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3 Simple Steps to Save 50% of Your Income


Recently, Ernie Zelinsky (How to Retire Happy, Wild, and Free) left us a great comment.

I didn’t start saving for my retirement until I was 40 years old. I actually semi-retired at that time too, even though my net worth was minus $30,000 (due to student loans). Yet I will be okay in retirement, in fact, better than 90 percent of people my age. The thing that I did was save 40 to 50 percent of my income when I started making a good income. Some people say this is impossible. I have actually been called a liar when I have made this claim on blog comments and newspaper articles.

Nowadays when people call me a liar for saying that I saved 40 to 50 percent of my income, I just refer them to the Retire by 40 blog where several people have indicated they are saving not only 50 percent, but up to 70 percent of their income.

save 50% of your incomeErnie, thanks for sending readers to Retire By 40! Saving 50% of your income is intimidating. No wonder people don’t think it’s doable.

Is it really possible to save 50% of your income? Isn’t it enough to save 10-15% of your income as most financial planners suggest? Sure, if you want to retire at 65 or 70, then you’ll probably be fine with the recommended saving rate. However, life never goes the way we plan. I didn’t plan to quit my engineering career when I first started out. Your health might prevent you from continuing in your chosen field. Your career might not be the right fit anymore after 20 years. Stuff happens and we have to react to it to the best of our capacity. Saving more will give you the freedom to choose when the stuff hits the fan.

Increase your saving as you age

I didn’t keep careful track of our cash flow in our 20s so I’m not exactly sure how much we saved back then. We maxed out our 401k and Roth IRA, so I’m sure we saved more than 15% of our income. As I got older and became disenfranchised with the corporate life, we began to save more and more of our income. In the last 2 years of my career (2010 to 2012), we saved all of my post tax and deduction income. That was definitely more than 50% of our gross income back then and it really beefed up our after tax accounts. Currently, we are saving a pretty good amount, but not 50% of our gross income. We’re pretty close to 50% if we look at the after tax/deduction income, though. Last year we saved $56,800 in our tax advantaged accounts if you’re curious.

Clearly, saving 50% of your income is doable. It’s not easy, but if you want to reach financial independence, then this is the sure fire way to do it. Some might win the lottery or inherit a fortune, but for the rest of us, here are the 3 simple steps toward saving 50% of your income.

Note: Let’s just go with after tax/deduction income for this article. It’s much easier because tax can take a huge bite out of your income when you are in the higher brackets.

1. Make Good Income

As Ernie mentioned in his comment, he didn’t save 40-50% of his income until he started making good money. Most of us don’t want to live in an RV and eat beans everyday just to save money. That doesn’t sound like a fun retirement to me. To live a comfortable lifestyle and save 50% of your income, you need to make good money.

What’s good income? Let’s go through a quick example. Let’s say Mary and John are both working in a household with no kids. They make $60,000 each for a total of $120,000 household income.

I used the estimator at TurboTax and it said they will have to pay $16,644 in tax. Let’s throw in 10% for state and property tax for an additional $12,000. That’s about $28,500 going to uncle Sam and your local government. We also need to add other deductions like health and dental insurance.

  • Household income = $120,000
  • Tax = $28,500
  • Other deduction = $3,500 (This is just a guess because I haven’t seen an actual paycheck in a few years.)
  • They will take home about $88,000

If our couple wants to save 50% of their take home income, then they’d have about $44,000 to work with. I guess it really depends on where you live and your lifestyle, but it’d be tough for us to live on $3,667 per month at this point.

Of course, you can save 50% if you are dedicated and live frugally, but it’s much easier if you make a good income. I think you need to make at least $120,000 to be able to save 50% of your income if you live in a city on the West coast. It would take less in Texas or other more affordable locations.

2. Live Below Your Means

The problem with making more money is that people tend to spend more money, too. A typical couple who makes $120,000 per year won’t want to live on $3,667 per month. They’d rather spend $6,500 per month and save about 10% of their income. That’s the norm, right? If you really want to save 50%, then you need to live below your means. You can afford to spend, but you value financial independence more. Saving 50% of your income will enable you to get there much faster.

