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Are 2 Roth IRA’s, Stocks, and a Pension Enough for Early Retirement?

I have a reader question for you today from Mr. BFS and me.  When I hit a blogging income of $30,000 a year or more and start blogging full time, is our pension, a stagnant 401(k), 2 Roth IRA’s, and stocks going to be enough for early retirement?

As of right now, we have Mr. BFS’s pension, my 401(K), a Roth IRA, and Scottrade investments.  We’re also ready to fully fund another 2010 Roth IRA, which we will do within the next 2 weeks. And we’re finally learning how to start investing in real estate which has taken a few years.

As of our last net worth update, this is where those accounts stand:

  • Pension – On target for a 70% pension at age 52.  That would be $33,250 a year if it happened right now.
  • 401(k) – $24,500.  I contribute 6% which is matched 100% up to 6%, so it has been getting $4260 a year.
  • Roth IRA – $23,500.  We’ve been contributing $5000 a year since 2008 and started with $2400 in 2007.
  • Scottrade – $19,500.  We’ve contributed $18,000 to our stock portfolio since 2008 (we learned about investing the hard way early on, so our average rate of return is much higher now than it looks, lol). They have one of the best stock trading apps which makes it super easy.
  • We’re purposely not counting contributions to our Acorns Invest spare change app. We’re hoping this one just magically adds up over time since it mainly rounds up for micro investing for you.

We will be losing the ability to contribute to my 401(k) if/when I quit my day job, but we will definitely fully fund a 2nd Roth IRA.  Will we still be on track for early retirement at age 52?

I personally think we will be fine since our annual expenses (without savings) are around $40,000 and that’s with a mortgage according to our budget and the actual results.  Without the mortgage, which is on track to be paid off no later than 2017, we would need $29,000 a year to keep the lifestyle we have right now in early retirement.

Even if we take into account higher medical insurance or even supplemental medicare insurance during retirement, I still bet we’d stay around $40,000 in today’s money.  The pension and the Scottrade account would be able to cover that by themselves.  The 2 Roth IRA’s and whatever is left in my 401(k) should just be uber icing on the cake.

Since it may help, here are some quick projections I came up with using a retirement calculator (I am 28):

  • The pension would be paying out $35,000 a year in today’s money (70% of my husband’s 5 greatest years of pay).
  • The Roth IRA we have already would be around $500,000 with 8% returns at age 52 and $850,000 at age 60 if we stop contributing at age 52 but leave it alone.
  • Our stock account would be at about $300,000 at age 52 with 8% returns and low contributions ($2500 a year).
  • My 401(k) may have $150,000 if we stop contributing 6% at age 30 and simply leave it alone for another 30 years at 8% interest.
  • The 2nd Roth IRA may be around $400,000 if we contribute $5000 from now until age 52 and then leave it alone for another 8 years all assuming 8% returns.
  • Our cash savings will be around $400,000 if I factor in a 2% return overall from now until age 52.

What do you think?  Are 2 Roth IRA’s, a pension, an old 401(k) account, and stocks enough for an early retirement?  If not, what else would you suggest?

28 thoughts on “Are 2 Roth IRA’s, Stocks, and a Pension Enough for Early Retirement?”

  1. Ravi Gupta

    Sounds like you guys have a great plan. Would you also keep on blogging when you guys retire? Besides those items listed are you planning to have any other source of income?

    -Ravi G.

  2. MikeS

    Short answer, depends.

    Have you tried projecting what your balances might look like when you’re 52?

    I think that’s the best way to know whether you’re still on track or not. There are a lot of assumptions that are made, but it at least gives you an idea. I’ve done the same thing for my retirement and track my progress periodically, giving myself a grade (A-F) on whether I’m on track or not. Will that be enough in 20 or 30 years? I don’t know now, but as long as re-evaluate my assumptions as I go along, I’ll be able to correct them as I go along.

  3. SouthCountyGirl

    Just to point out, Your 401k and Roth IRA probably have age restrictions on them for withdrawing money before age 60 or something like that.

