Medicated Money

Tuesday, May 09, 2006

Long Term Goals - Part II

In our last post, we discussed our long term goals. In order for us to achieve those future goals, we need to create a plan to give us the financial backing to live out those goals. As previously stated, our current long term goals are the following:
  1. Raise a loving family with Ms. Medicated as a stay-at-home mother and working part-time when our schedule allows.
  2. Completely debt free by age 35. This includes everything from our current personal debts, student loans, and future mortgage.
  3. Retire from our current working situation at age 60.

In order for us to achieve these goals, we need to create a 'financial number' that will sustain our retirement years (planning for 30+ years) with an annual income that provides a comfortable living situation. Our plan comprises several different accounts to achieve this goal.

The first account we will discuss to help us reach this goal is our current 403(b). We are currently contributing the maximum in these accounts. We are planning to continue to contribute the maximum allowed for both of us over the next 32 years. Currently, we have $42k in these accounts. With an additional $30k/year for 32 years, at a moderate 8% return on our investment, 0.5% annual investment fee, our 403(b) could be worth $4,346,000

Our second account that we plan to take advantage of is after-taxed money investments. We plan that after subtracting 70-80% (of which 20% is 403(b), 20-25% in taxes, 30-35% in living expenses) from our net income, we hope to save 20-30% of our income in these vehicles. At a moderate 6% rate of return for 25 years, 25% tax rate, our projected investments would be $1,746,400.

The third account is a mixture of retirement vehicles and post-tax investment vehicles. If we our eligible to invest in Roth IRA, and we do invest the maximum in Roth’s, then our numbers change to the following:

  • Post-tax Investments (Same criteria as above) - $1,373,800
  • Roth IRA Investments (Calculated at 8% rate of return for 32 years) - $1,435,600

If everything holds true, we are looking at the following investments when we retire at age 60.

  • 403(b) & Post-tax Investments: $6,092,400
  • 403(b), Post-tax Investments, & Roth IRA’s: $7,155,400

In discussing the two much different numbers, our goal is to be able to reproduce the second number. This is just a rough estimate. In our next post, we want to look at what major decisions can effect that number, what retiring with that number means, where does Social Security fit in to this calculation, and what we need to do now and in the future to achieve this number.

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