Here it is: Early retirement charted out for you. At some point in time everyone has probably thought it would be nice to retire early and wondered what it would take. Well, I’m going to show you a simple chart that tells you exactly what it requires.

Amazing early retirement chart

Retirement isn’t dependent how much you make

The amount of income you earn isn’t the largest factor in how long it will take for you to retire. Someone who earns $100,000 per year but spends $100,000 – or more likely $105,000 – isn’t going to get to retire any earlier than anyone else.

But someone who makes $50,000 and lives off $25,000? Well, that person will likely be able to retire early.

It’s about how much you save

See, it isn’t what you make, but what you save. Specifically it is how much you save as a percentage of your take-home pay.

If you earn $50k in annual salary but live off $25k, two things happen:

  1. First you’ll need less total money to retire. You don’t need to replace $50k of spending in retirement – only $25k. So your target retirement balance will only need to be half as large as someone who spend their full salary!
  2. Secondly, you’re able to put a LOT of money into the retirement account. Compare to someone saving 10% of their salary – fairly common “expert” guidance. By saving 50% of your income in this example, you can retire in 1/5th the number of years it would take the 10% saver!

So your investments will grow faster through larger contributions, and the target will be lower. That shortens the time you have to work before retirement.

The larger the percentage of your income you save, the faster you can retire.

Want to retire early? This is how to do it.

But “living” is expensive, right?

Yes, your cost-of-living will certainly impact your financial situation. But are changes you can make to control those costs though.

Consider the example of Mr Money Mustache (not his real name). He’s a very popular blogger who is all about minimalist spending. He’s sort of the superman of frugal. Even with three people in his household – his wife and their son – they’re able to live about 70% cheaper than the average American family.

Just how cheap?

The Mustache family had spent right around $22,000 in 2016. Seriously. And they didn’t just sit around the house staring at each other – they are a very active and happy family.

Your priorities need to be straight to achieve this. Because it takes sacrifice. Something has to give. You can just buy “whatever you want” and expect to maintain a frugal lifestyle.

But perhaps it would be worth it?

Retirement chart assumptions

OK. We’re almost to the cool chart. First though let me clarify some assumptions.

Starting at $0

For math simplicity this chart assumes that someone current investments balance is zero. Not a single nickel saved. Someone who has money already saved and invested will be able to shorten the timelines.

Investment returns of 8%

Why? Because I don’t like the financial experts who throw around big unrealistic numbers like 12% returns each year. The market has returned between 9 and 10% annually over it’s history. 8% is a fairly conservative number and not unreasonable.

Inflation rate of 3%

The US government targets an inflation rate of 2% per year. Inflation, when kept in control, is actually a good thing. The long-term historical rate of inflation is closer to 3% though. I’d rather estimate on the more conservative end, so I picked 3%.

Investor returns of 5%

With investment returns of 8% and inflation of 3% that means the purchasing power of your money will grow at 5%. We’re going to call that our investor returns.

What we really care about is purchasing power. A million dollars in 20 years isn’t going to go as far as a million today. So we need to account for inflation, and we’ll do that by subtracting it from the annual returns.

Following the 4% rule in retirement

I’ve written an entire post explaining the 4% rule if you want to read it.

Short story though, if you are earning 5% (or more) annually on your investments, you should be able to withdraw 4% annually with a high chance of never running out of money.