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.