Could I Still Retire Early With A Lower Salary?

It’s no secret that earning more money makes it easier to save.

I’ll be straight with you– as a software engineer, I bring home a solid income. But what if something were to happen? What if, in the midst of a mid-life crisis, a visually-inspired video game convinces me that my true calling is to be a park ranger in Wyoming? Would taking a lower salary dash all hope of ever becoming financially independent?

Let’s take a look at some numbers.

How Salary Affects Time to Financial Independence

I ran the numbers on a few hypothetical scenarios. As a starting point, I am 26-years-old with an annual budget of $20k a year. Imagining I started over with $0, I calculated time to FI with varying salaries.

Hypothetical SalaryCurrent SpendingSavings RateTime To FI (years)Age when FI
$25,000$20,00020%36.762
$30,000$20,00034%25.251
$40,000$20,00050%16.643
$50,000$20,00060%12.438
$52,344 
(Average after-tax income in US)
$20,00062%11.738
$60,000$20,00067%10.236
$70,000$20,00071%8.134
$80,000$20,00075%6.833

The bold line shows the average take-home salary in the U.S.  A single 26-year-old who only spends $20k could be financially independent with an average salary by 38 years old—incredibly early! I double-checked the number using the average salary, debt, and net worth numbers of a 26-year-old college grad and it came out to the same number.

Even if I worked in the service industry where the average salary is $30,000, I would be able to retire at age 51, far earlier than the average person.

The Average American's Savings Rate

Unfortunately, most of us are not on this track. Using the average American’s annual savings rate of 8.1% and a take-home salary of $52k, most people in the US will have a hard time retiring at all.

Hypothetical SalaryCurrent SpendingSavings RateTime To FI (years)Age when FI
$52,344$48,1048%55.882

The projected retirement age for a 26-year-old making the average American’s salary and saving an average percentage won’t be financially independent until they are 82-years-old. Sure, now we have Social Security in place, but that security net is no longer a guarantee.

The current model is broken. No wonder people think that financial independence is a pipe dream.

The Low Spending Assumption

To be fair, the table above assumes that my spending would stay at $20k indefinitely, which is a big assumption.  I currently split expenses with a partner and I don’t have children. You might also assume I live in a cheap area, but in fact this spending rate comes from living in Portland, Oregon, which is 29% more expensive than the national average.

A view of Portland with buildings in the background and flowers in the foreground
Portland, OR is not a cheap place to live.

I don’t feel like it takes much effort for me to keep costs down. In fact, there are several areas I could trim back if I needed to (get a roommate, cut back on travel, quit ordering unnecessary gizmos from Amazon). Ultimately, I live a fulfilling life on $20k. Earning more helps me achieve financial independence faster, but a maintainable lifestyle makes it possible in the first place. 

This doesn’t necessarily apply to everyone. There are people supporting their families on a single income, ‘sandwich generations’ taking care of their children and their parents, and folks footing intimidating debts and medical bills. I wouldn’t presume to say that a high salary is unnecessary, or that everyone should be able to live off of $20k. Everyone’s monetary situation looks a lot different, and I know my own journey includes a lot of privileges.  

These hypotheticals were mostly for me to consider my own plan. What if something were to happen and I took a major pay cut? Would I have to give up on financial independence? The answer: no, it would still be possible!

Why Low Spending Matters

Zach over at Four Pillar Freedom made a handy visual to see the difference both income and expenses have on the age to financial independence.

Lower annual spending is on the bottom row, showing a nice chunk of green along the axis. If someone doesn’t spend a lot, there is a much higher chance of success. Someone who spends very little can reach financial independence in a short time even with a lower salary.

As I checked out the grid, I noticed that there are higher numbers and deeper reds near the top, as compared to lower, greener numbers at the bottom.  As both earning and spending increase, the years to FI climb higher because it takes several more years of work to sustain a high standard of living. What becomes clear is that both spending and saving matter, but lower spending keeps the timeline to FI short and sustainable.

It doesn’t matter how much money you make if you spend it all.Click To Tweet

My Plan To Financial Independence

When I plug in my current numbers, the math says I can be financially independent in 2 years. That includes my investment portfolio and a relatively high salary.

