’s Yankee Candle splurges? All good questions he’ll hit on next week.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on social media (X (formerly Twitter) and Instagram).

Until then, stay the course.

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