Spending Matters: Calculating How Many Days Earlier You Can Retire

This is going to be very long (first rationale, then step-by-step instructions). I think it’s going to be worth it, but we’ll see.

Ask just about any math teacher and they’ll tell you that humans don’t have a very good intuitive sense of exponential growth (e.g., see the response to the pandemic). Humans are pretty linear thinkers, which makes sense, because most of human life throughout history has operated on a linear scale. We’re pretty good at looking for patterns in data (often to the point of finding patterns where they don’t exist), but then we like to just sketch a best-fit line and be done with it.

For me, this is also one of the biggest obstacles in financial literacy and personal finance. Humans just aren’t that great at looking very far ahead and, on the somewhat rare occasions they do, they tend to extrapolate linearly from the present (or simply assume the future will be essentially the same as the present). Unfortunately, this makes the true power of compounding practically invisible to most people which, in turn, causes them to dismiss the impact that even small changes in the present can have on the future.

Pretty much every financial writer, blogger and presenter tries to illustrate compounding in some way or another that will finally “grab” their audience in a way that brings it home. I’ve seen many great examples and, while I’m sure they all had an impact on some folks, I still feel like they miss the mark for the majority of people. It’s not the fault of the example so much as the utter “foreignness” of exponential growth that impedes it really resonating and sticking with the audience.

For a class I’m teaching about personal finance for educators, I have multiple examples in different contexts to try to illustrate the power of compounding on their finances. I think each individual example is pretty good, and it does indeed reach some of my learners, but overall I feel like it’s still not hitting the mark the way I would like it to. I’ve been reading The Norm Chronicles, and it got me thinking (again) about how I might be able to present the information in another way that might be more effective. How can I get folks to see the impact of compounding without them really having to think about compounding?

The following is still very imperfect, is a bit too complex for some folks to follow, and I know it will miss the mark again, but I’m hopeful I’m getting closer. I would love feedback and suggestions about how I might be able to make it better.

This activity is attempting to illustrate the effect of small changes in spending on a person’s future retirement prospects, in a very concrete way that not only makes sense, but really resonates with the audience and hopefully results in action on their part. Note that, as always, personal finance is “personal”, and everyone has to find their own balance between living the life they want to live today and planning so that they can live the life they hope to have in the future.

The process appears lengthy, but isn’t quite as long as it looks on “paper”. I’d like to make it simpler, but haven’t found a way to do that (yet). My hope is that folks will stick with it if they know (or hope) it’s worth it in the end. There are basically three parts:

  1. Input your current income and expenses in both an online calculator and a spreadsheet. (You can also optionally enter a current balance in your investment accounts, an expected rate of return, and an expected safe withdrawal rate if you wish to customize even more.)
  2. Think about your current spending, identify a few items that you can cut back on on a daily, weekly, monthly, yearly, or one-time basis, and enter them in the spreadsheet.
  3. Use the spreadsheet and online calculator together to illustrate how many days/years earlier you can retire (or at least reach a “work optional” stage) based on each item individually, as well as all the items collectively.

In other words, enter a few items you can cut and, voilà, it spits out that you can retire X number of days (or years) earlier1. People can then shorthand it by saying, “Cutting out this spending will get me X number of DEs (or YEs),” with “DE” standing for “Days Earlier” and “YE” standing for “Years Earlier.” Hopefully it’s concrete, to the point, and actionable.

Here are the steps/directions. Again, these are too complex, but actually not all that difficult to do. I would love ideas on ways to make it less complex.

1Open When Can I Retire Calculator in a new tab or window. Side by side windows might be easiest so that you can see these instructions at the same time.

