After the popularity of the 34 year old Millionaire article, I started to think a little more about early retirement, and how much someone would have to save to achieve financial independence at an early age.  With that, I updated an article that I originally wrote in 2009 about the relationship between after tax savings rate and financial independence.

What exactly would be required to walk away from the day job and live completely off a portfolio?  Am I saving enough money to realize my goal of becoming financially independent and how long will it take?

With those questions, I broke open a spreadsheet and evaluated the percentage of savings required to build a portfolio that would cover my expenses in the shortest period of time possible.  I kept it simple and used after tax (or take home) salary, percentage saved, and a long term market return of 5% after inflation.

The Numbers


  • Combined Household After Tax (or take home) Salary: $85,000 (assume grows with inflation)
  • Annual Stock Market Returns: 5% (after inflation)
  • Withdrawal Rate: 4% (assume only dividends are withdrawn from a dividend portfolio, thus highly efficient taxation ~0%)
  • Assume invested in a non-reg portfolio with no capital gains tax.

I created a simple spreadsheet to go through the various scenarios at increasing savings rates.  Instead of displaying all the numbers, here is the savings rate spreadsheet so that you can do similar calculations of your own.  Within the spreadsheet, you can edit your “savings %”, your “annual after tax income”, and “market returns”.

After running through the scenarios, I came to the following conclusions on the years to financial independence (fi) based on after tax/take home savings rates.

Savings Rate Years to Fi
10% 51
15% 42
20% 36
25% 31
30% 28
35% 24
40% 21
45% 18
50% 16
55% 14
60% 12
65% 10
70% 8.5
75% 7
80% 5.5

Based on my assumptions, it’s apparent how guys like QCash were able to retire so early (in his 30’s).  QCash has indicated that during their working years, they saved approximately 50% of their income.  It’s also really interesting to note that if you can manage to save 65% of your household after tax income, then you can potentially be considered financially free in 10 years (providing that the market cooperates).

If you have a two income household, with roughly equivalent salaries, then perhaps a strategy that you can try is to live on one income.  As you can see from the table, saving 50% of your household income puts you on the fast track to financial independence.

There are some weaknesses of the spreadsheet though.  First it assumes a steady income and does not account for raises or reduced income. Second, as mentioned above, the shorter time frames to financial independence will result in greater market risk.  While the stock market has never lost money over any 20 or 30 year period, the market has lost money over 10 and 15 year periods.  Third, it assumes tax efficient Canadian dividend income with very little or no taxation.  You may need to rework the spreadsheet a little if you have other sources of taxable income.


It’s pretty obvious that the higher percentage of income that you save, the closer financial independence becomes.  However, what this article demonstrates is how powerful aggressive saving can be.

If you only save a small portion of your income, don’t be discouraged by the large number of years before financial independence.  My calculations did not account for Canada Pension Plan or Old Age Security. Both of which could provide a family with up to $36,000/year providing both spouses qualify for maximum benefits (at age 65).

Looking for some frugal tips? Here are 25 Ways I Save Money.


  1. The Weakonomist on May 5, 2009 at 8:34 am

    This is a great illustration of the advantages of saving early. My problem is lately I’ve realized I don’t want to retire. I need to do something and if the work I’m doing is something I like I see no reason to retire unless I can no longer do my job.

    That being said I’m still saving 15% of my income, but in my mind now I hope to never use it.

  2. traineeinvestor on May 5, 2009 at 8:42 am

    I ran the numbers and reached the conclusions that:

    1. a high savings rate gave the highest probability of achieving early retirement;

    2. higher rates of return would help, but achieving higher rates of return is risky and uncertain;

    3. early retirement implies more years spent in retirement which means greater vulnerability to problems such as inflation. I concluded that over a 40-50 year peiod, we could not afford to rely on any drawdown of capital to meet expenses (in this context, Hong Kong does not provide a meaningful pension system as a fall back in case my own savings prove to be insufficient).

  3. Canadian Finance on May 5, 2009 at 10:07 am

    Living off one income sounds hard, but with the wife due in Oct and possibly taking 3 years off (not just the maternity leave), we’ll learn how to do it. The goal is that when she goes back to work, we keep living the same way we were and invest her salary.

