Assumptions

• You save with an inflation-adjusted rate r (say, r = 20, 000/yr).

• You invest your savings and they grow with an average, inflation-adjusted return k (say, k = 0.07 for
7% growth).

If the value of your savings at time t is S, then these assumptions can be expressed as a differential equation:
dS
= r + kS.
dt
We can solve this by integrating both sides and substituting u = r + kS and du = k dS :
Z Z
dS
= dt
x + kS
1
ln [r + kS] = t + c.
k
Where c is a constant. We can solve for c using the boundary condition that at time t = 0, your have S0
savings. This implies c = k1 ln [r + kS0 ] . Finally, we get
r kt
S (t) = S0 ekt +


e −1 .
k
Predictions for S (t) are shown for different values of r in Figure 1.

2.5
r = $10000/yr
r = $20000/yr
2.0
savings [millions]

r = $30000/yr
r = $40000/yr
1.5

1.0

0.5

0.0
0 5 10 15 20 25 30
time [years]

Figure 1: Predicted savings as a function of time, assuming initial savings of S0 = $20, 000, an investment
return of k = 0.07, and different savings rates r.

Now suppose that you save a fraction f of your income, I, every year. This means you’ll spend a fraction
1 − f of it. After you retire, you want to withdraw a fraction w of your savings per year (i.e, w = 0.04 is a
4% SWR). This means you can retire once you have enough money that wS = (1 − f ) I, or S = 1−f w I.

You want to know how many years, t, you have to work until you can retire. Presuming we start with
no savings, (i.e., S0 = 0), we just need to set r = f × I and solve for t :
f × I kt
1−f
e −1 = I
k w 
1 1−f k
t = ln +1
k f w
This is plotted in Figure 2. Note that it doesn’t depend on income I, but only on the fraction of it you save,
f.

1
 50

40

years until FI
30

20

10

0
0.0 0.2 0.4 0.6 0.8
savings rate, f

Figure 2: Number of years you need to save a fraction f of your income before you can safely withdraw 4%.