What are the flaws in my projected retirement plan?
I am currently 31 years old and want to retire at age 53. I contribute as much as I can to a Roth retirement savings plan. My employer has a Roth 401(k) option and matches 3% of contributions, as long as I contribute at least 6% of my salary. I also have an HSA through my employer. My wife’s employer has a Simple IRA and matches 3% of her salary. We both have our own Roth IRAs with Vanguard. I currently have about $100k in retirement savings (most of this amount has already been taxed in Roth accounts). For the next six years, I plan on maxing out all five of these accounts: 401(k), HSA, Simple IRA and two Roth IRAs. ln total, I will contribute about $50k per year for six years. After six years, I will scale my contributions back to about $35k per year until I am 53 years old. My plan is to retire at 53 years old on the principal in the Roth accounts. As soon as I turn 59.5 years old, I can live off the amount in all five accounts. The principal in my Roth accounts at age 53 will be about $800k. Are there any flaws in this plan?
I see two flaws:
(1) Retiring at 53. How silly! At that age you should just be getting going. If you are not satisfied with your career path, take measures between now and then to develop skills that will allow you to live a productive and fulfilled life. If you climb into that rocking chair at age 53 it will drive you stir-crazy by the time you are 54.
(2) Cutting back on savings from $50K per year to $35. Don't you think you will be earning more money 6 years from now than you are today? For the rest of your working life, put away the same percentage of your take-home. As I say over and over, you need 20 times your living needs in liquid assets if you want a secure retirement. That means if you want to live on $200,000 per year, you've got to have $4 million in savings. An $800K Roth is a great start but not a lot to live on. Particularly if it's got to last 40 years.
You are off to a terrific start and I love to see how confident you are of being so wealthy in 22 years that you can walk away. But at 53, you will have a lot of years ahead of you. You know the saying: "Wear out; don't rust." Find things to do that will fill your life with joy. You will have a lot of life experience in 22 years. Plan on making yourself useful doing interesting and important things. It would be nice if those things also paid well.
The previous responders have made some great points and I would certainly echo them. One way of finding the flaws in your plan is to have a professional financial planner (preferably a CFP®) actually prepare a plan for you. You can find one who will prepare a retirement income projection for you for a fee without trying to sell you something. We do that all the time.
You have provided us with all the inputs, but you are going to be living on the outflows. What is the buying power of $800,000 in 22, 33, or even 44 years? What kind of lifestyle will that support? Without realistic projections - that you can only get from a sophisticated financial planning program - you won’t know.
It's hard to say that you have flaws, because there is not quite enough information to decide that. However, here are some things to consider:
You will need to budget an extra $6,000/year per person in medical insurance premiums (at least) for the 12 years until you turn 65.
If you retire in your early 50s, you should only be drawing 3% from your investments for a statisical average of assets lasting until age 95. You don't say what your other investments will be worth in your calculation, but take that number and multiply it by .03 to see if you get a result that you can live off of.
Hope that helps!