I started diving into the data from The Interactive Guide to Early Retirement and Financial Independence recently, and have been finding some surprising results. The most interesting to me was around the millennial early retirement age and how it compares to other generations. I’ll be digging into much more over the coming months, so consider this a bit of a preview for now.
One of my takeaways from FinCon was to collaborate more, and Felicity from Fetching Financial Freedom and I are hoping to team up to explore this data later on. With the move to Salt Lake City this month, things are on hold until then.
Calculating Financial Independence Age
Those that went through the guide provided a wealth of information including how much they earn, how much they save and how much they have in the bank. With these three numbers (and adding in age) we have enough to calculate a rough financial independence date.
This is a “what if?” for the situation where they keep making the same amount, keep saving the same amount and use their savings for retirement.
The Audience of the Interactive Guide
Before getting to the data, it’s important to consider the audience that provided data for it. This group isn’t representative of the general population of the US. It’s a self-selecting group who is interested in financial independence, early retirement, and finance.
At the moment I’m not tracking referrer (man, that would’ve made for some interesting results). The bulk of the traffic has come from 4 main sources:
- Being featured of Rockstar Finance
- Being the top post in the /r/financialindependence subreddit for a day
- Being shared in the You Need a Budget weekly roundup
- Tons of people sharing it on Twitter and Facebook – including a number of people with some serious follower counts (thanks, everyone!)
For the group being analyzed today, I’m also removing anyone from the data who didn’t change at least 5 fields in the guide to normalize the data. This brings the sample size to 9,160 used for this analysis!
The Age of Millennials
Most statistics group millennial age as those between 17 and 36. For those that took the guide, millennials account for 70% of the total people! Seeing aggregate results for this group wouldn’t be too helpful, as it’s just too large.
Even within this group, there are people in a bunch of different life states. There are millennials still in college with very low income and low expenses. Millennials right out of college who are getting paid their first real salaries but maybe still have low expenses. And older millennials (like myself) who have grown that salary but also grown their expenses in the form of lifestyle inflation.
After reading about different ways to split out the ages, I ended up going with these 5 completely arbitrary groups:
If you’re one age and identify as another generation – don’t worry, I’m not redefining generations in this post. These groups made for the most interesting and useful results.
Right away, you can see that the vast majority of people are still in the middle of the millennial group – ages 26-33. I had a hell of a time trying to name the older millennial generation (the I’m in ironically). Xennials was more concise than Oregon Trail Generation, despite sounding cooler.
I learned about financial independence at age 27 myself. With the growth of the community, people are being exposed to the topic younger and younger now. I’m fascinated by what this will look like in 20 years. How will early retiree numbers grow due to the growth of the idea?
Years Working Until FI
When could different generations be financially independent? Here’s a look grouped by generation. This is the number of working years ahead of people in each generation if they continue on their current path.
As an example: if you’re 30 years old, the median reader of the interactive guide would be able to retire 14 years later at age 44. Later on, I’ll break this up more by year, but for a quick snapshot, you can see that it’ll lean more towards the next neighbor depending on where you are.
The good news is that the older someone is, the less working years they have ahead of them. The downside is that for every 2-3 years working, people seem to add about another year to their FI date. This is why College Millennials could retire by 40, but later on, that’s not the case. More on this later.
Financial Independence Age by Generation
Splitting things out a little further, here’s when the median person in a generation would be financially independent by their generation.
Every single group still would achieve financial independence earlier than when most people retire. 97% of people who entered data into this guide will retire before they are 55 — putting them in at the earliest 5% of people in the United States.
It doesn’t mean people will retire at this age, just that it’s a possibility. My main hope and goal with the guide was to show that it’s possible and not a pipe dream. Based on the data I’m seeing, a bunch of people were shown that they could be financially independent earlier than 65!
Income and Savings Rate by Generation
If you’ve read the guide or heard me mention savings rate, you’ll know it’s the most important topic for calculating FI age. When I saw that these FI ages above, my immediate assumption was that college millennials are likely living super cheap and not earning much of an income. I ran the numbers on income & savings rate and was pleasantly surprised:
There wasn’t a huge change in the savings rate between people 18 and 40 – a mere 4% difference. I know I wasn’t saving 41% of my income in college, so whoever this new generation is – props to them. My first guess was that they weren’t making much money due to school.
So if savings rate is about the same by generation, isn’t that a good thing? Well, it’s not awful, but it isn’t taking into account the added spending. How much does spending grow with age?
How Much Do People Earn & Save By Generation?
From people taking the guide, income peaks in the late 40s. From the late-30s on, there was a little rise in income, then a gradual decline. There’s a number of reasons why this could be – including people filling out the guide who are already retired skewing the income down.
Seeing income jump from $54,000 for College Millennials up to $75,000 for Millennials and $103,000 for Xennials is an impressive feat. I know when I was 24, my first job out of college would be equivalent to about $46k now (adjusted for inflation). If you’re below the average on this chart you’re not alone – I was there too.
The big parts that stand out to me about this are:
- As income rises, spending rises but savings don’t follow suit.
- Income peaks in the late 40s.
- The longer someone else is paying you, the more your lifestyle will grow.
Between the early 20s and the mid 30s income doubles but savings only goes up by half that. What could you do to save more as a percent of your income at each age?
If you want to retire early, and at the FI date from the interactive guide, then you’ll need to RAISE your savings rate when your spending increases. When your savings rate stays stagnant and you get a raise, that just means you’re spending more and not savings proportionately more.