  4. FrugalTrader on May 5, 2009 at 10:16 am

    CF, is this your first child? In case you haven’t done your research on the tax credits available, here is a list:
    Spousal Amount, UCCB, and CCTB!

    As well, here are some newborn expenses to expect:
    Reader Comment: Newborn Baby Expenses!
    Shopping for a Newborn I – The List
    Shopping for a Newborn II – Summary and Tips

  5. QCash on May 5, 2009 at 11:17 am

    CF – When we decided to start thinking about having children, we decided to try living just on my salary. My wife and I married later than our friends (I was 29, she was 31), and we had established careers and household stuff. It didn’t take long to realize we were spending a lot of money on unnecessary things: eating out/ordering several times a week, toys for boys (big screen tv was a “need to have” for me ;-) etc. It was amazing how much we could make do on one salary. It also took us longer to get pregnant than we thought, so we had a few extra months.

    FT – Living off the dividend income is “Foster-esque” and what I have tried to do. But the real advantage we found for us was paying off our mortgage and debts. There was a freedom of mind and purpose when we no longer had to make weekly payments to the bank (and we were making large payments as we had an accelerated weekly which we increased as much as we could each time).

    Finally, there is the reality that once you don’t work, your expenses drop significantly. Gas is cheaper, my wife doesn’t use the dry cleaner as often, things I would have hired people to do around the house were completed by myself (much to my wife’s chagrin).

    With all that said, these past 8 months have demonstrated that no plan is perfect. I have seen my portfolio drop from 1.8 M to 1.4 M and back up to 1.6M. However, my income remained almost constant (I lost out on a couple distribution cuts to H&R Reit and Enervest Income Trust) but made a big purchase of BMO when it was yielding 10%.


  6. George on May 5, 2009 at 11:43 am

    The other items not factored into MDJ’s spreadsheet are private pensions. If you’re part of a pension plan, you get the benefit of forced savings (since the pension contributions are deducted from your pay) but you get the drawback of limitations on when the money can be used and how much money you can save outside of the pension. My RRSP contributions are fairly limited because of the pension adjustment, and the earliest I’ll be able to draw an income from the pension is age 50.

    Of course, having a guaranteed inflation-adjusted income for life is a pretty sweet deal once the pension starts paying out… :-)

  7. Stan on May 5, 2009 at 1:08 pm

    The single best advantage of my job is the indexed, guaranteed benefit pension plan. It will allow retirement at 56, after 30 years, and pay out 60% of my 5 top earning years. I consider this the “fixed income” part of my investment mix because it’s as secure as one may find today (federal government). I always find it intriguing when my colleagues tell me they stash all their retirement savings in ING accounts, GICs, etc. with pitiful returns. I am about 90% stocks, because a pension plan dramatically increases one’s risk tolerance. If the market performs well over the next couple of decades, earlier retirement could be in the cards with a nice stream of dividend income. That option won’t be open to those with limited savings and fully taxable, below-inflation returns.

    • Max on September 13, 2016 at 6:00 pm

      You sir, have a great pension plan. Won’t lie… I’m jealous!

      In regards to your 90% held in stocks – I’d personally diversify to mitigate market swings but, to each his own! Cheers

  8. Sampson on May 5, 2009 at 2:28 pm

    So have you decided when you’ll retire based on these new calculations?

    In the past, I’ve always just set a comfortable savings rate for us, then tried to figure out when I’d have enough, but this seems like a very powerful way of thinking about the number.

    If reducing spending now by 5% means I can retire 5 years earlier it may be worth it.

  9. FrugalTrader on May 5, 2009 at 3:24 pm

    Sampson, we’re still undecided! As a reader mentioned before, the earlier we retire, the more conservative our withdrawal rate must be due to the long time line the portfolio must endure. I’m thinking that as long as my withdrawal rate is slightly below my portfolio dividend yield and enough to cover expenses, then we’ll seriously consider early retirement.

    But yes, the calculations really show the power of increased savings.

  10. cannon_fodder on May 5, 2009 at 3:53 pm


    Is this your combined savings/expenses, i.e. for you and your wife? A really interesting way to think about funding retirement that focuses on how much you can put towards retirement by reducing spending.