    Roth IRA’s you can take out the principle, but not the interest…. and I’m not sure when the 401k allows deductions without HUGE taxes tacked on. Make sure you research those options.

    Check your social security statements to make sure you qualify for MEDICARE based on how long you have worked and your “credits” and you may want to get quotes for insurance premiums since you won’t qualify for Medicare until 65.

  4. Squirrelers

    Good questions.

    The comment above had an interesting question on withdrawal age – I’m assuming that the pension would then be the key cash flow vehicle at 52?

    Speaking of the pension, how locked in is it? By that, I mean can they mess with it if they want to reduce pension benefits. Just wondering what the risk are of that, and if it’s something to assess and give consideration to. That would throw things off a bit, I would think.

    Of course, you guys seem like diligent savers in other ways too. I guess the other question I would have would be whether or not you’ve projected your available savings and cash flow using conservative assumptions in terms of growth and inflation.

    Something tells me that you’ll find a way to make it happen successfully 🙂

  5. krantcents

    I don’t think it is a question of being able to live on the retirement savings or not. Are you and your husband prepared for the changes? What is your (both of you) vision of retirement? What is your plan? What will you do that is stimulating, fulfilling and enjoyable? Will any of that require more money?

  6. ODWO

    ” … Is IT enough? …” is what you ask. 🙂

    (assuming) You know me Crystal. I’m going to see it in a slightly different light.

    Is it enough? Maybe.
    Depends on what happens between here and now, and there and then.
    So, assuming all is smooth sailing from here to there, it depends (again) on what and where and how you want to live. Unless you have X $’s in the bank/reserve (and/or very kind parents, inheritence, etc.) … it might work. DO you want to live in a home as you have now (aka: Maint. costs, electricity, etc.), will that be a money drain? Or … Do-able. Or would a nicer condo somewhere be adequate? If so … anticipate what real estate costs will be “then” .. not as now. Will interest rates and the ROI’s keep up with the [future] costs? (trust me .. I wonder all this too)

    We’ve been tossing around the idea of …. searching for that retirement nook, buying it, renting it out, and when the time comes, it’s not only paid for (or even partially), but we can move into it … then and there. If we dropped the money into that … versus another ROth, or whatever … it might have a better return due to it being an investment, and a plan for retirement, and the cost is getting paid down by “good” tennents.

    Is it enough? Depends on how hard that money is working for you (I say). Instead of trusting what you have and antiipated appreciation is … years and years from now.

    Of course … there’s always what’s behind door #3. 🙂 (Boom or Bust is what I remember happening)

    SOunds like you are on your way. Don’t be surprised if the plan changes along the way. The goals don’t (or normally not that much). I won’t bet on social insecurity, or a Pension FUND to carry me (speaking for myself) … but only as a supplement. With any luck, as we all get older (and older still) .. we will be saying, “Greetings WalMart Shoppers” … ONLY because we want to do it! Not out of necessity to make those ends meet at the comfortable middle.

    (BTW .. VA. is out of town, and I just heard your msg. last night about … last weekend! I rarely check the answering machine. Doh! Sorry for no replies back until now)

  7. retireby40

    It looks pretty good because you still have a lot of time left before you retire right?
    Is your 40k expense after tax? The pension and Scotttrade account would be taxed so will they cover the 40k expense?
    All your investments are in the stock market so you’ll have to hope it is doing well when you’re 52. 2008 was a bad time to retire. Have you looked at firecalc retirement calculator? It might be useful for you.

  8. Jeff @ Sustainable Life Blog

    Crystal
    I think you should be good because your spending is low. If you are able to maintain your habits and get rid of some expenses (mortgage) and watch increasing costs elsewhere, that should be plenty. You should be able to keep increasing these balances as you age (you’re like 29, right?) so you have almost 20 years to get those balances up.

  9. Crystal @ BFS

    @Ravi, if blogging is still around in 30 years, I plan to be doing it. 🙂 No other sources of income are planned for though just in case my husband and I don’t want to find hobby jobs.

    @MikeS, yep, we have projections. In fact, I am adding them in the post since they may help!

