How Do I Plan To Reach My Investing Goals For Retirement?
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To make my goal of having my net worth be $1,000,000USD by 2020 I need to have a plan laid out. Yes it will change through the years, My wife and I will get raises; we won’t get the return we’re shooting for with investments in some of the years, but as a base goal if we take our current principal of $75,000 and continue to invest $21,500 per year for the next 13 and that will put us just over the 1MIL mark. That first MIL is the hardest, Pinyo lays it out here.
Where do I find $21,500 per year to invest? We’re currently contributing 10% of each our salaries for about $16,000 per year to our 401k plans, then add in $4,000 each for our ROTH IRA accounts and we’re well over the limit there. We’re planning on bumps in the road, so that’s why I’m giving the $21,500 number. There are a lot of calculations that need to taken into account, but that is the same with any investment plan. At 10% return with those calculations we’re looking at just under 840k, and at 12% that puts us over the 1MIL mark.
We could have a year where we can’t pay contributions to either our 401k or ROTH, but on the same note, there could be years where we’d contribute MORE to those accounts, For instance, we’re planning on trying to bump the 401k contributions up to 15% in 2008 and that would be $24,000 in itself; add in the ROTH IRA contributions and we’re looking at $32,000 invested per year and in 13 years, that will be worth 1.33MIL.
Numbers are numbers – sticking to the path of just getting money in is the key. In 13 years I’ll still be nowhere near retirement, but the first million is always the hardest to make, after that, it is quite ridiculous how fast it grows. In 35 years on this same $21,500 per year at 10% return we’re looking at 8.5MIL. Which is dreaming, and a lot can happen in 35 years, but there is no time like the present to start planning on it!
Time, as usual, is the key piece of this financial pie; variables are always tossed in to make it interesting. As long as we’re putting in the $21,500 we’ll be on a good pace. I’m sure there will be other investment opportunities, more job promotions, more raises, maybe more kids, but staying on this basic path is the key to our specific financial goal. What’s your path?
Filed Under: 401K • Compensation • Debt • Emergency fund • Frugal • House • Insurance • Interviews • Investing • Mutual Funds • Net Worth • Passive Income • Portfolio • ROTH IRA • Real Estate • Retirement • Taxes • Timeshare • Traditional IRA • advice • financial education
Sometimes it’s fun to look at what big returns will do to your nest egg. I did the same thing early on, but now I’m more concerned about the effect of a prolonged spell of low returns. Fortunately we both have plenty of time to contribute more if that happens.
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I would love to do one of those
Nice post!!!!!!!!! Thanks!!!!!!!!!
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Trying to figure out what return you are going to get in the future is difficult. Contribute as much as you can buy the dips and sell off a little during the peaks. I think you can blow 10% per year away. If this were 1975 again which had a similar market 10% is a piece of cake.
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$1 million sounds like a lot, but at the same time, isn’t really that much. I’m 31 right now…if there’s any chance of me retiring at 45, I’d probably need $2 million by that time. What we need to focus on is increasing our returns and not focus on how much we contribute. As you pointed out, that 2% makes a significant difference.
Obviously, 12% will not get us anywhere quick. A smart small investor should be able to get 20% returns consistently. After all Warren Buffet and Peter Lynch had 20%+ returns over a very long term and they had billions of dollars to invest, which make them not so nimble nor flexible with their stock picks. I would recommending reading Phil Town for all the beginner investors in the room. He’s great!
Hank, I liked you post though. I wish you luck in your plans!
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