    I used to play around with spreadsheets where I ignored the CPP and OAS. Now that I include it, early retirement is much more likely. I think ignoring it is as unrealistic as someone else expecting to achieve 12% returns annually – there is such a thing as being too conservative. As you alluded to, it can be very significant for a couple that can acreceives close to the maximum government assistance.

  11. FrugalTrader on May 5, 2009 at 3:56 pm

    CF, yes it’s combined expenses/savings, so family savings/expenses.

    I agree, CPP/OAS reduces the load for retirement funds needed, however, my calculations were more for early retirement where CPP/OAS haven’t kicked in yet.

  12. cannon_fodder on May 5, 2009 at 4:10 pm


    Let’s agree that I will be called “c_f” vs. CF (Canadian Finance) ;-)

    Back to the point – that is why I found it helpful to create a spreadsheet which takes into account early retirement and then government assistance to see whether or not one would exhaust retirement funds too quickly before the government assistance could help out.

    In spite of the recent market meltdown, I’m pleased to see that Freedom 55 is still a very realistic goal. My wife and I are of the opinion as we see how our parents are well into their retirement that there is a lot to be said for keeping employed in some capacity that is enjoyable. Not so much for the financial benefit, but for the mental and emotional well-being.

  13. Canadian Dream on May 5, 2009 at 4:23 pm


    I’ve always included CPP in my calculations. Out of the two programs that is the one I find most unrealistic to ignore.

    On the OAS side I agree with people that point out there is a risk to the benifit being cut. There is also risks of wars, plauges, soical unrest and many other things that can also happen over 40 or 50 year retirements that are impossible to predict. So I’ve just given up and decided to run using both OAS and CPP, I can’t predict the future, so I’ll assume tomorrow is the same as today. If I’m wrong I can adjust my lifestyle or *gasp* do something to earn some extra income.


    You still don’t have a date picked out to retire! What kind of PF blogger are you? *using irony font here*

    I’m curious FT if you keep extending your savings % up to 60% how short does it get? At a certain point increased savings would result in diminishing reductions in time to FI and people would wonder what’s the point for leaving work six months earlier if you save another 5%. (ie: going to 15% from 10% saves you 10 years, while 45% up to 50% only gives you 2.5 years)


  14. Sampson on May 5, 2009 at 4:30 pm

    This post is crazy! We’re talking about 50-60% savings rates!

    I know most of us are relatively young, but I wonder at what point the mid-life crisis kicks in. With all that money set aside, I think it gets tougher and tougher to resist the big ticket purchases.

    My wife and I are sorta going through that now – I’m trying to hold back, maximize savings – but she’s starting to get annoyed when I look for cheaper alternatives.

    Maybe next year we should all take a sabbatical from saving, and all go buy BMW convertibles! :-)

    • Maxb on April 26, 2018 at 9:52 pm

      Be careful with “depreciable assets”. They are expensive and can kill a great retirement plan.

      Are you truly prepared if disaster strikes (ie life insurance, disability, assets outside of Canada, etc).

      If so, get a convertible!

  15. cannon_fodder on May 5, 2009 at 4:45 pm


    I recommend buying a BMW convertible (used, of course) – my wife loves it! Your dynamic sounds similar to mine – I’m thinking of ways to avoid spending and my wife rightly points out that we should not forgo enjoying today just to hopefully be in a position to enjoy our golden years.

    Thus, we have a better balance than if either of us had been alone.

    Once we have paid off the mortgage and the kids are gone, I think 50% savings rate will be quite achievable for us.

  16. Four Pillars on May 5, 2009 at 4:59 pm

    I also make the assumption that cpp and oas will be unchanged in the future. Cannon_fodder makes a good point that exluding them changes the retirement date quite a bit – especially if you are planning a modest income.

    If you are planning a very early retirement ie less than 50 then you will have to make a whole pile of assumptions (ie investment return, inflation etc) so it’s not like cpp and oas are the only variables.

    If you want to be conservative then don’t retire. :)

  17. QCash on May 5, 2009 at 5:03 pm


    My midlife crisis resulted in a 350Z convertible (yes, it was used, great deal).


    But again, it goes to the discussion about where you want to spend your money and how frugal you want to be.