This doesn’t mean you need to live frugally. If you make a million bucks per year, then you’d have a lot more take home income to play with. See why Make Good Income is #1? It is possible to save 50% by living really cheaply, but it probably is not sustainable for the long haul.

3. Invest

Here is the real secret to saving 50% of your earned income* – making your money work for you. We have been focused on earned income up to this point, but as we can see from our theoretical couple above, it is really difficult to save 50% of your income even if your jobs pay 6 figures per year.

*At this point, I’m going to cheat and say Saving 50% of your income really means Saving 50% of your earned income.

What you need to do is to invest all that saving. The compound return will give your saving rate a big boost over the long haul.

Here is a scenario. If John and Mary couldn’t invest 50% of their earned income now, they can start off with a bit less. I think a $5,000 per month budget is pretty comfortable. They can save $28,000 per year. Assuming 5% rate of return, their $28,000 will make $1,400 in the first year. The second year, their investment will make $2,870 and this amount will increase every year due to compound interest.

After 9 years, their saving rate will reach 50% of their earned income. We’ll ignore inflation and raises in this article. It’s already getting too mathy. Anyway, after 9 years, the interest from their investment will be about $18,000 per year. That will be enough to push their saving rate pass the 50% mark.

Now you see why the rich are getting richer. It’s just economics.


Here are the 3 simple steps.

  1. Make Good Money – You need to make money to save money.
  2. Live Below Your Means – Don’t spend every penny you bring in.
  3. Invest – Compound interest is your best friend when it comes to money.

It’s not easy to save 50% of your income, but the pay off will be worth it. The day your investment income can pay your living expense will be one of the happiest days of your life. That’s financial independence, baby!

Are you saving more than 50% of your income? What’s your secret? 

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 29 comments… add one }
  • Mr. Frugalwoods January 12, 2015, 4:22 am

    Your point on income is a good one, though I think you are underestimating how frugally you can live in a major city if you try :-).

    We make more than $120k, but if we did earn that, we’d be saving well over 50%. I’d personally put the minimum FI-capable earnings for two people at $80k… which sounds a lot more reasonable to most folks than $120k. It’s all about priorities!

    And it’s a lot cheaper in the midwest! I have a friend who bought a perfectly good house for $40,000. Stuff like that will allow even moderate income folks who watch their budget carefully to retire early.

    • retirebyforty January 12, 2015, 10:12 am

      Great job with your saving, congratulation! With $80k, it would be really difficult in Portland. Housing and other cost of living is so expensive here. Our 10% state income tax doesn’t help.

      • Max January 13, 2015, 2:41 pm

        I think $40k/year per person is totally do-able, but living on $20k/year in certain metro areas will definitely be more difficult and you’ll probably need to get roommates or live in a less desirable area. Also, you’ll have to be lucky or smart enough to not have lots of debts…

        • retirebyforty January 14, 2015, 10:25 am

          I’m pretty sure we can do $40k/year once the mortgage is paid off. It all depends on how much the kid will cost when he’s in middle/high school.

  • Jon January 12, 2015, 5:18 am

    We are saved 35% of our income last year, just to see how much we could comfortably save and still have a life. As you said, we aren’t interested in making our current life unenjoyable by dumpster diving – that just isn’t us. At the end of the year, we realized that we could save more. We got used to not going out to eat every weekend and started to enjoy cooking at home and having a nice date night in instead.

    To your points, I agree that you need to live below your means and invest, but earning a high salary is not a requirement. I think that one all depends on where you live. In lower cost of living areas, you could save 50% and still get by easily.

    • retirebyforty January 12, 2015, 10:14 am

      35% is really good. We all have to find a happy medium. We could cut our budget a substantial amount if we move, but we like it here.

