The Path to Early Retirement: How Saving 70-90% of Your Income for 5-7 Years Can Pave the Way

The Path to Early Retirement: How Saving 70-90% of Your Income for 5-7 Years Can Pave the Way

couple on beach in early retirement

Retiring early and living a financially independent life is a dream for many, but it often seems like an unattainable goal. However, with disciplined financial habits and a commitment to saving, early retirement becomes a realistic possibility. In this article, we will explore how an individual who saves 70-90% of their income for 5-7 years and adopts a frugal lifestyle can accumulate enough funds to retire early and enjoy financial freedom.

Embracing the High Savings Rate

The first step towards early retirement is to embrace a high savings rate. By setting aside a significant portion of their income, savers accelerate their journey towards financial independence. Allocating 70-90% of earnings to savings might seem daunting, but it is essential to prioritize long-term goals over short-term indulgences.

Let’s calculate the potential savings and investment growth if someone with a $120,000 annual salary saves 50% of their income and invests in the S&P 500, which generates a 10% annual return. For simplicity, we’ll assume that the salary remains constant over the five-year period.

  1. Annual Savings:
  • Salary: $120,000
  • Savings Rate: 50% Annual Savings = $120,000 * 0.50 = $60,000
  1. Total Savings over Five Years: Total Savings = Annual Savings * 5 years = $60,000 * 5 = $300,000
  2. Investment Growth: The S&P 500 generates a 10% annual return on investment. To calculate the growth over five years, we’ll use the compound interest formula:

Future Value = Present Value * (1 + interest rate)^number of periods

  • Present Value (Initial Investment) = Total Savings = $300,000
  • Interest Rate (Annual Return of S&P 500) = 10% or 0.10
  • Number of Periods (Years) = 5

Future Value = $300,000 * (1 + 0.10)^5

Future Value = $300,000 * 1.61158 (rounded off)

Future Value ≈ $483,474

  1. Total Retirement Fund: Adding the investment growth to the total savings, we get the total retirement fund:

Total Retirement Fund = Total Savings + Investment Growth Total Retirement Fund ≈ $300,000 + $483,474 ≈ $783,474

After five years of saving 50% of their $120,000 income and investing in the S&P 500 with a 10% annual return, the individual’s retirement fund would be approximately $783,474.

Crafting a Detailed Budget

Living like a college student doesn’t mean sacrificing the essentials or living in deprivation. Instead, it involves creating a detailed budget that focuses on needs rather than wants. Cutting down on non-essential expenses like dining out, expensive vacations, and impulse purchases can free up substantial funds for saving and investing.

We created a sample budget of someone earning $120,000 per year and saving 50% of their income.

Sample Budget for Someone Earning $120,000 Per Year and Saving 50% of Their Income:

Monthly Income: Salary: $120,000 / 12 months = $10,000

Monthly Expenses:

  1. Housing: $2,000
    • Rent/Mortgage: $1,500
    • Utilities (electricity, water, gas, internet, etc.): $200
    • Home Insurance: $100
    • Maintenance/Repairs: $200
  2. Transportation: $500
    • Car Payment: $250
    • Gas: $100
    • Car Insurance: $100
    • Public Transportation (if applicable): $50
  3. Food: $500
    • Groceries: $350
    • Dining Out: $150
  4. Health and Insurance: $400
    • Health Insurance Premiums: $300
    • Co-pays and Medications: $100
  5. Savings: $5,000
    • Retirement Contributions (e.g., SEP IRA, 401(k)): $4,166
    • Emergency Fund: $834
  6. Debt Repayment (if applicable): $500
    • Student Loan Payment: $300
    • Credit Card Payment: $200
  7. Entertainment and Miscellaneous: $600
    • Entertainment (movies, hobbies, subscriptions): $300
    • Clothing and Personal Care: $150
    • Gifts and Donations: $100
    • Miscellaneous: $50

Total Monthly Expenses: $9,500

Remaining Monthly Income (After Savings): $10,000 – $9,500 = $500


  • Monthly Income: $10,000
  • Total Monthly Expenses: $9,500
  • Monthly Savings: $5,000
  • Remaining Monthly Income: $500

With this sample budget, someone earning $120,000 per year can save half of their income ($5,000 per month) by managing their expenses and prioritizing savings. The remaining $500 can be used for additional savings, fun activities, or to build up additional savings for specific goals like travel or major purchases. Remember that budgeting is a personal process, and individual circumstances and financial goals will vary. Adjust the budget as needed to suit your specific situation and aspirations.

Investing Wisely

While saving diligently is crucial, investing those savings intelligently can make a significant difference. By putting money into a diversified portfolio of investments, such as stocks, bonds, and real estate, savers can benefit from compounding returns and potentially see their savings grow exponentially.

We love investing in indexes the best as you will get the same return as the market. Here is an example of what the S&P 500, the Nasdaq and the Dow Jones have returned in the past.

S&P 500:

  • 1991-2000: ~17.45% per year
  • 2001-2010: ~1.41% per year
  • 2011-2020: ~13.88% per year
  • 1991-2020 (30 years): ~9.99% per year


  • 1991-2000: ~18.10% per year
  • 2001-2010: ~0.52% per year
  • 2011-2020: ~15.24% per year
  • 1991-2020 (30 years): ~9.72% per year

Dow Jones Industrial Average (DJIA):

  • 1991-2000: ~15.33% per year
  • 2001-2010: ~0.77% per year
  • 2011-2020: ~12.91% per year
  • 1991-2020 (30 years): ~9.89% per year

Please be aware that these are historical returns, and the future performance of these indexes may differ significantly. Investing in the stock market carries risks, and past performance is not indicative of future results. It is essential to consider your risk tolerance, investment horizon, and other factors before making investment decisions. For the most up-to-date information, it is recommended to refer to financial news sources or consult with a financial advisor.

Minimizing Debt

Early retirees understand the importance of minimizing debt to reduce financial burdens. Paying off high-interest debts, like credit cards and student loans, early on enables them to allocate more money to savings and investments.

Please read out post on Dave Ramsey’s strategy for dealing with debt if you are new to the debt snowball concept.

Building Multiple Income Streams

Creating multiple streams of income can further expedite the journey to early retirement. Side gigs, freelancing, or passive income from investments can supplement the primary income, accelerating savings and offering a safety net during retirement.

Staying Committed to the Goal

Early retirement requires dedication and discipline. It’s essential to stay committed to the long-term vision, even when facing challenges or temptations to deviate from the plan. Keeping the end goal in mind will serve as a powerful motivator.


Achieving early retirement through a 70-90% savings rate and frugal living is a remarkable feat that demands careful planning, sacrifice, and persistence. By adopting a high savings rate, crafting a detailed budget, investing wisely, and minimizing debt, individuals can lay the foundation for financial freedom. With the right mindset and dedication, early retirement becomes a tangible reality, providing the opportunity to pursue passions, spend time with loved ones, and enjoy life on one’s terms.

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