  10. Crystal @ BFS

    @SouthCountyGirl, good point. We do not plan to touch our retirement accounts until age 60. The pension, stocks, and savings will be bridging the gap between 52 and 60 (hopefully). 🙂 We’d be getting our health insurance through my husband’s Texas Teachers retirement plan (right now it would be $600 a month for the two of us and I expect that to increase 3-4 fold by the time we retire)

    @Squirrelers, the pension is pretty much a given unless there is an apocolaypse and money wouldn’t matter anyway. It’s the Texas Teachers pension, which is fully funded at all times and placed in safe investments. Plus, Texas teachers do not have tenure or guaranteed positions, so their retirement system is much more like a government retirement. The last changes they made to the pension were drastic but they grandfather in anyone participating before the fact.

    @krantcents, our vision of retirement is simply doing what we do more of the time – our hobbies and interests would fill in the extra 40-55 hours a week our current jobs take up. My husband will play more games, golf more, and invent more board games. I will volunteer more and hopefully still be blogging full time. We will probably be raising our hobby/interest expenses 25% but lowering our work expenses 10-20%, so we would overall only have a lifestyle increase of 5-10% but no mortgage.

    @ODWO, I always assume everything can change at any given point, no worries. I was just thinking about this specific scenario and wanted to see what all of you thought. I know I could get pregnant at any time or one of us could die or the market could crash permanently and we’d have to grow our own food. BUT, given what I know to be true today, I proposed this set up. 🙂

    @retireby40, with taxes and benefits, we live on a rough guesstimate of $50,000 a year (that $40,000 quoted included some but not all of our taxes and whatnot since we pay for some after we get our checks and some others before). I added projections to the post. Most of our savings is in target date mutual funds, so they will be less invested in stocks each year. 🙂

    @Jeff, yep, we are 27 and 28, so we have at least 24-25 years left to make sure all of this stays on track. I know most of this will change like crazy in 20 or more years, but I thought it would be a fun what-if. 🙂

  11. JT McGee

    Crystal, I can’t predict the future, but maybe you might also want to consider a self-employed 401k as an alternative to the SIMPLE IRA, or whatever it is that you’re using right now.

    There were a lot of tax changes that came down the pipeline in the last few years, and after speaking to an accountant when you go full-time blogger, you might want to discuss a self-employed 401k, as well.

    The IRS put together a great paper on these specific plans, and in some cases a self-employed 401k might give you a greater annual maximum contribution limit than a IRA: https://www.irs.gov/pub/irs-tege/forum08_401k.pdf

    Just something worth investigating 🙂

  12. Debbie M

    Actually, that pension plan is not always fully funded. Last I heard, it was pretty close though.

    My plan is similar to yours. My pension should cover everything once my house is paid off, and my house will be paid off three years before I retire. But I also have a Roth IRA and now a Roth 403(b) for inflation, pension plan adjustments, and other crazy big emergencies.

    TRS-Care seems very expensive for what seems like just catastrophic insurance. You might want to shop around before settling. In case one of you has a pre-existing condition by then, maybe you could start paying for this other insurance for a year before your husband retires so that the pre-existing condition will be covered by the new insurance once he is retired. Plus, the unions all think the insurance benefit might disappear anyway. So that’s the main area I’d worry about.

    @ODWO, I wish my other money plus paid-off house would be enough if my pension plan crashed, but it isn’t. I have a little more additional money than is officially in my pension, but the pension amounts don’t include the company matching (which you don’t get if you take the money out of the pension). Even if I did have that money (my contributions + the interest + the company matching), because I plan to live a long time and the pension plan can assume that everyone, on average, lives an average amount of time, I couldn’t withdraw as much as they could give me. I’ve only got 4 more years, though, so I’ll probably be grandfathered out of any big changes and might only have to deal with gradually sinking real payouts (due to inflation or trouble with the system) once I retire.

  13. Bogey

    A couple years back, was considering how early I could possibly “retire”. Then I ran the numbers and realized how little I would have to spend for the next 20 years, and then how little I would have to spend when I “retire”.

    After all the analysis, it left me thing – why would I want to lead a life where I focus on reducing every possible cost now, just so I can live on a meager income later on, too?