  • Kalie January 12, 2015, 5:50 am

    We are living on less than half our one income, with the rest going to paying down the mortgage faster, investing, and charitable giving. I think the secret is more philosophical than practical. Keeping your reasons in mind is very motivating. Also, simply being content with what you have and not feeling entitled to new everything all the time is key.

    • retirebyforty January 12, 2015, 10:15 am

      Oh wow, that’s awesome. How much does your household make? I think it’s philosophical when you’re making good money. If you’re making $60k per year, then it would be hard to save 50%. Depends on where you live too, of course.

  • Justin @ Root of Good January 12, 2015, 6:06 am

    To those that say it’s impossible to save half your income, I ask them how it’s possible that people who make twice what I do have to spend twice as much? If one family can be content on a $40k per year income, isn’t it at least possible that a family earning $80k can also be happy on $40k and devote the other $40k to grow in investments?

    It just seems unnatural that our needs should be determined by how much we have instead of what we actually need (plus throwing in a few wants for fun!).

  • Jeremy January 12, 2015, 7:05 am

    For a few years, we were saving 100% of our income. I worked too long, oops
    But in the years prior to that, we were saving 70%+

    I suppose we followed these 3 rules, which made it easier to save great percentages with each year

    • retirebyforty January 12, 2015, 10:16 am

      Now it’s my turn to ask how is saving 100% of your income possible? 🙂
      Are you saving much now that you’re not working full time anymore?

      • Jeremy January 12, 2015, 6:08 pm

        I just had my whole paycheck deposited into our brokerage account
        Since we were already FI, any income was just extra

        This year we spent more than our investments paid off in dividends and interest, but our net worth is higher than it was when we retired

  • Tom January 12, 2015, 10:08 am

    Good discussion.

    People need to pay themself first. Sure bills are due but if you don’t pay yourself first, then you won’t have the money to invest.

    Everyone talks about paying bills but people forget they need to pay themself!

  • tuann January 12, 2015, 1:45 pm

    Hi Joe,
    It’s been a while. As you can see, I am still working like they day we met 🙂 However, my other half probably can claim retire B4 40.
    Anyhow, just a comment on saving. I think it’s tough. However, there are few things you can do, and can consider as saving, especially to reduce spending when you retire:
    – Install solar hot water system: I did spend about 3K (after rebate) to install 2 panels of solar to heat up water or pre-heat up to 70 gallons tank before going to normal hot water tank. It provides 100% our hot water in the summer, and in the winter, the pre-heat is up to 60-70F. I think it saves quiet a lot on this.
    – Solar Electric: I installed 6Kw system, zero down, but the total cost is about 14K when pay off.

    I can effort to do those things now, hopefully it helps when the retirement come. BTW, dont do this if you do not intend to retire at the same house 🙂

    • retirebyforty January 13, 2015, 9:59 am

      Hey Tuan, I hope things are going well. Good for the missus. I’m sure she’s keeping busy with the kids, though.
      Good idea with the home improvement projects. I want to install some solar panel when we move too. Thanks for dropping by.

  • Tawcan January 12, 2015, 5:05 pm

    Living below your means is the first thing that people need to do. Once you can do that consistently you can look into cutting expenses and eliminate unnecessary expenses. Having the right investment is key too. It certainly does no good if you can save 90% of your income but invest in GIC or have the money sitting in a checking account.

    • retirebyforty January 13, 2015, 10:22 am

      Living below your means is the way to go when you’re young and don’t have much income. It build a great habit that will stick with you as you age.

  • Ernie Zelinski January 12, 2015, 5:17 pm

    Several years ago I knew a married couple living here in Edmonton. Henry was working for the Alberta Government and Diana was working for the City of Edmonton. After they read the book “Your Money or Your Life” by Vicki Robin and Joe Dominguez, they told me that they were living on one-half of one salary and banking the rest. I would assume this was after tax and that they were living off one half of the higher salary.

