Can a 1% Increase In Savings Help You Retire Two Years Early?

Personal Finance, for all the subcategories and complexity, boils down to: “Increase your savings rate”.

The standard advice is to save 10% of our income. Most Americans struggle to meet this recommendation.

In today’s high consumerist world, I’m convinced everyone has the ability to not only maintain a minimum of 10%, but also increase the amount of money they keep by at least another 1% each year. If you’re struggling to implement large changes in your life then the perfect place to start is with 1% improvements. The question you might be asking yourself is, “Why bother with increasing my savings rate by 1%? What’s the actual benefit of 1% changes?”

The amazing concept is that this number will predict how long you will need to work before you have the option to retire. The dollar amount of your income does not matter because your savings rate only considers your living expenses and your income. These two factors determine the exact amount of years and months you have left until you can support yourself with your invested funds — until you reach financial independence.

So how big of a benefit can 1% be if you’re already saving the recommended 10%?

Someone with a savings rate of 11% per year instead of 10% will be able to retire two years earlier.

Credit here due to another financial blogger, Mr. Money Mustache, for introducing me to this view. Here’s a link to the original article discussing these rates

Continuing with our example – if you’re able to boost your savings rate from 10% to 20%, then you’ll effectively have reduced your working career by another 15 years.

If you’re familiar with our goal for 2016, then you’ll know we’ve started this year by living a lifestyle that puts us on track to achieve our ambitious goal of doubling our savings rate from 23% to 50%. Our goal is to make wise, well-thought out decisions while still enjoying a comfortable lifestyle. After all, it is damn comforting to know my future wife and I are working as a team and on track to retire (if we want) in our late 30s.

Once you begin identifying the areas in your life where you can tack on saving an extra 1%, you can tap out of the rat race before your first grey hair — or in my case, before I’m completely bald. 

Saving our dollars is the only way we can truly earn our dollars. If we earn money to simply spend it on bills and recurring expenses, then that money was not truly ours to begin with. It was earmarked as soon as we received it. Once we have money, it begins to work for us, even while we sleep.

In 2015, I committed to a few 1% changes in my own life that continue to help improve my financial discipline in 2016. In 2016, I’m searching for ways I can boost my savings by that extra 1% because I know exactly what that translates into down the road.

What are some of the 1% improvements you’ve made recently or that you’re planning to make?

Master Distiller

25 comments… add one
  • Anna Saldi Mar 6, 2016, 11:32 am

    I love this tip and how you put it in plain English: 1% more = 2 more years of freedom! I’m very motivated to boost my savings now, thank you or the advice. We so often forget just what we are sacrificing when we are choosing to spend NOW vs save!

    • Distilled Dollar Mar 6, 2016, 1:31 pm

      No problem and I’m glad you found the tip helpful! Your last sentence is spot on.

  • Nurse on Fire Apr 8, 2016, 6:02 am

    Excellent post! My recent post about The Power of 300 looked at this concept from a perspective of dollars, but it’s nice to see it from a percentage standpoint – two years of freedom in exchange for and additional 1% in savings is quite the bargain in my honest opinion. When I first discovered that MMM article about a year-and-a-half ago, it forever revolutionized my life and was the catalyst for getting on track to achieving FIRE. It’s absolutely amazing what small changes in your savings rate can accomplish, as it is a far more powerful variable than simply increasing one’s income and succumbing to the temptations of lifestyle inflation.

    Between the money we are currently saving and utilizing to pay off debt, our savings rate is averaging around 55% so far this year. Once our debt is gone and all of those funds translate over into savings, we are going to be chugging along full steam ahead toward FIRE. Thanks for the awesome and thought provoking post!

    • Distilled Dollar Apr 9, 2016, 2:21 pm

      I’m glad it helps out, but you’re right, nothing is quite as on point as that MMM article.

      Lifestyle inflation is so common especially since it is common to reward yourself with increases in pay with purchases today, instead of making a smaller payment to buy your future freedom.

      55% is impressive! It will be great to see when you’re at full steam.

  • Ty @ Get Rich Quickish May 2, 2016, 2:05 pm

    That MMM article quite literally changed my financial life a few years ago when I first read it. I wrote about that experience on my All About Me page, but I’d never quite looked at it like you’ve presented here: 1% = 2 years of your life. Yes please!

    A 1% savings rate increase is hardly noticeable to many, but I guarantee that you’ll notice two freaking years of your life in exchange for that 1% A no-brainer if I’ve ever seen one.

    • Distilled Dollar May 2, 2016, 2:58 pm

      That MMM article is a classic! I was aware of the principle before reading it, but it was never demonstrated in such a clear table before I read that post.

      I’ve always been a fan of understanding marginal utility within any activity and that’s why I honed in on that 1% difference.

      Sometimes the problem with financial planning, early retirement, or general personal finance is just learning how to phrase the information so that someone else can see it as a viable option in their lives.

