I’m Investing 62% of My Income! (When Should I Slow Down?)

August 27, 2023

In this highlight, we discuss how to know when to take your foot off the gas financially and how to know when to slow down.


“Next is a question from Sarah K: ‘I know you say 25% for retirement, but for FIRE, should that be a greater percentage? I am at a 62% savings rate and four years out from FIRE. When do you back the savings rate or increase it? That was a lot, but, uh, let’s talk a little more about FIRE. It helps air out, yeah. So, a 62% savings rate is just astronomical, holy cow. Uh, at that level of savings, now I’m assuming when we talk about savings rates, a lot of people ask this question. Let’s talk about gross, right? As your gross income. Savory, if you’re saving 62% of your gross income, you are naturally living on a very low percentage of what your income is. So, you’re almost like setting yourself up for success. If you’ve been saving for long enough, there’s a really good chance that when you reach Financial Independence, when you retire, you’re going to be able to replace that standard of living because you’re living such a low or lower standard of living.'”

“My first question I would ask Sarah K is, okay, is that what you want retirement to look like? If you’re living off of, you know—I’m going to take taxes out—if you’re living off 20% or 30% of what you make in retirement, is that how much you want to be able to live off of? And at four years out, I would argue that she’s probably at this place where, like, she’s been stress testing it, she’s been going through the Monte Carlos, so she should have an idea of how well can this plan sustain over the long term. Sarah, I’ll answer your question, but then I want to get back to kind of the original premise that you were setting up. But, to you need to know your number, and that’s why there’s actually a course at learn.moneyguy.com, ‘Know Your Number,’ because you’ve got to figure out if that 62% is with only four years. You’re bringing this plane into a landing, you know. You don’t need to be guessing, doing napkin plans now. You need to be figuring out. And then, after you even do ‘Know Your Number,’ if it does look like you are going to be able to land the plane in four years and retire or cross into the next threshold, you might even want to take the relationship to the next level. Because the course is great, but we kind of designed this to be that playing horseshoes within the five years as you approach retirement. When you actually are trying to retire and walk away from your income, I think you need to kind of take all contingencies into account, and that’s why I say you might even want to go a step further about taking the relationship to the next level.”

“But your original question, because I think you were trying to create an educational opportunity as well, is that if you are a person that’s part of the FIRE movement—Financial Independence, Retire Early—is 25% what we normally talk about good enough? And the answer is no. We’ve done… Please go do watch the show. There is actually a show we just released that’s going to talk about the FIRE Movement by income levels—fifty thousand, hundred thousand, two hundred thousand, even four hundred thousand. And our research consistently shows that you’re going to have to have a savings rate around 35% to 40% if your income is less than a hundred thousand dollars. It might even be well beyond that. So, that’s why, you know, Sarah, so you having to save 62% is shockingly high, but it’s not completely surprising depending upon what your income is based upon the research we’ve done. So, you have to get serious. You have to be very disciplined with your wife to have such an ambitious goal. And I think it also ties into: Does the goal line up with what you’re going to live your life? Because this is something I do worry about for people like Sarah, who are so disciplined where you’re living on probably only 20% to 30% of what you make. Just make sure that when you actually do go across that threshold and retire, and now you don’t have to work anymore, you have time to feel, make sure that you truly can stay in the lifestyle that you built for yourselves that’s sustainable by your assets. And you’re not getting out and being like, ‘Man, so… because I… I have a couple. They like to play golf together. And now that they’re retired, they play more golf, a lot of golf together. And then now they want to travel to places to play golf together. And that stuff is so expensive, you know? And to them, they’re like, ‘Man, I don’t feel like we’re doing much.’ Well, I’m like, ‘Well, you know, some of that recreational stuff does have a cost when you were working. You didn’t get to spend the money.’ That’s right. And look at your discipline. You’re saving such a high percentage, even after you take taxes and other things. But I just want to make sure that once we take away all the things that were occupying your time, that you actually still are comfortable with that lifestyle you’ve built for yourself, but kudos to you. That’s impressive. Yeah, it is incredible. That’s super, super impressive. And congratulations for being, what sounds like, four years away from FIRE. That’s an awesome place to be.” For more information, check out our free resources.



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