I promised two posts ago that I would update everyone on how we have arrived at this point in our quest for our first million and in the course of this post I will, but I would like to explain my goals first to give a better overall picture of what we are doing to save for retirement.
Please note that I say first million, because I do not desire just to achieve the bare minimum! Instead, I want to earn and save enough to attain a dream retirement, which can mean a great many things to different people. In my mind a dream retirement would be to retire from the military after about 20 years and have enough money saved outside of retirement accounts to provide my family with a salary that is equal to or greater than my last year in the military and once I reach the official retirement age have enough money in tax-deferred accounts to maintain or improve my family’s lifestyle.
Most retirement experts will tell you that 80% of your final income is necessary to maintain your lifestyle in retirement. This 80% number must be seen in context of the age which usually accompanies it, which is about 65 or older. My goal is to retirement much sooner than 65 and with this being the case I will need more money every year. Why? I will have more expenses. My house (wherever that is) will likely not be fully paid off, my children will just be reaching college age which as we all know may cost a pretty penny, and as younger person in their forties I will likely spend more money on average than a person in their mid-to-late sixties. With all this in mind, I have structured my retirement savings in a way that helps me ensure I meet a high level of saving.
For the first four years of my career I was saving about $1,500 per month on average. This include $900 for my wife and I’s ROTH IRAs and then $600 or so was placed in my TSP or an emergency fund. My savings rate was between 15%-30% depending on the month, but was not constant because of expenses that pop up every now and then (e.g. flat tire). Now that I have my Career Starter Loan paid off it has freed up a large portion of my pay, $600, and having received substantial pay increases the past few years I have been able to move my savings up to $3,000 per month or about a 35% savings rate. With this savings rate, an expected rate of return of 7%, and an inflation rate of 2% I can expect to have about $1.8 million in retirement savings at age 45. If I can somehow manage a slightly higher rate of return then I can of course have much more, which is exactly what I intend to do.
To achieve a higher rate of return I personally choose slightly riskier investments, as I will usually research individual stocks for months and then commit to a few for years at a time and not index funds like many people recommend, though if you are risk averse PLEASE stick to index funds.
This is my dream retirement plan. It is a job all unto itself, but one which I greatly enjoy and gives me hope for the future. I do not intend to talk stock picks on this website, but if you ever want advice please feel free to message or comment. Also, if you want another person to help motivate you in your quest for a dream retirement, I am starting the Dream Retirement Team which is intended for a way to keep you and myself on track to achieve our investment and therefore retirement goals. If you would like to join please message or comment, as I plan to make a page on the website to indicate everyone who has joined give updates on how well they are doing in their quest for a dream retirement (if they would like that). I hope this post helps inspires others out there to aim high and I will be following up with more details and strategies to help you succeed in achieving your financial goals.