The following is a post from staff writer Crystal from Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.
Mr. BFS and I want to retire as soon as possible. Almost all of our savings goals center on that main target. The trick is saving enough in several different ways to successfully be able to handle a bunch of unknowns.
Even though we may both get hobby jobs of some sort if/when we find something we enjoy, we want to make sure that additional income like that is just a happy bonus, not a dire need. Here is what we are doing now so we’ll have some options in our retirement future:
I have been contributing at least the minimum into my 401(k) to get the maximum company match ever since I was eligible more than 5 years ago. For almost a year, I was throwing in 12% and getting matched with another 6%, but then we discovered the existence of the Roth IRA, lol. I now only contribute the minimum 6% to get the matching 6% but will raise that as soon as we successfully fund two Roth IRAs. All of our 401(k) cash is invested in the Vanguard 2035 target date mutual fund.
We have fully funded one Roth IRA since 2007. We are attempting to scrape together enough to fully fund one more for 2010. I am thankful that the IRS allows you to keep funding one year’s account until April of the following year since we only have about $1800 set aside right now. Roth IRAs are not the best choice for everyone, but my husband and I are pretty sure that we are paying the lowest tax rates of our lives right now, so having a growing fund that includes non-taxable interest seems like a really good deal for us. Currently, all of our Roth IRA cash is invested in the Fidelity 2040 target date mutual fund. The second Roth IRA will be spread between high dividend yielding stocks.
Since my husband is a public school librarian, he does get the HUGE benefit of a pension. The only “trick” is that he needs to work for at least 30 years before he is eligible for full pension benefits. That is why we are planning to retire at 52 – that is when he hits his 30 year mark. In the meantime, he contributes around $3000 a year and will be pretty happy to get 70%-75% of his income for the rest of his life after 2036. :-)
Since we don’t want to be forced to dip into retirement accounts as soon as we give up our daily commutes, we invest $2500-$10,000 a year into individual stocks depending on the market. Mr. BFS researches high dividend yielding stocks and shovels in our money throughout the year – he shovels faster when the market falls. One of the only good things about the economy crashing was that there were a ton of awesome investment opportunities while all the stocks were low. Thanks to the “fire sales” and dividend payouts, all of our retirement accounts have bounced back and are even ahead by 10%-20%. I cannot stress enough the importance of “buy low and sell high”.
Our last line of retirement defense is our emergency fund. We shovel in at least $500 a month to ING so we will have enough cash on hand in 25 years to have some real options. If the economy crashes right before we retire, we rather not be forced into selling during low points.
Here are our targets for 2036 in today’s money:
401(k) – at least $700,000
Roth IRA(s) – at least $700,000
Pension – 70% of my husband’s largest salary (our guess is about $40,000 a year)
Stocks – at least $200,000
Cash – at least $200,000
All of these numbers will be higher if our salaries rise similarly to inflation. We can even keep up with our current savings amounts if our salaries lag behind since we do budget with padding in mind. We also think we may even get some social security, but we do not plan with that in mind.
How are your retirement plans? Do they look similar to ours? If not, what are the differences?