    I’ve totally changed my perspective. I want to enjoy life to the fullest, both now and later. Why wait till retirement to golf? That’s why a joined a country club now. I’m doing all the things I want to do now, instead of living meagerly for 30 years and hoping I still have enough health and money to enjoy them later.

    Of course, I am still saving aggressively, but it’s not my #1 focus. My focus now, and later, is squeezing every drop of knowledge, fun, etc. out of life than I can. If I retire at 52 great – if not, oh well!

  14. Bogey

    And don’t forget, today’s $40,000 in expenses will be closer to $80,000 in 22 years when you want to retire. And that only assumes around 3% inflation. Fuel, food and medical costs are rising much faster than that.

  15. jim

    “is it enough”

    Yes. Probably.

    The pension would cover your basic expenses. Plus you’ll have a paid off house and accumulated cash, investment and retirement savings of about $1.7M.

    Now one thing to keep in mind is that 24 years from now the dollar will be worth about half of what it is now due to inflation. So that $1.7M total will be more like having $850k in todays dollars. Or alternatively you might figure that your expenses 24 years from now will double from your expenses today.

    Either way you’ll have a pretty large pile of money. A lot of it will be accessible via early retirement as well.

    There are a lot of unknowns and who knows what will happen 3 decades from now. But generally you look like you’re in good shape.

  16. Crystal @ BFS

    @JT, I had never heard of a self-employed 401(k) before – cool beans! Thanks!

    @Debbie M, good suggestion – we will look at many insurance options before settling. I just use the TRS-Care to estimate for our future costs. I take it you are a fellow Texas teacher? Congrats on making it to just 4 years away!

    @Bogey, we also believe in living in the now. All of our savings doesn’t keep us from going after what we want now too. Mr. BFS just went golfing yesterday and we hang out with friends and board game almost every weekend. We just want the extra 40-50 hours a week to pursue the things we like even more and we want it as soon as possible, lol. I have no patience. I’d say a good 20-25% of our expenses are for what we just enjoy in life. 🙂

    @jim, I will keep inflation in mind for sure! Thanks for the reminder.

  17. ODWO

    @Debbie M: That is what I wonder to … about “.. any big changes and might only have to deal with gradually sinking real payouts (due to inflation or trouble with the system) once I retire.”

    I hear exactly what you are saying. Hopefully, what is right will prevail. Hopefully. 🙂 I thought I could retire early around 10 years ago. Instead, I now work again, and get paid (well) for it. Hard to be retired when the field one is in is booming. Sometimes even the best laid plans change. And for the better too. 🙂

  18. The Single Saver

    Not sure what your plans are re: having children someday… but if you do that might put your spending and saving plans on a completely different track. As for “is it enough” I would say it could be, assuming all goes well and the economy doesn’t get too rocky, and especially if you still bring in some secondary income from blogging and so forth. But a lot can happen in 25 years to change things so just save all you can now and enjoy retirement when it comes your way!

  19. Crystal @ BFS

    @The Single Saver, as of right now, we have no plans to have children. But we know that any huge life-changing event like kids or a major illness or winning the lottery or a billion other things can shoot all of our plans to heck, lol. This was more a just-for-fun check up. 🙂

  20. hgstern

    Your post is featured in this week’s Cavalcade of Risk:

    https://www.mypersonalfinancejourney.com/2011/03/cavalcade-of-risk-127-riskiest-jobs.html

    Please tell your readers.

    Thank you!

  21. alex

    It is scary how much retirement can cost. I sometimes do the maths and when you realise just how much you need for retirement it can seem really daunting sometimes.

  22. stock tips

    Thanks so much for this! I haven’t been this moved by a blog for a long time! You have got it, whatever that means in blogging. Anyway, You are definitely someone that has something to say that people need to hear. Keep up the good work. Keep on inspiring the people!

    regard:

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  23. Kayla @ Furniture Stores in Los Angeles

    In our economy we really can’t trust the government to take care of us when we get older. Seems that it will be our responsablility to find funds for our retirement somewhere else.

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