facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
What are the Savings Rates to Retire Early? Thumbnail

What are the Savings Rates to Retire Early?

If you read my article last week where I shared some good stuff I have read recently, you noticed an article from Michael Kitces.  His topic was on what is more important when it comes to retirement savings – spending or saving rates.  Spoiler – it is spending.  Of course, spending rates impacts savings rates because as you spend less you have more to save.  Surprise!

Regardless, his theme ties directly into the whole FIRE movement.  Remember, this stands for Financially Independent, Retire Early.It is definitely a trend I am seeing, particularly with Millennials (yes, I am using that identifier here).  I think older generations simply called it retiring early, but back on topic. 

There was an article on FIRE recently on CNN and what caught my eye was they were kind enough to share some data on how much you need to save annually in order to retire in a certain number of years.  Let’s review some of the highlights:

First, if you are nearing your breaking point and want to retire in five (5) years:

  • Your savings rate needs to be at 82% of your net income!
  • For netting $50,000 of income after taxes you must spend no more than $9,000 so you can save $41,000 annually.
  • For $100,000, just double the above numbers.  Your monthly spending number going forward is $1,500.  I am pretty sure my boys eat more than that a month, especially during swim season!

What about trying to retire in 10 years?

  • Your savings rate is still pretty healthy at just under 67% of after-tax income.
  • That $50,000 net income number allows you to spend $16,750 annually with socking the remaining $33,250 away.
  • Doubling the net income to $100,000 again doubles everything across the board, including being able to spend $2,800 monthly. 

Alright, let’s see a more reasonable goal of trying to retire in 15 years.

  • Your assumption may be the savings rate here will make you feel as though you are living the lifestyles of the rich and famous compared to the 5-year goal.  However, the savings rate is still over 50%.
  • Net income of $50,000 permits annual spending of $23,150 and savings of $26,850.
  • Again, just double everything for income of $100,000.  Your monthly spending number becomes $3,858.

  Finally, what does retirement in 20 years mean?

  • The savings rate has finally dropped below 50% to a miniscule (note sarcasm font) of 43%.
  • At $50,000 you can spend $28,500 annually and save $21,500.
  • Okay, I am not calculating the doubling here.  I will not insult your intelligence that way.  Suffice it to say, your monthly spending here is a luxurious amount of $4,750.  French Riviera, here I come!

Now, I have no idea the assumptions of taxes, rates of returns, longevity, what types of accounts were used (tax preferred or not), and more were used here.  However, the overall theme of the article just stresses how important it is to start saving early.  And by saving early, I mean controlling your spending rates so you are able to save more (again, see the Kitces’ article from last week).Finally, in the CNN article there was a nice calculator so you can play around with your own scenarios if you want to achieve FIRE or just plain old retire on your terms.  And to help me reach my own retire early goal (I don’t have one), I am taking sponsorships for feeding my swimmers this winter😉