As comfortable as I find life on $20k a year, I also want to plan for some reasonable increases over time. I adjusted my projected annual expenses to double my current spending at $40k a year in Networthify (my trusty early retirement calculator!) which says that I could be FI in about 5 years, or when I turn 31. That is reassuring given that my goal is to be financially independent by 32.

I highly recommend putting in your own numbers and seeing what it spits out. How would doubling your salary change the numbers? How about cutting your spending? 

My Takeaway

When I first wrote this post, I got caught up in the tangle of variables that can affect each person’s monetary situation. What the question really came down to was whether or not pursuing financial independence would still be feasible if I were to take a pay cut. After crunching the numbers, I feel better prepared on my path to FI. If I were to start working part-time,  take a hit in a recession, or even live out my mid-life crisis as a park ranger, I would still aim for financial independence.

I’m also pleasantly surprised to see how much of a difference it makes to have a low cost of living. I have made many intentional choices to keep my spending low, from being child-free to downsizing to selling my dream car. While I might not spend $20k for the rest of my life, having low spending now is what gives me the confidence that I would be able to get through hard times later… and still retire early!

What About You?

Try out this calculator. How many years will it take you to become financially independent?

Which is more feasible for you: doubling your salary or halving your income?

Are you prepared if your pay were to be cut unexpectedly?

Let me know in the comments below!

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12 Comments

  1. I love this and I think you did a great job explaining how this can be very different from one person to the next depending on their circumstances. I often play around with these calculators to see how taking time off without pay or a pay cut or even spending more would affect our plans. I love to think about the flexibility of making changes while keeping in mind how it can affect this goal.

    I’ve lately decided to request a 5 week leave without pay next summer (had planned to wait until 2021) and the difference on my timeline is very minimal. Like you said, low spending is a big factor in why our plans allow us for extra flexibility.

    1. Wow I love that you are checking the numbers and a 5 week leave is possible for you! I think more of us need that kind of a break from work but just don’t get it in our current work environments. Amazing that your low spending allows you to do that without affecting your timeline too much. Where will you be going? I hope it is the respite you needed.

      1. Yes! In fact we are using our entire vacation time to do 4 weeks in Mexico thus winter ?, so the 5 weeks off would be a staycation/ getting oldest settled during his first couple weeks of starting school. Hoping work is comprehensive about it but waiting Spring to make the official request.

        I also think more people could use a break from work! I’m really curious to see how the return will be at work after those breaks… Definitely exciting to know you’ve got options!

  2. I found this post very helpful because I have often wondered the same thing as far as whether I could reach my goals on a lower salary. After reading your personal information as an example I was able to use the tools you provided to see when I could potentially cut back on work or even retire. I am sure many other people will enjoy using these tools.

  3. I’ve been both low salary (new teacher!) and higher earner (administrator.) I made exactly the same progress in both because my spending inflated with my salary. Now that I’ve actually figured things out, the higher salary has helped me catch up more quickly. BUT – if I’d known what I know now I might have stayed in teaching longer because it was more professionally fulfilling and had less downside compared to my current role. Sadly, the late start means the higher salary is necessary to keep me on pace – but we *could* have done it as a teacher couple if we’d started earlier. Salary and spending are important, but in many ways time IS the most critical factor. Get it right early (like you!) and it takes care of a lot of the other factors.

    1. Great point– starting early means faster recovery and a longer period of time to build up an emergency fund. I don’t think you are alone to have your lifestyle inflate with your earnings unfortunately. I’m glad you got started at all, and now have the high salary to make it happen. Have you managed to decrease spending after already increasing it for so long over time?

  4. I’m pondering going for a job with a big paycut at the moment. I think it would pretty much blow apart any change of early retirement. I think I’ve got too used to my current level of expenditure – which isn’t particularly high but there’s a few comforts in there I wouldn’t want to give up. Plus I have a high-ish mortgage to cover. But some of your graphs have given me food for thought.

  5. For beginners, I think it’s best to start with lowering expenses. Once you have a handle on living modestly, then focus on increasing income. If you can’t control your expenses, high income won’t help much. It took us about 15 years to become financially independent.
    It’s wise to assume you can’t live on 20k forever. Life changes and you probably will spend more as you get older.
    Sorry I missed the meet up. Next time. 🙂

    1. I agree. If you can establish good spending habits early on, you can manage a higher salary even better. Hopefully will get to see you another time!

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