The Essence of the Early Retiree’s Savings Rate

The “effective savings rate” is a key metric for anyone planning or executing a plan for early retirement. Before starting down the path of early retirement, for example, many folks will first consider “How much am I currently saving?” and “What trade-offs might I have to make in my daily life to increase that savings rate?”

Once embarking on the path to early retirement, many people will go through phases to find ways to increase that savings rate. Some may be the super-analytical type. They’ve optimized many other aspects of their early retirement journey, and now they want to focus on optimal execution of savings, extracting every bit of value from their day job’s pay check. Some of them may also be the competitive type. They might try to put their numbers up against fellow aspiring early retirees to see who can find the best, most creative ways to maximize savings. Sometimes, retirees might find a renewed interest in maximizing savings rate because they might be seeking a sense of increased freedom in their current situation. Often, saving a bit more paycheck can be a great way to cope with a stressful time at work. Make your paycheck work harder for you, right as your company is making you work harder for them!

For any number of great reasons, savings rate is a hugely important factor, and one you should certainly visit and revisit on your path to early retirement. For these reasons, I’m going to offer some thoughts to help clarify what parts of the savings rate are and are not important for your early retirement.

What the Savings Rate is Not

The savings rate is not a number. That’s right, despite all the great articles on how to come up with all the calculations, about how to find and combine all the numbers, the essence of the savings rate has nothing to do, in fact, with numbers. Early Retirement Now has a great write-up about different ways to split your income, assume different tax rates, and come up with several different percentage splits to represent your savings rate.

Understanding different accounting methods might give you insight into whether you have a 60% or 62% savings rate. Calculating an exact number can definitely be a fun exercise to help you think about your current expenditures. It may help inspire you to find more stoic ways to score an even better number. However, calculating your exact percentage, figuring out whether to include your 401k contribution, your employer match, the income from your investments, or the asset value of your car is really not helpful for determining the more important aspects of reaching early retirement.

Instead there are much more important aspects to focus on when it comes to your savings rate.

The True Essence of the Savings Rate

The true importance of the savings rate is in how fast you can build up your retirement passive income. The true importance in savings rate is not the percentage of how much you save, it’s how many dollars you actually save. The real importance of boosting your savings rate is boosting your savings (and income).

Here’s an example why savings is really the important number. Say you’ve run all your retirement plans, and you know that you can retire as soon as you hit $1.5million. If you currently still need to save $1million more dollars, focus on maximizing the number of dollars you can save. If you know how many dollars you can save in a year, you know how big a chunk of that remaining balance you can save every year. You also know exactly how many years you have left to work save, before you can retire.

Saving for my own Retirement

The Mustache-father wrote a famous article on the surprisingly simple math behind early retirement*. However, that entire chain of logic hinges on keeping out of pocket spending perfectly flat from working days into retirement. If you think your spending will stay perfectly flat, consider (among a multitude of other examples) the total cost and benefit of your employer medical plan.

In my case, my employer subsidizes my premium over $7k per year (in addition to my own $200 out of pocket per month). Thanks to a large, healthy corporate risk pool, I receive better coverage in the form lower annual premiums and lower out-of-pocket maximums. Despite all the baffling goings-on at my job, this health insurance is actually a great deal. If I retire and purchase Obamacare, I will lose corporate subsidies and join a much more expensive risk pool.

Any savings realistic savings rate calculation should include the subsidy (as both a part of my income and also a part of my expenses), but the savings rate is not the important part. Instead, I should determine my true absolute retirement spend, determine a safe withdrawal rate, and determine how much more I need to save to get there. This honest accounting may mean saving a more, but it also means less surprises when I get to retirement.

How Extreme is the Market’s Current CAPE


This week brings a public service announcement.
With the Shiller PE ratio currently over 31, what does this mean for your retirement?

While Bianco has a more conservative view of extreme (and many other economists are also quick to debate Shiller’s metric), the Shiller PE is actually at a fairly extreme level. Only in 3% of market history has the CAPE been higher.

While this certainly suggests markets are directionally high (especially for aspiring, soon-to-be early retirees), the fact that only 3% of history is available to sample from (only 53 months out of a total 1761 months of data) suggests a huge degree of uncertainty.

The “Random Walk” may be even less predictable today than usual…

5 Lessons from the Fincon17 FIRE Panel

Recently, I attended FinCon17 in Dallas. If you read Easy Does It FI regularly, you saw my pre-game analysis and thoughts leading up to the event. Overall, the conference was amazing, and I highly recommend it for anyone who might want to retire early (or retire at all). There were lots of great panels with lots of great information, and I feel a renewed sense of inspiration about my journey toward early retirement.