  18. Ms Save Money on May 5, 2009 at 5:59 pm

    Thanks for the article – I’m a big fan of aggressive saving. I save 50% of every paycheck I get. I’m hoping to get a large enough amount so I can then start investing.

  19. DBennett on May 5, 2009 at 7:22 pm

    What you are proposing here is saving 35% of your net income. The left over amount here on a yearly basis is $3,750 a month. I am currently a student in Newfoundland (low cost of living) and my SO and I spend about $2,500 a month. That’s the bare essentials and not much else (it includes a car payment and such but no vacation, or other extras). When you factor in a mortgage, higher end clothes for a job, better car, vacations, kids and so on, this is totally unreasonable. You could have projected real stock returns of 10% a year and it would have been as reasonable.

    Also, I doubt that the tax rate on $100,000 is 30%. It should be higher. If this was on one income, it would be past 40%. Even if both persons made over $50,000 a year each, the tax rate is still over 30%.

  20. FrugalTrader on May 5, 2009 at 7:30 pm

    DBennett, the tax rate is the average tax rate on the whole salary, not the marginal tax rate on the last dollar earned. Check out this calc, put in 100k for a resident in NL, he’ll end up paying about $30k tax:

  21. DBennett on May 5, 2009 at 7:33 pm

    Indeed. Makes perfect sense in that regard.

    Any comments on the first part of the post?

  22. Phinance on May 5, 2009 at 7:36 pm

    What I worry about the most isn’t saving, which I do pretty well with, but investing it all in a business of my own at some point. Sure it would be nice to retire young, but that nagging what-if question would make me cash in most of my chips and bet on myself at some point.

    Anyone else in the same boat?

    • Wally on April 10, 2018 at 8:16 pm

      I see where you are coming from. My thinking is that when I reach financial independence I’ll have the time to invest in a business that will produce additional income. I suspect that once someone retires early, they would be able to take on more entrepreneurial activities that they wouldn’t have been able to do when they were working a full-time job and this may actually produce more income than their current 9 to 5. Maybe I’ll drop down to part-time to test this out ;)

  23. FrugalTrader on May 5, 2009 at 7:39 pm

    DBennett, I also live in NL, and I can tell you that saving 35% of your gross income is possible with high enough income and discipline. Actually, there are plenty of readers on this blog who save MORE than 35% on a regular basis.

  24. ssimps on May 5, 2009 at 7:39 pm

    I guess the more your yearly income is, the easier it is to save a larger % of it. If someone is making 200K a year, saving 50% is much easier than someone making 75K / year.

    LOVE the site BTW.

  25. Warren on May 5, 2009 at 7:52 pm

    I have been ignoring CPP and OAS in my own early retirement calculations, and I should probably stop as many here have stated.

    That being said, how do you calculate future OAS/CPP payments? If I retire early, my CPP will be a lot less, correct? Any websites or anything out there you guys are using?

  26. Neil on May 5, 2009 at 7:58 pm

    It is amazing the difference that seemingly small changes in the % you save can make. Unfortunately at 40 (and having lived a fairly irresponsible financial life) my goal isn’t to retire early, just to retire at a normal age with a decent pension.

    If only I could have my life over again……

  27. cannon_fodder on May 5, 2009 at 9:53 pm


    Calculating future OAS is easy… CPP not so much. I’ve been thinking of creating a calculator that would do this but I haven’t found a clear answer as to how the CRA does it.

    However, I did just look up my pensionable earnings for my working life and have seen what CPP estimates for my monthly payments. I will try to reverse engineer based on what I know of the formula and see if I can’t crack it.

  28. archanfel on May 5, 2009 at 10:10 pm

    Unfortunately, the calculation did not taking into consideration of inflation. For example, if somebody has a 40% saving rates, by the year 14, his expense would have grown from $30,000 to $44000. He would not be able to retire until year 22 and he would still run out of money by year 52 (30 years after retirement). Of course, that’s assuming his salary does not go up (which is kind of strange since the spreadsheet and the post do not match).

  29. cannon_fodder on May 5, 2009 at 10:39 pm


    I believe FT tried to keep everything in “after inflation” dollars. That is why you will see low investment growth rates of only 4%.

