How Frugality Has Bought Me Time

clock and coin stack by hin255

The most accepted rule of thumb for cashing out your retirement stash is to take 4% of your stash’s beginning balance each year and withdraw that to cover that year’s expenses. That means basically that for every $1000 of your annual expenses you need to have $25,000 socked away. And it is that little formula that holds the “secret” to my earlier retirement.

At age 42, when I first seriously looked at my future retirement, my basic living expenses were running around $26,000 a year. So the little formula said that I would need $650,000 to cover those annual costs in retirement. With about $100,000 in my IRA at the time, and a savings rate of $5000 a year, it looked like retirement would not be possible at all without Social Security. At best, I would be able to retire at 62, when I could start withdrawing from my Social Security account to help cover my expenses. Which meant I had a 20-year wait ahead of me. Okay, not a catastrophe. Lots of people have to wait that long – or longer – to retire. But the little formula pointed the way to how I could do better.

I saw that the result would be mind-boggling if I looked at the formula “backwards.” Because what the formula then told me was that for every $1000 I could cut from my basic living expenses I could reduce my required retirement stash by $25,000. And, at my $5000-a-year savings rate, that $25,000 stash reduction would bring my retirement date at least 4 years closer – even factoring in growth in the value of my investments. Whoa, Nellie!

This revelation was HUGE to me. Every $1000 reduction in my annual basic living expenses would buy me four more years of job-free life! So I carefully went to work with sharp “budget scalpel.”

Gradually, I managed to reduce my yearly basic living expenses from $26,000 to $16,000 (and, surprisingly to me, without giving up anything that mattered or feeling deprived). This reduced my target retirement stash by $250,000. A quarter-million bucks. AND the cost reductions tripled my annual savings rate because those cost reductions freed an extra $10,000 a year that went right into additional retirement investments. The end result was a major (MAJOR!) financial breakthrough for me that bought me nine more years of life in financial freedom. Because I was able to retire – without having to wait for the Social Security money – at 53 instead of 62!

How much time you can buy for $1000 in reduced annual expenses depends on how much you are saving now. If, like I was, you are putting away $5000 a year then you can buy yourself 4 more years of job-free life with that $1000 cost reduction. If you are saving $10,000 a year, then that $1000 in reduced expenses will buy you 2 more years of retirement. And so on. The point is: however much you are saving, there’s a BIG sale on freedom time going on. And you can get in on it.

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image courtesy of hin255 at


  1. I like it!

    We’re not really benefiting from our savings rate now, but I know we’ll be patting ourselves on the back when we hit early retirement and realize how well we’ve set ourselves up. We’re definitely buying more time for ourselves down the road!

    1. Thank you, Holly.

      As you say, when you accumulate savings what you are actually doing is “spending” that money to buy yourself free time in the future. And what better gift could you give yourself?

  2. Perception really IS everything. It’s much easier to focus on lowering expenses by $1,000 than it is to focus on accumulating $25,000! Plus, you’re less likely to be overwhelmed by the task.

    While early retirement is not my primary focus, as I very happily work from home, I’m still going to go crunch some numbers.


    1. Hi, Diane…

      Even if your primary focus is not earlier retirement, the money you save by lowering your basic living expenses then becomes available to fund your dreams and wants — whatever they may be. There’s no way to lose.

    1. Thank you, Joe.

      And you know what? I’ve found that I can STILL keep optimizing that expense rate. Would you believe I now have it down to $13,800?

  3. AMAZING job. It’s true that small lifestyle changes, if done smart, can bring in some amazing results, without affecting said lifestyle too much. Just knowing exactly what your real needs are and focusing or what matters most, you can ‘free’ money and do more.

    1. Thank you, Ramona.

      Yes, the big payoff is that you can do more with the money you have freed up. Even if that does not involve retiring earlier.

      You’ve expressed it very nicely. And exactly right.

  4. Wowzers, $16k?! That is…. MANY times less than I spend in a year. Looking at the formula in reverse is fun, though. We’re dumping boatloads of money into our savings right now. If we lived on that little we could retire in under four years, haha. But, we don’t, and really truly do not have any desire to do so, so the FIRE plan for us is a fair bit longer.

  5. Hi there! Could you tell me about cutting this spending, yet not feeling like you are sacrificing? What did you cut that you don’t miss at all? Anything you cut, that you’d like back — but it’s not worth working for? Do you think this change is easier or harder at your age? I look forward to learning from you about the issues of sacrifice/non-sacrifice.

    1. Read my post titled “What I Mean By Doing Frugality Without Sacrifice.” You’ll find it by going to my All Posts List.

  6. Yes reverse engineering the 4% rule is a good trick. Buying freedom is necessary for me, because I feel working for 40 years is not an option in my life. Congrats on getting expenses to a new low, that’s impressive.

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