    Incidentally, they had two sons. Even though the family lived frugally and the kids didn’t get all the toys and designer bikes like some of the kids they went to school with did, the kids turned out to be fine young adults. In fact, they are more successful than the majority of kids they went to school with.

    For the record, Henry and Diana gave up their well-paying government jobs in their early 50’s and retired for good. None of that waiting for 65 to retire. They ended up writing and self-publishing a book about the financial aspects of retirement for Canadians. The book did very well by Canadian standards and sold out two print runs. Rather than keep the book going by printing more copies or making it available in ebook form, they decided they had enough money and couldn’t be bothered.

    Here again are a few of my favorite quotations that apply to whether you will have enough for an early retirement:

    “People who don’t respect money don’t have any.”
    — J. Paul Getty,

    “If you borrow money to make money, you’ve done something magical.
    On the other hand, if you go into debt to pay your bills or buy something
    you want but don’t need, you’ve done something stupid. Stupid and
    short-sighted and ultimately life-changing for the worse.”
    — Seth Godin

    “If you want to fix your money problems, get your head examined.
    It’s your mindset and attitude about money that will either draw it in
    to you or repel it away from you. What’s in your head determines
    what’s in your wallet.”
    — Darren Hardy

    Whether we are from the meanest streets in Detroit or the finest
    in Beverly Hills, time and money will show us to be fools or geniuses.
    — Jon Hanson

    “Riches do not respond to wishes. They respond only to definite plans,
    backed by definite desires, through constant persistence.”
    — Napoleon Hill

    In short, elevating all your wants to your need list is another way to trick yourself into being broke in retirement.

    Ernie J. Zelinski
    The Prosperity Guy
    “Helping Adventurous Souls Live Prosperous and Free”
    Author of the Bestseller “How to Retire Happy, Wild, and Free”
    (Over 250,000 copies sold and published in 9 languages)
    and the International Bestseller “The Joy of Not Working”
    (Over 275,000 copies sold and published in 17 languages)

    • retirebyforty January 13, 2015, 10:23 am

      Thanks for sharing the story and the quotes. I think it’s great that they can relax and enjoy retirement. I’ll get there some day. 🙂

  • LeisureFreak Tommy January 12, 2015, 10:21 pm

    I totally agree with this article. I didn’t hit the 50% savings rate until sometime in the last 10 years of career #1. Now that I am retired I live off of my portfolio and my income from my second career and now side hustle is all added to my net-worth so 100% of my after tax income. The key is not allowing lifestyle inflation into my budget.

  • David Michael January 13, 2015, 10:52 am

    It’s great that Ernie and others were able to save 50% of their income. And it’s rare…in the old days, today, and in the future. Because most of us have or had a hefty mortgage, two or three kids, health expenses that can go on and on, and college expenses seemingly forever. And we busted our butts to make a great life for our families.

    I am now nearly 80, and we live primarily on Social Security. I lost my pension due to a divorce, my wife lost her $600,000 annuity because the insurance company went bankrupt. Yet, we have had a wonderful retirement for the past 20 years, traveling about the world. Our own method was to sell our home, work seasonal jobs when needed, and live within our budget. So just in case your readers never make it to the million dollar mark in dividend paying stocks, there are many ways of enjoying a great retirement with out saving 50% of your income. A great goal…unfortunately realized by very few for a variety of reasons.

  • Mr Zombie January 13, 2015, 2:49 pm

    Yo Joe!

    Some good advice condensed in three steps 🙂

    Saving 50% is possible, I’m sure it’s all about forming the habit of doing it (rather than the habit of buying lattes and Audis!).

    I have been musing on me blog about increasing the proportion of pay rises you put into savings. The effect it has on savings is pretty awesome. It looks like a good way to increase savings over the long term without it being too intimidating. 😀

    Mr Z

  • david Michael January 15, 2015, 3:06 pm

    I like your guidelines for saving 50% of one’s income in three simple steps.