  30. DAvid on May 6, 2009 at 12:03 am

    ssimps has it right! In addition, this blog has attracted many individuals with family income well above the Canadian average, so it may well be easier for them to save more of their income. For example, FrugalTrader & Mrs FrugalTrader enjoy a considerably greater income than we do, so our net worth increases at very different rates.


  31. Sampson on May 6, 2009 at 1:19 am


    I assume when you guys actually ‘retired’ you were on paper better off than after this crash. After having children, living off less income (due to the retirement), do the ‘urges’ wax and wane.

    How would you compare your ‘frugalness’ before and after retirement?

    350Z, not the 370Z?

  32. TStrump on May 6, 2009 at 2:08 am

    I think about retirement almost everyday!
    I’m doing everything within my power so that I don’t have to depend on my job … but I’m not willing to sacrifice today.
    I have a friend who is doing a ‘crazy retirement plan’ but I feel he is risking his health and missing out on things that you’re supposed to do when you’re young.
    But, when I’m still working, he’ll be relaxing in Mexico, I guess.

  33. Brad on May 6, 2009 at 2:13 am

    The problem with most, “how much do you need to retire” calculations is that they fail to consider the element of risk on long term returns. And risk is what it’s all about.

    A fixed rate of return (“after inflation” or otherwise) is simply one of the many possible market outcomes. For example, the S&P500’s risk (as measured by standard deviation of returns) over the last century has been appx. 18%. That’s a lot – and even if your investment horizon is in excess of 20-30 years, there is a chance of low returns over that period – much lower than the historical average.

    My point here is that any retirement calculation must consider the risk of the underlying portfolio (read – expected standard deviation of the returns for the asset classes held and in what proportion). The trick isn’t to have enough savings/investments for the average or median case (as is done in most calculations), but to have enough to survive some lower expectation of returns, eg. the lower 10% so you can be reasonably confident that you will achieve your goals.

    There are simulators available to do this, eg. MCRetire.

    • Maxb on April 26, 2018 at 10:53 pm

      Remember that this uses US numbers. Great if your 100% invested there.
      Also, data is not 100% accurate. For example, inflation is 3.78 (stdev 3.51) for years after 1940.

      Try putting in canadian numbers (inflation 3.26% stdev 2.82%), and market returns of 7.21 (stdev of 4.5) for data since 1979. I believe if you incorporate more years, the numbers will get worse. (Almost 100% success of not running out of money if you retire at 55 with 550K in rrsp and 550K in Taxable account and spending of 55K per year with a ‘conservative spending habit’)

      Feel free to crunch your own numbers if you use the TSX average return for the last 10 years ( TSE average return is 1.04%)

      I also found some old data for sp500.. Average 15 year return for sp500 was 2.21% for the time ending Sept 2013.

  34. Warren on May 6, 2009 at 3:37 am


    You’re right, OAS is easy, and I get that. CPP is another story though, it is difficult to understand how they treat people who retire early. Let me know if you figure out anything, even rough estimates. I’ve been paying into the CPP at the max amount for the last 8 years or so, but I don’t know what I’d get if I stopped now and began collecting CPP in 20 years or so.

  35. mjw2005 on May 6, 2009 at 4:48 am

    As I get older….I am coming to the conclusion that I do not want to retire early….I sort of like what I do….and I have had times in my life where I was off of work for several months by choice….eventually I got a little bored….so super early retirement is not a major goal for me anymore….somewhere around my mid fifties would be nice though….

  36. QCash on May 6, 2009 at 7:04 am


    350z (though the 370z looks frickin sweet :-) I bought a used 2004 with 11,000 miles on it (imported from Arizona).

    The frugalness, once instilled, is hard to purge. It is a good habit to have, though I find myself walking down the aisles of Costco and Future shop longing for a big flat screen tv.

    On paper, I had not much less than I have now. My growth was all unrealized capital gains. I did aggressively use my HELOC to buy income producing stocks, reits and trusts rather than sell all my growth stocks as I didn’t want to get hit with capital gains all at once (oops!).

    However, the leverage has worked to my favour on a cashflow basis and as we climb out of this recession, I should come out ahead.


