How many years does it take to reach financial independence?

Graphic of five out of six servicemembers leaving the military before earning a pension.

Stay in or get out, but save.

Over 30 months ago(!), I wrote a post that helps estimate how much time it takes to reach financial independence. It made several “simplifying” assumptions* about income during your working years, your retirement expenses, the length of your retirement, and your investment returns. If you could decide what percentage of your income you were willing to save then you could determine how many years you’d need to work.

* [Retirement forecasting is too complicated to be totally reliable. The best you can do is make some conservative assumptions and then try to stay within those limits while you save– and also during your retirement. Luckily, these assumptions are both realistic and achievable.]

The short answer: if you save “only” 15% of your gross income then you’ll be working for a full 40-year career. (Better find one you can enjoy.) But if you can save 40% of your income then you can cut that career down to ~20 years. If you can save half of your income then it’s about 16-17 years. When you reach your financial independence then you can work if you want to, when you want to, for whom you want to, or for yourself. You can also arrange your life around the surf forecast.

30 months ago I was more interested in the math and the assumptions than in the actual calculations, which generate a series of tables. Other posters helped out with spreadsheets, and I’ve seen various website graphics that helped simplify the data input.

Now we have a better tool: Financial Mentor’s calculators.

Financial Mentor’s creator, Todd Tresidder, has spent considerable time & effort developing over 80 different website calculators that can be run from his site. This is blogger catnip for personal-finance writers because you can do the calculations right on your own blog (keeping the traffic for yourself!) instead of passing all your readers on to another site.

For readers, Todd’s tools avoid many of the pitfalls of calculators. Before you use them, however, you should review his assumptions to see how they match your own retirement planning philosophy. His research and writing are much more in-depth than a typical blogger or financial analyst. In Navy terms, you may feel that you’re drinking from a 2.5″ 250-psi firehose. I think Todd’s earned the credibility: he graduated from college with debts and then achieved seven figures of financial independence in just 12 years. Now he’s had nearly 20 years to think through the process of showing others how to do it.

How does this new tool work? Well, the math is the same as the old tool. The new tool uses savings in dollars instead of as a percentage of your pay. The improvement is that you can tweak your own data entry as many times as you want without having to deal with spreadsheets or repetitive calculations.

Before you get started, let’s review the assumptions. Some of them have come under scrutiny but they’re still valid for a first approximation at the start of your saving for financial independence. Most people will be saving for 10-20 years, and you’ll have plenty of time for mid-course adjustments. After you retire on these assumptions, you’ll also have plenty of opportunities to tweak your spending and react to changing situations. Today’s post will equip you with a high-quality lightweight chainsaw to start carving out your vision of financial independence. In a later post, we’ll give you more shaping tools that will allow you to finish your retirement longboard using laser guides and 800-grit sandpaper. The assumptions are conservative enough that the “worst case” will be a bigger longboard than you intended. You might be surfing on your financial independence faster than you expected, and it might float better than you hoped, but you won’t have to scrap anything or start over.

Our first assumption is that the Trinity Study’s 4% withdrawal plan is a safe withdrawal rate. I know it’s supposedly been ripped to shreds by financial-analyst wolverines, but it’s stood the test of time and you can adjust your SWR in retirement.

The second assumption is that you’re going to develop a conservative retirement budget. It should allow for a new roof on your home and a replacement vehicle or two. You’ll probably want to support some of your family’s college expenses and definitely your travel or hobbies. Your spending plan has to start with a minimum (you can always cut back to this level) but then you’ll add estimates for family, entertainment, travel, and the other things in your life that you value. You do not want to start your “financial independence” living in a cramped home on a bare-bones budget, and you definitely do not want your fallback position to be eating cat food and selling body parts. Be conservative, but be reasonable.

The convenience of that second assumption is the math: you’ll be financially independent when

Assets = Retirement expenses / 4% = 25* (Retirement expenses).

How will you get there? With a few more conservative assumptions:

  • Constant savings over the years, even though you’ll probably get promotions and pay raises.
  • A conservative return of 5-6% per year, before inflation, similar to the Gordon Equation.
  • Retirement spending rising with inflation, even though in real life you’ll occasionally cut back.
  • No retirement income, even though your interests may generate cash.
  • No pension, no Social Security, no Medicare.
    • If you think that you’ll get a military pension then reduce your retirement expenses by the amount of your inflation-fighting pension.

Now enter your numbers into the calculator:

  • Start with your current retirement savings.
  • Add in the financial independence goal you calculated from “25* retirement expenses”, and
  • Figure out how much of your monthly income you want to save.
  • Use an annual interest rate of 5% if you have a portfolio of 20%-50% equities, but feel free to use an annual interest rate of 6% if your portfolio is over 50% equities.
    • Don’t go crazy with your investment returns– even 8% (before inflation) might be too high.

