We already covered that our retirement “magic number” is $3,600,000; our “Armageddon Retirement Goal”. To get to that figure, we need to maximize my 401k and both of our Roth IRAs for 26 years… That’s a tall order considering we have only done two of those things in the same year ONCE, and never all three things. Can we really expect to complete all of those goals for almost as long as we have been alive? To keep ourselves continually motivated, we broke the major goal down into more manageable, smaller goals.
One important point for us to keep in mind is that the $3.6M figure is our “Armageddon Retirement Goal”. It’s a worse case scenario goal if we don’t receive any other income from pensions, social security, etc.
Of course there are a litany of limiting factors, but many of those are outside of our control. We will focus on what we can control, our saving, investing and our spending.
Potential Extra Sources of Income
Currently, Mrs. 2030 works as a teacher in an area that pays well and offers a pension. But I also want to leave the door open for her to never work and be more free to pursue her other passions. There is also the possibility that the pension plan will go broke and we will never see a dime. Thus, I don’t really factor in her potential pension, which could be a decent chunk of our $3.6M pie.
If she continues on her teaching career and retires with 25 years teaching, she could receive $2,400/month, which would reduce our nest egg requirements to $2,640,000 (3% withdrawal rate).
$2,400 x 12 months = $28,800 annual income
$28,800/0.03 (3% withdrawal rate) = $960,000
$3,600,000 – $960,000 = $2,640,000
What about Social Security? It’s another factor that I don’t want to include when calculating our magic number. Chances are, social security will exist in some form, probably not what it is today since we can’t seem to stop borrowing from it. At socialsecurity.gov, you can estimate your retirement benefit (along with a lot of other cool things). If I take my early retirement estimate, $2,035 and for the sake of time, my wife takes 50% of my benefit because it is higher than her full benefit, that’s another $3,052/month.
$3,052 x 12 months = $36,624
$36,624/0.03 = $1,220,000
$2,640,000 – $1,220,000 = $1,420,000
That extra income equates to roughly $36,600/year and knocks another $1.2M off our retirement “magic number”, leaving a more manageable $1,420,000.
$1,420,000 sounds much more manageable. That voice in the back of my head is now telling me “See, you don’t even need to save that much. You might as well buy that car you have wanted for the last 5 years..” (It’s a Dodge Charger Hellcat)
The real number is probably not going to be that “low”. But I say the chances are good that we won’t ACTUALLY need $3.6M to hit our retirement income goal.
Change the Withdrawal Rate
What if our plans change and we need to up our withdrawal to 4%? We would almost knock a full $1M off of our Armageddon Retirement Goal:
- $2,725,000 instead of $3,600,000 Armageddon Retirement Goal; without pension or social security income.
- $1,090,000 instead of $1,420,000 with the pension and social security income.
I really like the thought of having $3.6mil and only needing $1.1M. We’ve got a long way to go to get to $1.1M before we can even start to think about $3.6M (4360 days actually). There are a lot of milestones between now and then, and a lot of uncertainty. There is also a lot of hope and a lot of motivation to see us get as far as we can to that major milestone.