  37. Canadian Dream on May 6, 2009 at 10:05 am


    CPP estimates are HARD to do. The only way I’ve found was using the governments own retirement calculator and fooling around with the options. You can simulate dropping your CPP rate to zero. It’s not easy, but the only way I’ve found to get a number.



  38. Four Pillars on May 6, 2009 at 10:26 am

    I’m glad I’m not the only one who hasn’t been able to estimate cpp payments. :)

    I use a super-rough estimate of 70% of the maximum. I know if I worked until 65 (and maybe earlier) I would get about $10k in today’s dollars. If I retire at 55 I should be able to still get a good chunk of that maximum (ie $7k). If you are retiring earlier or have less working years then you’ll have to adjust that amount downward.

    I think for someone retiring 45 or less they might as well not count the CPP at all – it won’t be very much (I don’t think).

    It would be great if cannon_fodder can figure out the secret CPP sauce.

  39. cannon_fodder on May 6, 2009 at 11:58 am


    How, with H1N1, is your friend going to relax in Mexico right now?


  40. cannon_fodder on May 6, 2009 at 12:03 pm


    Make sure you check out if you want to get in on a deal for a big screen TV. I believe Costco is clearing out Samsung 61″ DLPs with stand for as low as $1,399 and they have Viewsonic 52″ LCD’s for $999 if my memory serves.

    On the other hand, maybe you shouldn’t…you can’t easily get a TV that large home in your 350Z.

  41. Lakedweller on May 6, 2009 at 1:16 pm

    Great topic! As usual.
    I thought there would be a few people tearing your spreadsheet apart. But it is a nice simple way to analyse a “not-so-simple” concept of being independently wealthy.

  42. cannon_fodder on May 6, 2009 at 3:53 pm

    Well, I’m not sure if I’ve figured out how CPP does it or not since I have only my facts/figures to go on.

    If someone is willing to forward me their information, I can try to see if it fits my model. I don’t want to know who you are (perhaps you can forward to FT and then FT can forward it to me blind) but what I would need are these facts:

    By year, your pensionable earnings
    Your birth month (unless when you turned 18 you made very little money that year and we can drop it)
    What the government has given you as their estimate of CPP payments when you turn 65.

    The government calculates this on a monthly basis rather than yearly. I don’t have records for myself when I was much younger. Thus, I can’t see how much I earned every month during the years when I wasn’t earning the maximum, making it hard for me to figure out which months to drop. From what I could put together, I’m within 1% of what the government’s estimate.

    There are 4 main components to calculate the CPP payments from what I can tell, and the ‘Replacement Rate’, ‘Pension Adjustment Factor’ and ‘Actuarial Adjustment Factor’ are all simple. The ‘Earnings Rating’ which gives a sense as to how close to Maximum Pensionable Earnings you achieved over your contributory period is the most problematic and requires a lot of manual input.

    Once I’m comfortable that I’ve hit upon a decent spreadsheet, I’ll share it within this community.

  43. Canadian Finance on May 6, 2009 at 7:28 pm

    FT, yeah first child! I do need to look into the tax credits it opens up as I haven’t had a chance, thanks for the links!

  44. Kathryn on May 6, 2009 at 9:44 pm

    Great post! Very informative.

    We’ve taken a slightly different approach. Instead of trying to retire early, we’re trying to live a more balanced life now. I work part time while the kids are still growing. When they’re grown, I plan on working full time into my 50s and 60s. I’d rather earn less now but get the time with them while they are young. It may be Freedom 65 but we’re happy with our lives (so far so good).

  45. Colourful Money on May 7, 2009 at 2:54 am

    This is definitely aiming towards the ideal, but it can be difficult with unexpected setbacks, such as having children, parents dying, car breaking down, and the ultimate: layoffs.

    I think that living on one’s income in a relationship is highly ambitious and would compromise the quality of life for some people. While retiring young is no doubt something we all want to do, do we really want to reduce our quality of life getting there?

    Just some thoughts.

  46. Dividend Growth Investor on May 8, 2009 at 10:55 am

    I am an aggressive saver as well. However what you do with those savings matters as well. If you just let it sit in your checking account there’s a high chance inflation would eat it away. However if you allocate it strategically into dividend stocks, real estate trusts and time deposits for income, you should do very well in retirement.