2Enter current annual income on the first line (defaults to $60,000)
3Enter current annual expenses (including taxes) on the third line (defaults to $50,000)2
4It will calculate line 2 (current annual savings) and line 4 (current savings rate) for you
5Enter current portfolio value (current balance in your investments) if you wish on the fifth line (defaults to $0)
6Click “show more options” (if they are not already showing)
7Enter annual assumed return on investment on the sixth line (defaults to 6%)
8Enter (safe) withdrawal rate on the seventh line if you wish (defaults to 4%)
9Click “Crunch the numbers”
10Write down the “you can retire in” number of years.
11Leave open the When Can I Retire Calculator tab/window and then open Days Earlier Calculator Spreadsheet. It will force you to make a copy (so that you can edit it). Again, having these instructions, the calculator, and the spreadsheet in separate tabs/windows is probably helpful.
12Enter the same current annual income as you did in step 2 in cell B1 (default $60,000)
13Enter the same current annual expenses as you did in step 3 (including taxes) in cell B2 (default $50,000)
14Enter the same assumed rate of return as you did in step 7 in cell B3 (default 6%)
15Enter the “you can retire in” years number from step 10 above in cell B4 (default 37.50)

16This is the most important step, as it is where you can enter in specific spending changes you may be able to make and, by the end of this activity, see what the effect of those are in terms of how much earlier you can retire.

Add to, modify, or delete any of the entries in Items (cells A11-A47), Type (cells B11-B47), and Amount (cells C11-C47). The ones that are there are just examples to give you ideas, please remove any that don’t apply, modify any that do but your amount is different, and add any additional ones that do apply to you.

*Make sure for the frequency you choose is how often you pay for the item, not how often you do it. For example, while you may work out daily, the amount you pay for a gym membership is probably monthly, so choose monthly in the drop down.

*Note that any one-time savings are prorated over the entire initial years to retirement, which underestimates its impact.
17Once you’ve finished with step 16, write down the Updated Annual Expenses from cell B7 (default $41,301)

18Return to your already open When Can I Retire Calculator tab or window (leaving your spreadsheet tab or window open)
19Enter the Updated Annual Expenses from step 17 above (cell B7) on the third line (replacing the original amount you entered in step 3)

20Click “Crunch the numbers”
21Write down the new “you can retire in” number of years.
22Leave open the When Can I Retire Tab/Window in case you want to go back to make adjustments, then return to your already open Days Earlier Calculator Spreadsheet.
23Enter the new “you can retire in” number (from step 21 above) in cell B5 (Updated Years to Retirement)

24For each item in the savings table, look at columns G (Days Earlier) and H (Years Earlier) to see how many days/years earlier each change can allow you to retire.
25Ponder and reflect :-), then make a plan.

So, for example, with the defaults (no changes) cutting out a daily gourmet coffee (row 12) will allow you to retire 691 days (or 1.89 years) earlier. One could say, “Cutting out my daily gourmet coffee purchase will get me 691 DEs.” All of the default changes would allow you to retire 12.9 years earlier (“All of these changes would get me 12.9 YEs”).

My hope is that this activity that is specific to their situation, including their income, current expenses, and their own ideas of where they might be able to cut back (or at least some “well, let’s see what would happen if I did cut back on this?”), that then spits out a concrete “if you did this you could retire 691 days earlier” or “if you did all of these you could retire 12.9 years earlier” will make much more of an impact (and end up being more actionable) than a simple compound interest graph. I would love feedback and suggestions.


1 Any projection like this has to include many, many assumptions and, by it’s very nature, is a very simplified look at things. Nonetheless, I believe this is still close enough and directionally accurate to provide some direction and motivation for folks.

2 This does not include any other sources of income in retirement such as Social Security or a pension. Since Social Security kicks in at a later age, I think it’s fine to ignore it for this purpose and/or use it as a margin of safety for a 4% withdrawal rate (and enjoy the bonus when it happens).

Some educators, however, will have a pension that might start early enough to impact this directly. If that’s the case, it might shave even a few more years off. One way to adjust for this might be to increase the withdrawal rate from 4% to 5% (or possibly even higher depending on the amount of their pension) to help “include” some of the pension.

Alternatively, they could carefully look at the detailed table the When Can I Retire Calculator generates at the bottom and subtract off their expected pension amount from the “Expenses” column and then find what year the amount in the “return on investments” category exceeds that new amount.

2 thoughts on “Spending Matters: Calculating How Many Days Earlier You Can Retire

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