August 19, 2013

Retirement Savings Rate versus Working Left Till Retirement from MMM

Mr Money Mustache wrote the article The Shockingly Simple Math Behind Early Retirement and in that article he derived a table that lists the retirement savings rate versus the working years until retirement.   Normally I'd throw this in a Best of Blogs roundup but its such a neat table that I thought it was worth writing a separate article to point people to it.

The table is based on the assumption that you'll get returns of 5% after inflation and you'll use the "4% rule" for retirement spending.  You can use this table to figure how much of your income you should be saving if you have X years to retire.   Or you can use it the other way around to find out how many years you'll need to continue working based on a certain savings rate.

For example:
Say you start working at age 22 and plan to work till you're 65.  Thats 43 years of work.   Looking up in the table it has a savings rate of 15%.   Therefore you should try to save 15% of your income if you want to retire at the standard retirement age.

On the other hand say you start work at age 22 and you save a lot of your money and you have the goal of early retirement.  Lets say you're able to save 35% of your income.  Based on the table that would put you in good shape to retire after 25 years so you might be able to retire early at age 47.

Now lets consider if you had a late start on your retirement and you didn't get any retirement going until you were 35 years old.   If you want to retire at 65 then thats 30 years until retirement.   Looking up in the table he has values for 32 years and 28 years so we can guesstimate that the savings rate required would be midway between those.  That would mean something between 25% and 30% or roughly 27.5%.


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