I don’t think I understand these numbers. Does savings rate equal savings amount divided by earnings? So if I save $500 out of $2500 (after taxes) each month, then my x = .2?

And if so, my Y would be 5/.8 = 6.25? That sounds much more extreme than I expected. Especially since I will be working 30 years before I retire.

Second, what if my current liabilities are zero? Then the second equation means nothing.

I liked your net worth divided by expenses ratio better.

I don’t understand. My savings rate is 70% of my after tax money, yet that yields a y of 58.3 much higher than the above comment, even though she saves 20%. Huh???

I think “Current Liabilities” is misleading and implies total debt, and hence could yield infinity. “Yearly Expenses” would be more accurate. Basically you are saying that retirement becomes possible with a 4% and lower withdrawal rate.

Savings power is a bit more abstract, but it is the total number of years of savings for retirement required if you earn 0% interest. Increasing your savings rate helps you by reducing the total amount you need to save (expressed in the numerator) and by saving in larger chunks (expressed in the denominator).

The numbers are scary for a typical savings rate of 10%. Extreme early retirement doesn’t rely on compound interest, but by reducing expenses.

I just found your site and am enjoying reading your posts. One comment about credit score – I used to say that it had no value to me, as I don’t intend to take on any new debt. However, in the past couple of years, I’ve seen that it is being used as part of the formula for calculating insurance premiums. Fortunately, my score is good, but I still thought that was rather sneaky.

Creditkarma.com also gives you a free score if you subject yourself to some marketing offers (similar to how Mint.com makes money). It is pretty accurate in my experience.

The range reported by the bankrate.com link above contains the score creditkarma.com gives me.

This savings power function is nice but it needs a lot of explanation. Where do you get the 25 from? I might have a savings rate of 50% but I think there’s a lot more to this equation than you are explaining here and you have no references to any justification.

Not to be rude, but to the newcomer, this looks like you pulled some numbers our of thin air (to be polite) and I have nothing to rely on to understand the validity of your statements. I am not one to go on blind faith.

This is close but I think there’s an additional consideration in your numbers.
When we use the After Tax income to calculate the savings power and cash flow based on the 4% withdrawal rate you are by-passing the 15-18% net taxable income that needs to be considered for anyone who has an income greater than the taxable minimum.
This is a footnote, but if you are checking your assets to liabilities to get a ~25 ratio, you have to factor in the taxes or you’ll end up ~15-17% off.

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