What Happens When You Don’t Save More
Here’s an example: let’s say you’re a college millennial earning $50,000 a year and saving $20,000 (40% savings rate). If you use these savings for retirement, then you’re on track to retire in 19 years – not too shabby.
But what if you get a raise to $80,000 and your spending rises from $30,000 to $48,000? You’re still saving 40% of your income, so you’re in good shape right? Well, you are, but you also have to save extra to make up the savings you weren’t doing earlier when. You’re spending is $48,000 now, but previously were only savings based on a $30k spend. If you want to keep the same FI date, you’ll need to make up $18k * the number of years you were saving at that rate.
This is entirely too much math – but the takeaway here is that as you spend more, you need to increase your savings rate if you want to stay on target.
What Millennials Need To Do To Succeed
Ok, so for everyone hoping to retire by 40, what do they need to do to make it happen? The number one thing is simple:
When earn more money, increase your savings rate.
It’s not enough to say you need to “save more” as you earn more. If you get a $5k/yr raise and only save $50 then you’re delaying your FI date. Avoiding lifestyle inflation is an ongoing relationship with money. If you can avoid lifestyle inflation and increase your savings rate, not only will most millennials who provided data be financially independent by 40, they’ll be in great financial shape with their lifestyles.
This is the number one thing you can do to retire early.
15 CommentsWhy not add to the conversation below? Your voice is welcome!
Dave @ Married with Money
November 6, 2017
“The longer someone else is paying you, the more your lifestyle will grow.”
I like that, and think there’s probably a fair amount of truth to it.
Interesting analysis overall. Savings rate is such a key component but few people have a good grasp on the impacts that increasing your savings rate just a little bit has.
November 6, 2017
Yeah, I’d agree for sure. The idea of having SR increase with age in order to stay on track isn’t something that’s mentioned too much, but may be obvious to those who are doing the math.
November 6, 2017
It’s a bit misleading to say “most millennials” in the title when you really mean “most millennials in this group that’s heavily biased towards high earners”.
November 6, 2017
For sure. I think the most accurate title would be: “The median college millennial, aged 18-25, who has a self-selected into reading an article on financial independence could retire by 40”. Doesn’t have the same ring to it. 🙂
November 6, 2017
It’s interesting in that it may cause another conclusion to rise to the surface. Ie are younger people with lower incomes less likely to read finance then older ones with a similar income. Thus you have a different variation in incomes in the older age brackets.
November 8, 2017
Hmm yeah, that’s an interesting idea. The quantity of younger college millennials was higher, but that’s not to say it’s proportional to society. Be a neat one to try to find some way to normalize for.
November 6, 2017
All that beautiful, beautiful data! Thanks for the shout out, and I’m definitely looking forward to collaborating. 😀
Those are super high savings rates, even for the type of “weirdos” that frequent and/or produce personal finance blogs. 😉
I’m thinking the presence of children makes a sizeable difference to time to FI for many — might also explain the pretty big jump from Millennials to Xennials in spending.
Hmmm…there are also a few data quality/screening methods you might be able to implement (for this or for future projects) to help out with choosing which data points to keep. Fergus did a fair amount of work utilizing Mechanical Turk to get research participants for grad school studies and knows some tricks. 🙂
November 8, 2017
Ohh yeah, good point! Damn, I should’ve asked something about children in the post (How many do you have? How many do you want?).
November 9, 2017
Xennials? Is that how they call us? I learn something new everyday 🙂
It’s interesting to see that the majority of the people were millennials. It’s good to see that we are taking our future into own hands.
And congratulations on being featured on so many sites! How much consistent daily traffic did it bring you?
November 11, 2017
I know! I think it’s been difficult trying to come up with a name for the generation that’s not Gen-X but also didn’t grow up with the internet from their earliest memories (I remember getting online in 7th grade, and I’m 35).
Traffic was crazy during launch but quickly returned much more reasonable numbers. At the highest day I hit over 14k page views and almost 10k users. Had to pay for some increased traffic that day to make it work, but I’m glad I did. 🙂
November 9, 2017
I was on track for FI at 27 based on the spending and savings rate I had at age 24. I banked about 90% of my take-home salary by living with my parents back then. I agree that keeping control of lifestyle inflation is key to achieving FI. Getting my own place and actually having expenses destroyed that FI by 27 plan. However, I’m glad I did. Mooching off parents was not really the long-term life I wanted. Doing it for two years did set me up for success though!
November 10, 2017
Hi Adam, great analysis! Its always nice to see some data like this. I’m wondering if you can leverage this to provide some fun statistics. For example the Bogleheads forum has an annual networth survey. Could you mimic this with your data?
November 11, 2017
Nice analysis. It’s great to see the data that was opened up through collaboration. I like that I can compare myself to others and see we’re doing ok.
Like the look of your blog and am looking forward to reading more
Lily @ The Frugal Gene
November 12, 2017
Great stuff, go us!!! Income topping at 40 years old is pretty interesting. I remember seeing data somewhere that shows a sizable net worth jump between the average someone in their 40s and 50s. I wonder if saving rates just jump up because people figure these are the last years to fluff a nest egg!
June 24, 2019
Any chance you can run an update now that it’s 2019? I’m curious how these numbers trend over time. Also, has anything come of your collaboration with Fetching Financial Freedom? I can imagine there is some great stats that come out of this.
Also, could it be there is a bit of an error here?
College Millennial Savings rate is 41%
Spend = 22140; Save = 31860. Total income: 54000
If they are saving more than spending, the savings rate should be >50%.
I think data may also be reversed for Millenials (savings rate is 40% yet spending is listed as 40% of net income in subsequent bargraph) and baby boomers?