Goal #3: Retire at Age 57 with $3.3 Million
If you’re interested in watching me set my goals, go back and read these articles:
Okay, so if Goal #1 is a short-term goal and Goal #2 is a mid-term goal, then Goal #3 will naturally be my long-term goal. Loosely defined, my long-term goals are my goals stretching past 10 years from now.
This week, I will discuss my retirement goal.
Step 1. Set goals that motivate you.
Retirement is pie-in-the-sky for me. My parents are still to young to retire, but I expect that they never will. Sadly, they will work for the rest of their lives. I am motivated to not be in their shoes. Although I am only 20-something, I look forward to retirement one day. This goal will help me get there.
Step 2. Be SMART about your goals.
This goal is SMART because it is:
- Specific: It clearly defines what I want to achieve, when, and with how much.
- Measurable: Yep, it’s measureable alright.
- Attainable: I have a long way to go, but this is definitely an attainable goal.
- Relevant: Retirement is always relevant!
- Time Bound: I want to retire at 57. Umm, this has a year associated with it as well. But is it really that important?
Step 3. Write them down.
Goal #3 for me is:
To retire at the age of 57 with a savings of $3.3 million. I will allow myself to (and to some extent, I will have to) count taxable savings as a part of this total.
Step 4. Develop smaller steps to achieve your overall goal.
Using an online calculator and backwards calculating, I need to save $22,000 a year to have $3.3 million when I retire. This assumes a rate of return of 8.0%.
Now I will develop some smaller steps.
- Sub-goal #1: Contribute to the annual maximum limit in my 401(k), starting on January 1, 2011. I will utilize payroll deductions through my employer for this. This year’s (2010) limit is $16,500.
- Sub-goal #2: Contribute to the maximum limit in an IRA, starting on January 1, 2011. Set up an account with Vanguard to do this. This year’s IRS contribution limit for an IRA is $5,000.
- Sub-goal #3: Save some extra money through taxable means. I will not set a specific date for this, as this sub-goal is a backup for the first two.
A couple of notes.
The $16,500 for my 401(k) and $5,000 for an IRA only total $21,500 for the year. In this case, I will strive to save additional money into a taxable account. Who knows what the limits will be 10 years from now? They will likely be higher, and I will be able to contribute more. If I can contribute more, then my rate of return does not have to be as aggressive… or I will have more than $3.3 million with I retire. With all of these variables, I will keep things simple and list my sub-goals as I have above.
Although I am married, I have not considered my wife’s retirement savings into account. We will strive to contribute to the max for her accounts as well, but I will not include her accounts in this goal.
Step 5. Stick with it!
I certainly will. Since I have such a long time until retirement, I’m sure numerous adjustments will be made along the way.
This is not a goal, but more a backup plan: If I fail to achieve my goal, I have the option of working part-time during my retirement years. I am too young to know if this will be required, so we’ll see….
Some last comments.
Much like my last post, the $3.3 million figure seemed like an awfully high goal. But once I developed my sub-goals in Step 4 and ran some calculations, the $3.3 million goal is right on target. If I am able to contribute to the maximum, beginning in 2011, I will reach this goal fairly easily.
I don’t think that’s too high a number. Two points – with inflation, you are talking about $1.5 or so in today’s dollars. Given the rule of 72, over 30 years, money will three times or 8 fold. So if one has $400K today, at 8% or so it will hit that $3.3M in 30 years.
You sound very disciplined, so I might offer one bit of advice. It’s easy to have “lifestyle bracket creep,” increasing your lifestyle as you earn more, so you are always spending the same percent of your income. That can work, but you’ll reach your goals more easily by putting half or more of each raise to savings. 57? Imagine finding yourself at 50 with just enough to feel comfortable calling it quits, if that’s your wish.
@JoeTaxpayer: You are absolutely write about inflation. The $3.3M goal is based on an inflated value. I am able to withdraw on this number until 95 and not run out.
And, of course, I appreciate any advice that I receive! I would love to retire at 50 or even earlier. Of course, only time will tell. The plan is to achieve this goal. If I exceed it, then that’s even better!