One session, the “FIRE panel” was particularly great for aspiring early retirees. The panel consisted of Tanja from Our Next Life, Doug from The Military Guide, Gwen from Fiery Millennials, and Scott Trench from Bigger Pockets. These panelists are established thought leaders in the FIRE movement. Doug and Tanja are even early retired. Through the conversation, these panelists did a great job touching on important topics and raising questions that probably don’t get asked enough within the early retirement community. The attendees were exceptional as well, and through the open forum, the group was able to explore some topics in depth. Of the topics, here are 6 of the most important.

Continue reading “5 Lessons from the Fincon17 FIRE Panel”

A Lesson in Early Retirement from the Newly Retired


14,000′ High Goals
Lofty Goals

Much of any financial independence early retirement blog will (rightfully) spend a great deal of time covering early retirement. The best authors will cover their plans in great, technical detail, running tons of sensitivities and stress tests (“what if the market this?”, “what if healthcare that?”). They will also diary their emotions and daily trials, sharing what it takes to really make the jump on a personal level. After retirement, some bloggers may even continue writing, providing updates and sharing their ongoing personal growth. If you read these blogs (and you’re here reading Easy Does It FI), then you probably agree that early retirement is an amazing accomplishment. Hopefully, you’re interested in applying these lessons and early retiring yourself.

Continue reading “A Lesson in Early Retirement from the Newly Retired”

Fincon17 or “How I Learned to Stop Worrying and Love the Bomb”

Preparations for my first Fincon

With the start date of my first Fincon only weeks away, I can’t help but reassess this decision. Is this still a good idea? Will my time and money be wellspent?

Continue reading “Fincon17 or “How I Learned to Stop Worrying and Love the Bomb””

More Grocery Store Antics

A short while back, I wrote a post on how grocery stores offer a money-saving option when going out for dinner. Since that post, I’ve discovered more great ways to use the grocery store!

Grocery Antic 1. Self-Checkouts for Change

Thee are lots of ways to make transactions these days. Traditionalists prefer cash. Some even like to whip out a checkbook in a store. Most folks these days prefer the convenience of plastic. Some folks who have poor credit history or younger folks with no credit history may Continue reading “More Grocery Store Antics”

Financial Independence: You Need a Mission Statement!

Is touring a brewery actually working..?
Is touring a brewery actually working..?

Starting Off: The Brewery

A few days ago, I was on my side hustle at the brewery. Having mastered the job of pouring beer at the bar, I asked for some broadening. One such opportunity was to help the founder run his Saturday tour. Excited to network and learn more about the brewery, I jumped at the opportunity. Continue reading “Financial Independence: You Need a Mission Statement!”

Baffling Conversations: The Holiday High

Ah.. a nice summer evening with the family!
Ah.. a nice summer evening with the family!

I was really hoping not to post two “baffling conversations” consecutively, but with the recent holiday, this post really makes more sense to get out earlier. Also,now that I’ve started blogging about the ridiculousness of work around me, I’m finding the craziness and misalignment of values stands out more. Just this week, I can recall several. However, given that the workweek is five days long, I’ll just pick my favorite five:

1. A manager talking about how her kids eat breakfast in the car at 5:30 am when she drops them off at daycare. She brought this up to complain about the food that they spill.

2. An older engineer talking about a great new derivatives investment he just started using, but could not explain how it worked to his colleague in the locker room.

3. One of my better acquaintances telling me that my bike commuting made him sad – sad because of all the modern luxuries (like cars and AC) that I was wasting.

4. One of the corporate planners down the hall telling me how she had planned for this Saturday to be her off Saturday.

5. Some friends posting a facebook picture with a fat stack of Benjamins (i.e. $10k), having just arrived for the weekend in Vegas. (Ok, I know this one is not an office conversation, but it’s so egregious, it makes me want to call a “flagrant” frugal foul.

Continue reading “Baffling Conversations: The Holiday High”

Baffling Office Conversations: A Motorcycle Accident

As someone who has not yet pulled the trigger on early retirement (for a number of reasons, but that’s another post), I get the benefit of going to an office everyday. An office is a weird, singular place for a number of reasons. As an adult, where else could you spend so much of your time and energy yet have so little control of said time and energy? Where else could you dedicate so much of yourself to someone like the ubiquitous “shareholder”, yet never feel like you really met the customer’s needs (or even met the customer)?

On the positive side, where can you (when managed effectively), spend so much time with a group of people (dare I say “team”) so energized that they spend a majority of waking (and some non-waking) hours devoted to singular goals? Where else can you find devoted, driven, intelligent people and spend all your time tackling some of the world’s toughest problems? Finally, how else would you meet so many diverse people, people whom you would never have met or associated with otherwise?

Amazingly, all of this, good and bad, is possible in an office. Continue reading “Baffling Office Conversations: A Motorcycle Accident”