How I Found Where to Draw The Line on Spending

hard hat guy in blue circle by vectorolie

How does one strike a balance between saving for retirement and spending now? Where does one draw the line? Is it as simple as following the traditional norm of saving 10% of one’s after-tax income – and then being off the hook to spend everything above that until it’s all gone? The answer is a “yes” – if one accepts not being able to retire until one is at least 67 and can draw full Social Security. But I would not – could not – accept that. To me, the answer to the question was a “no.” So I looked for and found a different way of determining how much to save and how much to spend.

At age 42, I arrived at my answer by working backwards from my desired/targeted retirement date. And the first thing I realized was that, if I did not alter my then-present spending, I would be hard pressed to even retire at 67. So I started my calculations from that point.

Saving just 10% of my net income and spending the other 90%, as I was, I would need a stash equal to 27 times that net income to retire. I had, at age 42, just one tenth of that. It would take 25 more years for me to accumulate the rest. So I would be able to retire at 67 – just in time to collect my full Social Security payout — if I kept spending 90% of my net income. That was really, really unacceptable to me.

It was unacceptable because, in my view, I would be cheating myself of additional job-free years I thought I should be able to have. At a 10% savings rate, I would be making myself wait too long (25 years!) to break free. I would have to – and could – do better.

After running my calculations several times based on different retirement ages and savings rates, I finally came up with the balance I could live with and not feel guilty about either my wait to retirement or my here-and-now spending. My magic numbers were retiring at age 57, in 15 years, by saving 50% of my net income and spending the remaining 50%.

How I would split that 50% of my net income between basic living expenses and optional discretionary spending was still up for discussion between me and myself (and my wife!). But however that worked out (and it worked out just fine), I now had a game plan I could live with. Literally. And without regret.

So take a hard look at your projected retirement date. Do you feel good about it? Are you satisfied with the remaining years you will have to live free? If your answers are not a strong “yes”, realize that you can change that future of yours by (1) targeting a retirement date you would feel good about and (2) changing the balance point between your spending in the present and your savings for retirement so you can get there.

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image courtesy of vectorolie at


  1. We’re to the point where we really can’t save any more unless we start earning more. Our budget is about as tight as it’s going to get. With that being said, I hope to start earning more in the next few years. My husband recently quit his job to launch an online business and I have a lot of faith in him.

  2. I like the idea of working backwards. Oddly, it seems to put things in perspective. Like Holly, my budget is very tight so my issue is less one of expenses and more about revenue. That’s my current focus – earning more money. Once that hits its stride, I’ll be particularly focused on retirement.

    1. Hi, Holly and Diane…

      Earning more money IS the other side of the equation.

      That being said, I find I have still been able to continuously nibble at the edges of my basic living expenses to bring them down ever lower (one small step at a time). I just keep looking for opportunities to save. It’s a process that for me never ends.

  3. I think whether you work backwards or forwards, all that matters is you figured it out! My husband and I are working it from two angles – by tightening our budget, and by trying to optimize savings… although I guess in a way they work hand-in-hand :) But until early last year we had always assumed we would retire early – as in maybe late 50s, and now we think we can do it in our early 40s. Realizing the possibilities has even lightened such a load from our shoulders – its amazing the psychological difference it can make!

  4. That’d be harder for me since I’m not sure if/when I want to retire. I guess I’d just figure out an age when I’d like to start working part-time. First we’ll deal with the huge expenses we have this year — the ones that will wipe out savings — then we can start focusing more on retirement. I’m opening a SEP this coming year (or hopefully, late 2015) so we can catch up a bit on our contributions.

    1. Zeroing out debt (or avoiding it) is also part of the equation that determines when one will reach financial independence and earlier retirement. And, even if you decide to keep working, I know you know that having financial independence will be psychologically priceless to you.

      Good luck.

  5. Well, I’m looking at life a little differently. Having got to 40 without a penny of savings. I panicked and started to save a much as possible. I’ve done this by eliminating consumerism, embracing DIY, health and focusing on what is important to me; spending time with my wife.

    Right this moment I save around 60% of my salary. This figure will change and this doesn’t matter. The important thing is not to waste money, the world’s resources and to enjoy life.

    1. Heck, Adrian, I see nothing wrong with that approach. And a 60% savings rate is very powerful. Even if you don’t reduce your spending any further, and even if you are starting from zero savings, that savings rate will get you to financial independence in 10 to 12 years. Not too shabby. Good luck!

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