Your Savings Rate Determines How Many Years You Will Work

Would you believe that a higher earner may take longer to retire if they are not prioritizing saving? A lower income means a lower savings goal in order to support that lifestyle and retire comfortably, which is why savings rate is so important. Regardless of your income level, it’s your savings rate that will ultimately determine how soon you can consider yourself financially independent.

I am certainly not the first to write about this topic, and personally appreciate the article written by Mr. Money Mustache who is well known in the financial independence, retire early community. Some of the content I cover here closely resembles his predictions, however I use a 7% return versus the 5% rate he used in his calculations.

You learn by teaching and I hope that by writing about this concept in my own words, I can improve my knowledge of the subject while putting it in a different perspective for others to benefit from as well. Enjoy!

Don’t I Need a Big Salary To Retire Early?

Surprisingly, not what you would think. Don’t get me wrong, there are some basic necessities like food and shelter that may suck up significantly more of your paycheck when you earn less. That being said, lifestyle creep causes many families to spend more of their income compared to when they earned less. Typically you will need 25 times your annual expenses to retire comfortably by spending 4% annually of your invested savings (more about that here in “What is Financial Independence?“). You know what is really nice about earning less? You are accustomed to spending much less too, so that means your overall savings target can be much lower than someone who earns a higher income.

Let’s check out the math.

The chart below shows how someone can save 50% of their income over the next 15 years at a variety of income levels. In the first column, you can see the targeted savings to support the four different lifestyles ($10k, $20k, $30k, and $40k annual expenses for this example). The next 15 columns represent the savings someone will accumulate over the next 15 years applying that 50% savings rate. Notice that regardless of income level, it will still take 15 years to accomplish the savings goal because the more money you earn, the more you will need to save in order to retire.

Years to retirement – Four different lifestyle targets

That’s all fine and dandy, but 50% may be a huge amount to save from your paycheck each month. Maybe you’re currently saving 0%, 5%, or 10% of your annual earnings. Before I was working at a job that offered a 401k, I lived paycheck to paycheck and never gave long term savings a second thought. I was too busy trying to figure out how to get myself to work on a bicycle when my car kept breaking down. If that’s you, please don’t be discouraged and consider checking out my post about a couple different paths our family took to increasing our income.

How Much Should I Save to Retire Sooner?

Let’s take Ashley, who is 30 years old and just started a new job earning $50,000 and is saving 10% of her salary. Assuming she earns 7% on her investments, she will be able to support her annual retirement expenses of $45,000 (90% of $50,000) after almost 42 years. Compared to most Americans, Ashley is doing pretty good since the average savings rate until recently was only about 7.6%. Unfortunately, the average American still isn’t saving enough.

Average Savings Rates in the United States

Average Savings Rates in the US: Reference Statista 2021

If Ashely needs to work for another 42 years, she will be working until she’s 72 based on this savings plan, assuming no income from social security. Now if she increases her annual savings to 40% of her income ($20,000 annually), she can expect to retire earlier in about 19 years. This scenario is a huge improvement because she can now be independent of her paycheck and the need to work for a living 23 years earlier at age 49.

The reason she is able to jump from 42 years down to 19 is because she is taking advantage of saving more, while also reducing the amount she needs to achieve financial independence. When spending 95% of her paycheck at $45,000 annually, she will need 25 times this to retire, totaling $1.125 million dollars. With a 40% savings rate, Ashley would be comfortable living with $30,000 annually, building her wealth faster, and lowering her savings target to $750,000 (25 x $30,000).

Remember that regardless of income level, your timeline to financial independence is the same as anyone else assuming you maintain the same savings rate. Check out the chart above to understand how long you will work for your current savings rate. If you don’t like the current projection, consider what you can do to increase your income (assuming you save the delta), or minimize your expenses to increase your savings rate.


  • The higher your annual expenses, the more money you need to save to support that lifestyle in retirement (the magical # is 25x your annual expenses)
  • Our savings rate and choice to invest appropriately are more important than your income level or dollars you have accumulated.
  • For example, assuming 7% returns, you could retire in 15 years if you save 50% of your income, regardless of how much money you make.

For me, this was extremely motivating because it helped me channel my inner cheap @$$ and embrace it, even though my income has grown over the last 10 years. Ultimately, the less money I need to support my lifestyle, the less money I need to have in order to achieve financial independence. When we live like a cheap @$$, it helps us achieve our savings target faster, and lowers that savings target as well – It’s a double win!

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