  • Tawcan Jun 2, 2016, 1:43 pm

    It’s amazing that a small change and make such a big impact isn’t it? 🙂

    • Distilled Dollar Jun 2, 2016, 5:51 pm

      Yes it is! I feel this has been a powerful analogy with friends and family since 1% is not too much to ask for. The real power to this type of strategy is being able to compound the savings each year (which is not calculated in the 2 year number). I would say it is likely, even probable, that someone saving an extra 1% this year, will find ways to save an extra 2-3% the following year, and so on.

  • ZJ Thorne Jul 19, 2016, 9:22 pm

    I recently got a balance transfer to a zero interest rate that will allow me to wipe out the remaining credit card debt. All the money going to credit card debt will switch to my down payment fund, which will get me away from crappy roommates and on the path to the life I want.

    Once I’m not paying down debt, a significant portion of my income will go towards investment. I’m so excited for that to start.

  • Physician on FIRE Nov 11, 2016, 7:03 am

    It’s incredible how small changes now can lead to meaningful differences down the road. It’s like the butterfly effect.

    Mr. Firestation showed how saving 15% more can shave off 10 years in his example.

    I encourage physicians to live on half their takehome pay. It’s easy to live well on that, while paying down debts and starting to build some real wealth.


  • Liz Nov 11, 2016, 7:30 am

    Every little bit counts. My recent small changes are the result of a larger one, I was constantly traveling for my day job, the travel is slowing down, and ultimately I’m being laid off at the end of the year (I’ll be pursuing self-employment). Since I’m actually home every day and will continue to be, I’m building up routines to help me reach my goal of living healthier as well as building up my business. The routines are small, like setting up my workout area at night so I can work out in the morning and taking the time every day to work on my own blog as well as my freelance writing. They aren’t hard, but they add up the more I do them.

  • Sarah Nov 12, 2016, 3:23 pm

    It costs 50p per hour to run my washing machine, so I’ve been doing more washes on an eco (1hr) cycle instead of standard 2hr10 minutes. I’m always trying to find more little ways to cut down costs- more money to put towards FI and a lower cost of living to maintain= win, win!

  • Dividend Diplomats Nov 12, 2016, 6:26 pm

    Isn’t it fascinating how small changes can have such a drastic impact? Our biggest change has involved grocery shopping smarter with better savings and packing lunch versus buying. That is where we have seen the greatest impact on our savings and we are always open to finding other areas too.


  • Jacq Nov 13, 2016, 5:50 am

    Just 1% more can be a fun game. I was contributing the typical 6% to my 401k but had ‘extra money’ on my budget. It makes sense to use that to be tax free, so I upped it to 7%. I looked at my spending and adjusted it up a few more times. Currently I have the 401k, an employee stock purchase plan and HSA come out of my paycheck. I’m trying to rebuild my savings and once I’m at a comfortable level, I’ll look at another 1-2%. 🙂

    • Jacq Apr 5, 2018, 6:58 am

      I increased the employee stock plan 2% earlier this year. I got a decent (my perspective) raise, which will increase the 401k & espp without lifting a finger. 🙂

  • Andy Hill Nov 13, 2016, 9:21 pm

    Smart saving article! 1% doesn’t seem like a lot but over time with compounding interest it can pile up.


  • Kurt Nov 14, 2016, 10:10 am

    I’ve never done the math on this before, and it’s very compelling! I can buy 15 years of freedom by doubling my saving rate from 10% to 20%? Now THAT is motivating! Thanks!

  • EL Nov 18, 2016, 3:53 pm

    Yes a 1% increase can do wonders. I increased mine 2% recently and look forward to increasing it another 2% in 2017. 93% savings rate and you can retire in less than 5 years. Now that’s awesome.

  • Amber tree Nov 20, 2016, 1:11 pm

    Excellent viewpoint. One percent extra does not look like much, the impact is. 2 more years of freedom?!?

    IT could hel me to pursue more small wins with almost no impact. Recently, I reduced our telco/internet bill with 10€. No impact on our life, other than we now need 3K less to be FIRE. I hope more will follow.

  • Mark Apr 21, 2017, 6:16 am

    Just to be clear, this depends on your current saving rate. When you already have a high savings rate like 50% or 60%, the decrease is more like 0.4 years.

  • Kevin Mathew Apr 26, 2017, 1:27 pm

    As of recently, I have been obsessed with reading books. I prefer reading books to ebooks because of the feeling of a book in my hands. I started with a New Year’s Resolution of reading one book a month (a huge feat coming from someone who used to read an average of 1 book per year). Assuming that soft cover books cost an average of $12, that would be $144/year. Instead, I opted to leverage my local library, and borrow books for free! An added bonus short time at which books can be borrowed. This ensures that I am diligent with reading every night.

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