At 29, I’m Saving $46k from a $113k Household Income—Am I on Track for Financial Freedom?

Obviously, the original poster (OP) is being pretty aggressive with the amount that he saves, as typically, experts recommend saving around 20% of your income, and he’s doing more than double that.

However, the traditional savings recommendations are based on retiring at a standard age. If the OP aims to be financially independent early on, he’s going to have to make a lot of sacrifices now. That’s especially true because, as he points out, a combined $113K in income for two people doesn’t necessarily make him a top earner, and many people who achieve early retirement make more money than that.

There are ultimately two big questions that the OP is going to need to answer to determine if his 40% savings rate is good enough:

1. How much money will he need? 
2. What is his target age for achieving financial freedom?

Let’s say, for example, that the OP wants to replace 80% of his $113K household income. He’d need his investment accounts to produce $104,000 in annual income. For simplicity’s sake, let’s assume he follows the 4% rule for withdrawals. If that’s the case, he would need a nest egg of $2.6 million. 

Next, he needs to know his timeline because if he wants to be financially independent in a decade, he’s going to have to invest a lot of money to end up with $2.6 million in 10 years — but if he’s OK with waiting to be financially independent until he is in his 50s, then he has more time. 

Once he has his target retirement age, he can use the online calculators to see how much to invest each month.

So, if he had $100K saved already and wanted to end up with $2.6 million in 10 years, he’d need to invest $13,714.48 per month every year for the next decade to make that happen, assuming an 8% average annual return. That’s an impossibility, given his income. He’d need to set a more realistic goal or earn a whole lot more.

Always focus on where you want to end up 

The OP is focused here on what percentage of his income he’s saving, and while that matters, the most important numbers are the ones discussed above — his target goal and timeline. If you want to make sure you are on track towards your financial goals, you need to figure out the specifics. That way, you can make sure your goal is within reach and, if it is, you can take the steps to make it happen. 

It’s also a good idea to talk with a financial advisor — especially if you have clear money goals you are setting. The OP should work with an advisor to decide on a realistic timeline for financial independence that enables him to live his life now while saving enough to make his dream of early retirement a reality.