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  • Withdrawal Rate: 4% (assume only dividends are withdrawn from a dividend portfolio, thus highly efficient taxation ~0%)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.

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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.

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).

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.

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%.


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… :-)

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.

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

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.


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.


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.


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)


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! :-)

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!


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.

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. :)


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.


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.

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%.

Indeed. Makes perfect sense in that regard.

Any comments on the first part of the post?

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?

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 ;)

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.

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?

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……


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.

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).


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

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.



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?

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.

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.

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.


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.

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….


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.



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.



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.


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



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.

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.

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.

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!

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).

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.

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.

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).


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.

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.

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.