    That first step for nearly half the population in the USA is the problem (among others). About 47% of the working population now earn less than $12 an hour in the service sector. That’s less than $2000 a month. I’d like to see your suggestions for the other half of society. What do you suggest and how would they implement it. Thanks!

    • retirebyforty January 16, 2015, 10:41 am

      Of course, you can’t save much when you’re earning less than $12/hour. They would need to figure out how to earn more income. I don’t have a good suggestion. Maybe go back to school or try starting some kind of small business. Working for $12/hour isn’t going to get you to financial independence.

  • connie January 18, 2015, 6:48 am

    When I got married 13 years ago, I was 40, I make less money than hubs, we bought our home on what we could afford with my salary, once married we lived off my husbands checks and put my paychecks in the bank, yes we also have maxed out our retirements savings, we both plan to retire in 4 years, I will be 57 and my hubby 55, in the last 5 years we have lived off my checks and started banking his checks, he makes almost double my income. We are selling everything and moving to Puerto Vallarta, renting of course. So plan is to live on our savings account for 2 years, then I will start taking from my tsp at age 59 1/2, then in a year and a half, we will start taking from my husbands 403B, 3 years later, get my SS and then in another 2 years start drawing on his. At age 65 we will start drawing on our retirement from my federal job of 20 years and his county job of 30 years.. We can get health care in mexico for 300 a person per year, but can live nicely on 2000 a month in Puerto Vallarta…we should be set, we have 350,000 cash on hand and we still have 4 more years to save in…plus selling our home and cars, and everything we have accumulated in the years, we have no debt what so ever, we don’t eat out, I love to cook and we live for needs not wants, because retiring early and enjoying it is the best goal ever, and yes you can save 50 percent of your money, if you start out right, I think us setting up our life on the lower income, was the key, this way if anything ever happened to either of us, we could survive without that persons income.

  • cato January 19, 2015, 9:35 am

    I don’t think you are a liar. I’m saving slightly over 50% of my net income every month. It took a lot of discipline and sacrifice to get there, but once put in motion I don’t feel I am missing out on anything.

  • Cathy January 22, 2015, 12:21 pm

    My husband and I both have above average jobs and no kids, which make our high saving rate much more doable. I would say that we live on my income (the lower of the two) about 75% of the time and his income the months that we travel, which we love and don’t want to give up. We keep our base expenses lower, our house paid off last year (in 13 years) is much more modest than we could otherwise afford and we only have one car, a 2012 Subaru Outback, also paid for. I’m actually surprised that more two income couples don’t take this approach. We want to retire in 5 years when my husband will be 60, I think we are on track mostly because we are used to living pretty modestly. There is no way that we will need 75-80% of our pre-retirement salary to be able to retire.

  • Kimberly March 25, 2016, 12:51 pm

    Hello, I’m single, in my late 30s, I live in NYC and I work for a non-profit. I wanted to add that saving half of your income is possible even if you don’t make much. I make about $68,500 a year, about $50,500 after taxes and I am saving almost half of my pretax income (23%) and giving 10% of my post tax income away to church and charities. Living below my means has been huge. I comfortably live off of about $1750 a month. It helps that I walk to work/don’t have a car, live with roommates, and cook most of my own meals. I’ve found that by setting a cap of what I need it keeps me from always feeling like I need to chase bigger and better. When I get a raise I either save or give more away. In my experience, less is more!

  • Jane October 28, 2017, 3:33 pm

    I live in Boston (3rd most expensive housing in the USA), am single/no kids, make not quite 6-figures, and should be able to save 50% of my before bonus and before taxes gross salary in 2017 (about 64% of my post tax/with bonus income).
    I paid off all of my (divorce related, and a car loan) debt last year. I don’t exactly budget, but just don’t buy a ton of stuff. I also rented the cheapest apt I could find at the time (about $1000/mo for 1b/1b in the city, been here 5+ yrs)–even though it is pretty ghetto (most of my friends would never live here, lol). It has saved me a ton on rent over the years. I don’t mind. I don’t need a fancy home, and would rather put my money into savings!!

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