Early retirement: calculate your retirement number

This post may contain affiliate links. Please read the disclosure for more information.

I’ve been working since I was a little girl: first I started with doing small chores for my mom and dad, and when I was about 15 or 16, I got my first job outside of the house. I’ve been working ever since. I come from a family of entrepreneurs, so I am used to working for myself. I like the fact that I have an influence on what I make and that I have some kind of freedom as to deciding what I want to do on a specific day. Usually, I have to meet my deadlines and weekends aren’t as free of work as I would like them to be, but still; if I want to sit outside on an odd hot day, I don’t have to ask my boss for time off.

Early retirement

However, even though I like to work, one of my goals is early retirement. To me Early Retirement (or having that option) is based on two things:

Early Retirement = How much you take home each year vs. how much you can live on

For example: if you spend all of your income (or even more), you will never be able to retire early. You have to continue to work, to cover all of your expenses. Unless of course someone gives you a shitload of money, but I wouldn’t be waiting for that. This means you have a savings rate of 0%.

If you are living for free, you don’t have to work and can start your retirement right now. You would have a savings rate of 100%.

Your savings rate is the amount of money you are saving every year or month, divided by the total income per year or month.

Get your money to work for you…

One of the best ways to get to early retirement, is to get your money to work for you. If you earn 2,000 a month and need 1,000 a month for expenses, you can work one month, and have one month off. But it will never get you to a permanent early retirement.

It will if you use (part of) that 1,000 you are saving up, to make you money. For example by investing it or by putting it in a high-interest account.

Let’s say that you would get an ROI of 4%, on whatever you are doing with your money:


You earn 2000/month: 24,000/year

Expenses: 1000/month: 12,000/year

You save 1000/month:  12,000/year

If you want your expenses covered by your ‘nest egg’ (which is what we’ll call your savings), you will need to save an amount of 300,000, based on an ROI of 4%. If you have 300,000 in savings/investments, and you get 4% on this, you will earn 12,000 per year.

With the 4%, you will need to save up for 17 years and 5 months, to get to this point. The other well over 7 years (4% means multiplying your saved amount by 25) you will get for ‘free’ due to compounding.

…and work for your money

If you still feel that 17 years is too long to wait, there are some things you can do. For example: lowering your expenses. If we use the previous example, but lower our expenses to 750 instead of 1,000, you would get this:

Earnings: 24,000

Expenses: 9,000

Savings: 15,000

Required nest egg with ROI of 4%: 9,000 x 25 = 225,000

Time required to save this amount: 11 years and 9 months.

You see: by cutting your costs with only 25%, you will reduce the time to early retirement by approximately a third!

If, on top of that, you would also be able to make an additional 250 a month, you would be done even sooner:

Earnings: 27,000

Expenses: 9,000

Savings: 18,000

Required nest egg with ROI of 4%: 9,000 x 25 = 225,000

Time required to save this amount: only 10 years and 2 months (19 months earlier!)

So if you want early retirement, don’t just focus on making as much money as you can, but make sure you create a large gap between your income and your expenses.

Want to know more about this or crunch your numbers? On Networthify, you can find a great tool to check your savings rate and the time you have to work (and save!) until early retirement.


If you want to know more about creating your own AWESOME life, find us on Pinterest, Facebook, and Instagram!

Free Money Printables

Adine @ Average To Awesome

33-year old Dutchie with a passion for minimalism, doing more with less, and financial independence. And cats. Lots of cranky old cats.


Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.


Your guide to an absolutely awesome life.

[icon type="fa-facebook" size="icon-3x" url="https://www.facebook.com/AverageToAwesomeLife/" box="true"] [icon type="fa-twitter" size="icon-3x" url="#" box="true"] [icon type="fa-pinterest" size="icon-3x" url="https://www.pinterest.com/averagetoawesome/" box="true"] [icon type="fa-google-plus" size="icon-3x" url="#" box="true"] [icon type="fa-linkedin" size="icon-3x" url="#" box="true"]