  47. Joe on May 14, 2009 at 8:17 pm

    Hi Friend,
    At first I thought that there was somethign wrong with your numbers because you have a 25% savings rate reaching FI in 26 years, but a 50% savings rate reachind FI in 8.5. My first thought was that the 25% saving rate would have A LOT more money saved up in 26 years – without even considering interest, it only takes 17 years to save at 25% what you would save in 8.5 years at 50%.

    However, from your spreadsheet, I notice that you are also varying the amount of money spent in retirement between the two scenarios – you only like on 20K/year in the 50% scenario as opposed to 45K/year in the 25% scenario. That’s kind of misleading – or at least is does not clearly limit your findings to the impact of increased saving ONLY.

    I agree with your point that increased saving is very powerful, but it is really only fair to compare the impact of increased saving on the same end state. For example, how many years does it take to get to $1M under the 25% and 50% scenarios? Using your spreadsheet:

    At 25% it takes about 24 years
    At 50% it takes about 15 years

    That’s the real impact of increased savings (without the distortion introduced by the reduced expenses).

  48. cannon_fodder on May 15, 2009 at 1:34 am


    The purpose of the exercise was to show if one focuses on savings first, rather than spending first, one can achieve FI much faster. You can find numerous calculations showing how long it takes to get to $X if that is the figure you ‘need’ to retire.

    The fact that the spending amount varies is valid – the premise is that your savings rate varies based on your expenses. Thus, if you can find a way to live on only 50% of your income, then the remainder can go towards savings. When you retire, one would expect that (after factoring inflation) the expenses certainly would not go up but would be in line with expenses before.

    It is a very different way of looking at it and perhaps you will see this perspective if you read through the example and comments again.

  49. cannon_fodder on May 26, 2009 at 11:04 am

    The federal government recently announced plans to change the CPP to make it more flexible. The general consensus is that the proposed amendments are positive and that the CPP, in spite of last year’s losses, is in good shape.

  50. CrazyFish on June 11, 2009 at 9:26 pm

    I’m not sure I understand the math behind the ‘portfolio value’ column in the spreadsheet. It doesn’t seem to account for taxes, which makes a huge difference. In addition, each row adds the current year’s added savings MULTIPLIED by the growth rate, which seems wrong because it needs a year to grow after being added to the pool.

    The formula for the ‘portfolio value’ column is currently:

    I wonder if it shouldn’t be:

    which puts retirement, at a 50% savings rate, at 13 years, not 8.5.

    Please correct me if I misunderstand.

  51. Blogging Banks on June 12, 2009 at 3:47 pm

    There’s a guy over at, who has saved 70% of his salary for several years, before becoming financially independend.
    Normally however, such enormous savings are tough to achieve. I prefer a balanced approach of save as much as you can, but also invest in the right asset mix and live life.

  52. cannon_fodder on June 13, 2009 at 10:50 am

    Blogging Banks,

    Thanks for the tip to that site. Although I’m frugal (comparatively to the populace) I couldn’t come close to doing what he’s doing. Especially with a wife! She must really love him and subscribe to his philosophy to some degree.

  53. FrugalTrader on October 21, 2013 at 9:30 am

    Note that I have changed the spreadsheet calculator since the original post. The original used gross income and this one is simplified with after tax (or take home) salaries.

  54. Dwilly on October 21, 2013 at 9:57 am

    I like how you’ve structured this article because it highlights what I think is the most important point here, and the point that most of the cynical commentators in the “34-yo Millionaire” article were missing: It is not your ABSOLUTE level of income or savings that is important, it is your SAVINGS RATE as a percentage of your income that matters!! Granted, in theory, a higher income ought to mean that one could achieve a higher savings rate, but I find that in practice, they are less correlated than you’d think, and most people don’t understand the distinction anyway.

    Now having said all that (and being among the ones that defended the author in the 34-yo millionaire post), I think your scenario is a bit rosy for a couple reasons.

