Thanks for all the advice. After housing expenses, monthly bills, 401K contributions, and IRA contributions we have about $3500 each month.
OK, so this looks like a rough estimate of your approximate retirement expenses, since after retirement, you presumably won't still have a mortgage, nor will you be saving for retirement. So let's start with that number. $3,500/month. That, of course, is after tax. So assuming (and this is a wild assumption) your marginal tax rate is 35%, you need an earned income of $4,725 to support your lifestyle.
In 20 years, assuming 3% inflation, you'll need $8,500/month to provide the same standard of living. Usually, you would assume a 4% SWR at this point and multiple your annual expenses by 25 to determine the required "nest egg." In your case, however, you're shooting for a pretty early retirement at age 50, so you'd likely be better off going with a 3% SWR instead of 4%. Thus, you'd multiply your annual expenses by 33 instead of 25.
You need $3.4 million to retire at age 50.
OK, so there's your magic number. Let's look at what you already have:
- $24,000 in Roth IRAs
- $25,000 in 401(k)'s
It's a bad idea to count home equity or emergency money here, so I'm only considering the dedicated "retirement funds." You've got $49,000 toward your $3.4 million, with 20 years to go.
The last step is to figure out how much you'd have to save every month in order to reach that goal. Of course, this varies a little depending on your assumed rate of return, inheritances, benefits like Social Security, and other factors. There are plenty of calculators available on the web to help you with this calculation, but assuming an optimistic 8% rate of return:
You'd need to save $5,400/month to accumulate $3.4 million by age 50 and retire early.
I'm guessing that's an unrealistic amount for you. At this point, you have several options:
- Pray you achieve better than an 8% average rate of return. Probably not a good idea to pin your retirement planning on a "prayer."
- Pray inflation grows at less than 3%. Again, I'm a "hope for the best, but plan for the worst" kind of guy. I don't like to leave things like this up to chance.
- Cut your living standards when you retire. Some people believe that when you retire, you only need 80% of your pre-retirement income. My calculations here assumed 100%.
- Work longer. Working longer allows your money to grow longer, and adds more contributions to the accounts. It also allows you to increase your withdrawal rate from 3% to 4%, which decreases the amount you'd need to have saved up.
- Work part-time in retirement. I may do this myself, but I'd like to have the option of doing it because I want to, and not because I have to.
Hope this helps.
EDIT: Whoops, just noticed your $3,500/month does
not include "monthly bills." You'd need to add the amount of your bills to the $3,500/month, then multiply by 12 for an annual amount, then multiply by 1.35 to factor in taxes. Then multiply by 1.81 to factor in inflation. Then divide by 0.03 to get the new grand total (assuming a 3% SWR).