Archives for December 16, 2015

Financial Independence Heat Map: Starting Age vs. Savings Rate

If you are into podcasts and enjoy long conversations about higher-level personal finance topics (put that in your dating profile!), check out the Radical Personal Finance podcast. I’ve only listened to a few, but I enjoyed Episode 181 on The Impact of Your Savings Rate on Your Time to Financial Independence. If you make $50,000 a year and spend $40,000, then your savings rate is 20%.

Based on math formulas mentioned in the podcast, a commenter named Philip Frey created a “heat map” Google Docs worksheet with starting age, savings rate, and age at financial independence. Green means you retire by age 40, yellow by age 50, red by age 65, and grey… means you’ll be heavily reliant on Social Security. 😉


I believe the assumptions include (1) both income and spending numbers are after-tax, (2) once you reach 25 times expenses you reach financial independence (4% safe spending rate), and (3) outside pensions and Social Security are ignored. It’s not perfect and I wouldn’t take hard numbers from this chart, but it’s still a neat visualization.

Savings rate is a great way to measure your velocity towards financial independence. Treating the components of income and expenses as separate, as opposed to intricately linked as most people assume, is the key takeaway.

Achieving financial independence is quite difficult no matter how you do it, but my bet is that at least 10x more people have achieved early retirement through high income and average spending, as opposed to average income and very low spending. This is based on our own observations, including having household income that varied between slightly below average and well above-average. I could be wrong; I’d love to see some good data on this.

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