    1) Assumes no taxes. If you’re in a very low income bracket and manage to collect all as Eligible Canadian Dividends, this may be possible. I think for most this is not realistic due to (a) portfolio size and (b) it would be dangerous/undiversified to have your entire portfolio in Canadian equities that pay Eligible dividends. So I think some taxation rate has to be included and this will increase your “time to freedom”.
    2) I think the 4% rate of withdrawal is too high, especially when the portfolio has to last potentially decades. There are monte carlo similators all over the web for this, most will show you the confidence interval for 4% withdrawal is maybe in the high 80s or low 90s at best for a 30yr period, and lower for say a 40-50yr period. I think 3.5 or, even better, 3% is more conservative here, particularly if you are “retiring” at 40. This again will obviously increase your time.

    But overall I think the message is exactly right. Get used to saving more/spending less AS A PROPORTION OF YOUR INCOME, whatever it is, and you’re on your way to freedom.

  55. FrugalTrader on October 21, 2013 at 10:23 am

    Great comment and good points Dwilly. One thing I did not mention in the article though is the use of a TFSA. Although some international dividends would face a 15% withholding tax, it would be a tax free withdrawal and offer diversification.

    And about the withdrawal rate, the assumption was a dividend portfolio with a 4% yield and withdrawing distributions only, no capital. So theoretically, the capital should last forever.

  56. Harry on October 21, 2013 at 12:01 pm

    I think the question how much one needs to save to retire is a subjective one as it depends on the individual’s lifestyle. In general, one should keep trying to save 20-30% of his/her income every month, and doing that should keep everything in balance automatically, leaving the person with enough for early retirement in most cases.

  57. Max on October 21, 2013 at 5:39 pm

    I enjoy this blog (FrugalTrader’s older posts are a great resource, especially for Canadian investors — I modeled my smith manoeuvre strategy around his), but this post is strikingly similar to Mr Money Mustache’s post from well over a year ago. Down to the wording, structure and so on:

    Obviously, a powerful message regardless.

    • FrugalTrader on October 21, 2013 at 5:46 pm

      You are right, they are very similar. All I can say is great minds think alike. :) This post was originally posted in 2009 and very little has changed.

  58. Akip on October 26, 2013 at 6:13 pm

    I guess a lot of this discussion depends on what your definition of early retirement is. For my DH and I, we will consider ourselves retired when our investment income will be sufficient to cover our basic living expenses.

    At this point, we will both continue to work – so there will still be additional income – but greatly reduced hours or in different fields entirely. Once we have this CHOICE to do whatever we please with our time, we will consider ourselves retired.

    I know this variable would be very difficult to incorporate into any type of calculator, but I feel like this situation is very possible at an earlier age for many people who are “paying attention to their finances.” (I cannot currently think of a better way of putting that) :-)

  59. S. B. on November 14, 2013 at 1:30 am

    The savings rate / years to FI table looked too simple, but we’ve been saving 40% for a number of years, and, well, yes, it is looking a lot like 21 years is the right number. Hmmm. Maybe the math is simpler than I realized…

  60. Carla on April 10, 2018 at 7:07 pm

    Sometimes I wonder about whether the relatively low taxation of dividends on Canadian residents will remain a fixed and safe assumption for the next 50 years.
    I have recently heard a politician mutter about being able to fund her grand new ideas by taxing what I assumed were stock dividends. Grrrr….what is your take on that?

    • FT on April 15, 2018 at 2:29 pm

      Carla, actually dividend taxation is slowly going up over the years! Essentially, the less tax corporations pay, the more tax shareholders will pay. But yes, corporate taxation is a political issue and really depends on the party elected and their taxation platforms. I would suggest stick to a strategy that works (i like index investing to help keep it simple or dividend investing if you like being more hands on), and not let taxation be the primary factor in your decision. To reduce overall taxation, I would suggest maximizing tax-sheltered accounts first (TFSA and RRSP) prior to starting a taxable investment account.

  61. Max on April 26, 2018 at 9:46 pm

    I would consider market returns of 5% over inflation is not achievable over the long haul.

    It is sometimes achieved, but not for the average person over all time periods. One can say, I’ve done this for the past ten years, but
    1. The current US bull market is around 10 years (when its typically 5).
    2. Canadian bank stocks have been doing really well for many years. Not so good if you were invested in Oil and some other resources (the former darlings of the canadian stock market)
    3. Do you recall that Northern Telecom use to be the number one stock by market cap in Canada, bigger than several banks ! If I remember correctly, its market cap was greater than 10% of the TSE.

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