How Long Will It Take To Retire?

You Can Retire Sooner Than You Think

If you've been following this blog up to this point, you know that I advocate saving money in order to have a more flexible and rewarding future. Generally we think of this as retirement, but you can really think of it any way that you want; maybe with enough money you will choose to keep working, maybe you will travel and maybe you will spend time with your family. But regardless of what you decide, the idea of getting from wherever you are today to that somewhat vague future might seem a bit unclear. Even though saving for retirement might seem daunting, it's actually as simple as committing to a bit of simple math that I'll show you. 

Find the Starting Line

One of the most important things to do when considering how to save for the future is first making sure that you are in a position to do so. This means that if you are deep in debt, particularly credit card or car loan debt, it probably will make more sense to find a way out of debt before seriously thinking about retiring. You cannot retire with a negative net worth. If you need some help with figuring out how to save money, check out my post on saving around $500 per month. But assuming that you are starting from a relatively healthy financial position, saving for retirement can actually be pretty simple. 

Once you have your cards in order, you can start focusing on your goals. Ultimately, in order to retire in a smart way, you should have an asset portfolio of 25 times your annual spending. Once you have this amount invested, you can safely withdraw 4% each year forever. 

Choose Your Own Retirement Age

Before I get into the math I need to make a couple of things clear. The first is that I'm trying to present a simple model and I'm assuming that you just hide your money in your mattress until you retire and that inflation and investing don't exist until you hit retirement. Obviously this is not the reality, but this means that you can actually retire sooner if you invest wisely. The second point that I want to clear is that I know that many of you might reject my ideas as crazy; I know that I sound crazy, but sometimes doing unconventional things is worthwhile.

Years to Retirement

Years to Retirement

Really this table is simple. Every year you earn an income and you can choose how much of that income to spend and how much to save. Your spending and saving together have to equal 100% of your income, by definition. For each year of spending and saving at these levels, you will accumulate a certain level of spending.

For example, if you spend 100% and save 0%, you will have accumulated nothing, and thus you will have accumulated 0 years of savings because you have saved $0. Let's say instead that you make $100,000 and you save 60% and spend 40%. This lifestyle would consist of saving $60,000 in one year while only spending $40,000. That means that after one year of doing this, you could live for another year and a half on your $60,000 savings because you only spend $40,000: thus 1.5 years of accumulation. 

To understand the "Years to Freedom" column, you must simply divide 25 by your "Years Accumulated." In order to maintain your standard of living while withdrawing 4% of your portfolio each year, you need 25 years in your portfolio. (If you are spending 100%, the Excel formula shows an error #DIV/0! because you will never retire. Sorry.)

So, if you are able to save 50% of your income, it will take you 25 years to save enough to retire (without investing). Conventional advice recommends saving somewhere in the 10% - 20% range, which results in a retirement a couple of centuries from now. That sounds like fun. But notice what happens when you start to jump above 50% savings; just 20% more cuts 15 years off of your retirement age. If you save 70% you can retire in 10 years.

Go After What You Want

I assume that most people probably see this and become annoyed that I would even suggest something like this. Sometimes, it seems to me that we get more comfortable with complaining about our situations than actually doing anything to make our lives better. I'm not suggesting that everyone suddenly start saving upwards of 50% and retire as soon as possible, I'm simply pointing out that this is an option for those who choose it. If you are happy with your high consumption lifestyle fueled by long hours of work, then by all means continue to do that. I always hope that people will do what will make them the happiest.

But, if you do wish that you could do something different with your life, and you do want to become financially free, then make like Nike and just do it! If you make upwards of $50,000 every year, you can save upwards of 50% if you really want to. Sometimes we get stuck in this rut of feeling like we are "barely making it," despite the fact that many millions of people make it with less than we do. You may not want to sacrifice your fancy car and stainless steel appliances, but you could if you really wanted to. And that's the beauty of being alive: we have the free will to blaze our own trails.