My Roadmap to Retirement

If I want to retire early, I’ll need a good idea of what I’ll be making over the years based on my expected income and spending habits. After careful examination of the numbers, I have set a barometer of where I hope to be for each of the next 15 years.

But first, there are many assumptions to consider:
1) I will still have a job
2) My job gives me a 3% raise every year
3) My spending habits will not dramatically increase
4) I’ll still be renting
5) The stock market will on average go up 8% every year which will impact my 401k and Roth IRA
6) My own brokerage account will go up 12% every year

Now let’s take an initial glimpse of the numbers and then I’ll break it down further below:

In my last post, I mentioned my net worth to be $264,948.77. That is on track to match or surpass my expectations at the start of the year. In fact, I’ve already surpassed my 401k and IRA expectations due to a stock market rate of return of around 13%. Of course that could easily go down by year’s end. But if that rate remained, my adjusted net worth expectation would be closer to around $280k.

Looking beyond this year, you can see the power of compound interest is strong as the years keep going. This tells me it’ll be critical to maintain (and hopefully increase) my savings rate until I eventually retire.

So When Will I Retire?

Once I get to two million, then I’ll feel pretty damn secure with the idea of retiring. According to the numbers, I can maybe get there by 49 but I’m sticking to 50 for now. Of course anything can happen in between now and then. Perhaps the stock market crashes and my net worth suddenly falls 30% right when I get to two million and I’ll have to work a few more years. That would suck. But I tend to be an optimist (at least when it comes to financial wealth) so here’s to good fortune.

How Do I Know Two Million Is Enough?

Now let’s look at the time between when I turn 50 and 59. During this time, I’ll need to rely on my accounts other than my 401k and Roth IRA as I don’t want to incur a 10% penalty (plus taxes) if I were to withdraw from those accounts. Like I mentioned in my net worth post, I want to rely on my brokerage account during this ‘in limbo’ period. After assuming a 45% inflation increase on my expenses, my average spending for each year would be around $68,000. But let’s tick that up to $80,000 incase I turn into a spendthrift as I approach my elder years. I’ll also assume a 7% rate of return across all my investment accounts. Now let’s take a look at the numbers:

You can see that when I get to 59, my net worth actually increases to nearly three million dollars. What can I say, the beauty of compound interest!

So if there’s a takeaway from all this, I would say if you are getting more and more serious about your potential retirement, getting down to the granular level of your future net worth will be crucial when mapping it out. For me, seeing where I am year by year gives me a clear vision of when I hope to retire.

But remember, this is just a roadmap. Things can blow up and that’ll mean going back to the drawing board. But I got faith that ain’t happening.


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