Click this link to open a separate window to the simple retirement savings calculator.

If you want to approach the question by figuring how much to save over 20 years (or some other time) then use this retirement investment calculator.

If you want to compare these calculator results to the old post’s tables of returns for 5% and 6%, refer to the post “How many years does it take to become financially independent?”

Remember that these two calculators are just a more convenient way of answering the questions “What percentage of my income should I save?” and “How long will it take?” They’re not the only tools that will help you reach financial independence, and you should absolutely consider other retirement planning methods and calculators. The related posts below describe the details of the issues with other calculators and offer suggestions on how to sort through the chaff.

By the way, this is the first post in a series of financial calculator upgrades for the blog. Mahalo nui loa a hui hou to Todd for reviewing my collection of over 400 posts to suggest others which could use a remix from one of his calculators. Over the next few months, I’ll be updating the old posts with the new tools.

Related articles:
How many years does it take to become financially independent?
Details of the 4% Safe Withdrawal Rate
Questions on the 4% “safe” withdrawal rate
Is the 4% withdrawal rate really safe?
Calculating a Reserve retirement
The regulation for calculating an active-duty pension
Military Reserve and National Guard retirement calculators
Retirement planners and calculators
Problems with retirement calculators
USAA’s retirement planner and financial goal-planning tools
The “Perfect” Retirement Calculator
Financial Mentor’s “Ultimate Retirement Calculator”

WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

  1. Thanks, Mike!

    The good news is that progress is quick when you’re motivated by the third step…

  2. This is a great tool to add to the toolbox for financial planning. It also re-emphasizes the foundation of planning for retirement security: you have to save money out of your very first paycheck, and every paycheck you get for the rest of your working life.

    Some people have been led to believe – partly by advertising from investment companies – that you can make a one-time investment into a fund and see your money grow at a rate that will provide you security. Clearly, that’s not true. You can lose your socks in the investment game. Setting aside money from every paycheck is the only way.

    • Thanks, S7! It’s hypothetically possible to buy a retirement annuity or a guaranteed withdrawal fund, but this calculator only handles constant savings. The last link in the “Related posts” above (“Ultimate Retirement Calculator”) helps model the effects of a variable savings rate and a one-time investment.

      However those actions generally require far more active investing than most military (and their families) have time or interest for. People are much more likely to save if they choose an asset allocation and then automate their savings as much as possible.

      • Nords,
        This pretty much validated the savings/investing percentage of our gross income that my wife and I have put in place since we got married over 8 years ago. We were saving/investing on our own prior to that and it really wasn’t until we “pooled our resources” that we were able to realize substantial increases in our nest egg. In the past 8 years, our savings/investments as a percentage of gross income fluctuated between 35% and 49%…saving/investing more while we were both deployed to Afghanistan and taking advantage of the tax-free benefits and the increases maximum contributions into our TSP.

        It also wasn’t until I got more focused on financial planning/independence (as I neared retirement from the Army) that I started looking at what our asset allocation needs to be, focusing more on the accumulation than having a cogent plan for where to put those accumulated funds. I wished I started sooner to maximize my savings/investments…but better late than never I suppose. I finally wrote down our Investment Policy Statement a couple of weeks ago and had the wife literally sign off on it as well.

        Achieving financial independence is definitely doable within a 20-year military career but as you wrote, one needs to substantially increase their savings/investments above the 10% (as suggested in Clason’s book “The Richest Man in Babylon” – still an excellent read), or the widely suggested 15%.

        Thanks…I only wish more of our younger service members (Officers and enlisted alike) would seek the requisite knowledge to make informed decisions about their finances and can utilize the power of compounding to set them on their way to financial independence.

        • Thanks, Mel! This topic has always been one of the blog’s top ten posts.

          I wish I’d started sooner and invested more sensibly but the good news is that saving is more important than brilliant investing.

          As for the next generation: one at a time. It usually happens after they get tired of living with debt.

        • “As for the next generation: one at a time. It usually happens after they get tired of living with debt.”

          That was step three for me. Step one was reading the articles that suggested to me that my retirement benefits were anything but secure. It is easier to ignore a lack of prudent planning when you have that nice little nest egg to rely upon, but certainly far less so if not. Step two was challenging my long-held assumption that I’d retire and then leverage my experience to go immediately back to work (for someone else!). I wish I would’ve thought of 2) much earlier, because a 20-year military career is absolutely a fine way to realize a goal of early retirement.

    Comment? Question? What's on your mind?