I did the math. If my son saves $168 bucks a month in a Roth IRA, starting at 18, and his investment grows at 6% per year, he’ll have $320k at 58.
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I am looking at retiring early, so I am looking at the numbers and rules people use for retirement planing. There is a staggering amount of assumptions, and slight changes compound. So below are the rules most discussed, but they are easy to argue.
For you example of 320K, and using the rule of thumb of a 4% withdraw rate so the nest egg lasts maybe 30 years, then you divide by 25.
So 320K/25 is 1280.00 per year, of about 1066.00 per month.
Examples:
If you had a cool 1 million, then 1000000/25= 40K/year or 3333/month before taxes, assuming 401K taxable.
Naturally the 4% rule is just a guess, but it is a bit conservative to account for inflation. Anyway no one knows future returns, laws, health, so this is all just a rough estimate. Naturally Social Security is also a question, but a quick estimate is 20-22% of your highest years (maybe at 62).
Another thing that gets tossed around is the savings goal. Seems 10-14 times your highest salary to get 3/4 of you working paycheck per month.
I also used various online calculators, and they give a wide range of numbers, mostly based on your guess on return, and inflation. Typical mix of investment is 50% stock, 25 bonds, 25 fixed low yield. Again that means nothing, and those ratios get applied to a wild a$$ guess and a estimate pops out.
If you use a nominal salary of 100K, a savings of 1.4M, and 62 year SS, the number work out to 3/4 full salary kinda depending on taxes.
4600 in IRA, 1700 in SS = 6400/month? - then some reduced tax is applied for a 401K earnings.
Naturally if you have 10X salary, a million, then 4000+1700= 5700/month? This assumes retiring "early at 62" and no taxes on earned interest. Roth does not get taxed, 401K is taxed.
So if you think this is BS let me know, but this is the best guess I have going.
