I Was Told There Would Be No Math

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The concept of early retirement is a bit of an abstraction.

In a world where it is just assumed that everyone works until at least age 65, there are very few role models around you.

So it takes a bit of imagination.

And how do you move from the abstract to the palpable?

What was helpful for me was figuring out my current savings percentage.

If you would like to play along with me, go gather a paystub, or last year’s W-2 form/tax return.

Assuming you don’t get any bonuses, your paycheck is perfectly stable, and your gross pay is less than $110,000 a year, (the limit for the Social Security tax,) a pay-stub is just as good as last years tax return.

The values you’re interested in are:

1a. Contributions to all retirement accounts both by you, and your employer.

1b. Additional savings for retirement. (IRA, Roth IRA, Taxable retirement accounts .) These won’t be on pay stub.

2. The amount of principal (not interest ) you pay for your mortgage. You’ll need your monthly mortgage statement for this month or last years IRS form 1098 If you’re doing your income calculation based on Last year’s W-2.

3. Your gross pay.

4. The total amount of all taxes taken from your paycheck. (Federal income tax + state income tax + Medicare tax + Social Security tax+ any other extraneous municipal and/or state taxes.) These should all be totaled up on your paycheck and/or W-2.

Now divide the total amount saved by the gross pay minus taxes or…


That’s where you stand right now. That’s the percentage to plug into this chart.


Now you should know how many years you’ll need to work at your current savings rate in order to retire at your current standard of living. (assumptions: invested savings grow at 5% real returns, in retirement you withdraw 4% of your savings per year, and your house is paid off by the time you retire)

As an example if your savings rate is 50% you need to work 17 years prior to achieving financial independence.

Now add 10% to your current savings rate.

How many fewer years would you need to work before achieving financial independence with this additional 10% saved? ( look at the chart.)

As an example at 60% of your take home pay saved you need to work 12 1/2 years prior to retiring. So a 10% Increase from your prior savings rate of 50% buys you four and a half years of financial independence.

Now take 10% of your gross pay minus taxes (0.1 X (3 – 4))from the above equation).

How much is that dollar amount per year, per month, or per week?

What would it take to save that additional amount? What would you have to give up? (Cable TV?, Starbucks?, eating out less often?, cigarettes?) Would it be worth it in exchange for the number of years of gained financial independence based on the above chart?)

For me the answer is obvious. And I just decided to kick my savings up another 10%.

Note: the gentleman pictured in the title photo for this post is Grigory Perelman.

He is the reclusive Russian math genius who won the Fields Prize, the mathematics equivalent of the Nobel prize, for solving a centuries old previously unsolved math equation.

When he won, he refused the $1 million prize which I think proves two things.

1. This guy is way smarter than you or I, and by his calculation, money is not that important.


2. Smart people can make stupid financial decisions.

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5 Responses to “I Was Told There Would Be No Math”

  1. Ryan March 7, 2014 at 12:18 pm #

    How do you adjust for amounts already saved? For instance, my dad is 52 and and has $400,000 in his 401k. If he is saving 20% of his income you say he has 37 more years to work. Obviously this doesn’t take into account years already worked and varying degrees of saving in those years. Please let me know if I can tweak your formula to make useful in this scenario.


    • Miles Dividend M.D. March 7, 2014 at 12:56 pm #


      This is another good point.

      I wrote about this issue in this post,


      The adjustment you must make is dividing your net worth (savings minus debts) by the amount you spend each year. This gives you The years under your belt. So if that calculation tells you you’ve Already got five years saved, you can just subtract five years from the value of years to retirement that you get from the chart.

      I hope this helps.


  2. Todd April 14, 2015 at 1:46 pm #

    I am an independent contractor (1099), high income earner, S-corp business, that employs myself & my wife.

    We frequently struggle with determining the % that we are we saving – between taxes, et al, and the “salary” we pay ourselves vs what the company takes-in.

    I really want to know, as 70% seems feasible, however we seem to consistently get tripped-up with which numbers to use to ‘really’ figure this out.

    * We have a Self Directed 401K, and this year (2015) we’d like to use the profit share aspect as much as possible to help push us to / beyond the 70% savings rate.

    * We are invested in a single, low cost Index Fund (SWTSX via Schwab), we have a family HSA (VTSAX).

    * I have no major outstanding school debt, save for $17K @ 0.0625% – which is not a big concern at such a low interest rate.

    * We are currently renting, as we’ve moved several times in the past couple of years, so no mortgage currently.

    * We have an ER fund, and could probably buffer it a bit more, though with low expenses we don’t feel like sitting on a bunch of capital.

    * We have a three year old, live within our means, and could probably cut cable TV (but my wife would probably fight me on that).

    * We have one cash flow rental property out of town that brings in ~ $300 mo (which we put into a repair / vacancy account).

    Any thoughts or suggestions that you can offer would be greatly appreciated.

    Thank you ~


    • Miles Dividend M.D. April 19, 2015 at 9:35 pm #


      first off, you’re in great shape! Congrats.

      Second off: I don’t know.

      I can see your difficulty with calculating your savings percentage. Being paid on a 1099 is a wonderful thing because you can write off so many things, as you know.

      But it makes it very difficult to figure out what your actual spending is, doesn’t it?

      Mr. Money mustache himself has received some (Undeserved) criticism for not accounting for his business spending in his actual spending.

      The numerator of your equation is easy it is simply the amount of money you put away into retirement and taxable accounts each year. But the denominator is tough.

      One simple step is to count up all of the expenses that you have now which you will continue to have in retirement, whether or not they are counted against income on your 1099. Now multiply that number by 25 and you will know when you have arrived, when you have that amount invested.


  1. More Math | Miles Dividend M.D. - October 14, 2013

    […] I got a question today about calculating the number of years until retirement. The question was based on the posts, “warning this post may change your life,” and “I was told there would be no math.” […]

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