Meet the Plan

The plan to early retirement is very simple.

You just have to max out all available retirement accounts and keep your spending at a reasonable level.

If you remember last week, I introduced myself with the post “Meet SP” and I talked about having a goal of $1,000,000 in investments, which is my goal for early retirement as it generates $40,000 a year with a 4% SWR or $30,000 a year with a more conservative 3% SWR.

This week, I’ll be laying out the basics of the plan, which is to max out all available retirement accounts.

Disclaimer: This is an introductory post of my early retirement plan. As time goes by, more details of the plan will be refined as my potential retirement date nears.

Currently, there are three available retirement accounts for me: the 401(k), the IRA, and the Health Savings Account (HSA).

Assumptions

To make calculations simple, the following assumptions will be made:

  • Contribution Limits for all accounts will not increase.
  • Accounts will have 7% gains every year (10% increase – 3% inflation).
  • Extra Income or Leftover Income is not calculated or factored into this calculation.
  • My spending will always be at $25,000, which means a 3% SWR will be enough for the rest of my life.

The 401(k)

YearContributionGainsTotal
1$18,000.00$0.00$18,000.00
2$18,000.00$1,260.00$37,260.00
3$18,000.00$2,608.20$57,868.20
4$18,000.00$4,050.77$79,918.97
5$18,000.00$5,594.33$103,513.30
6$18,000.00$7,245.93$128,758.23
7$18,000.00$9,013.15$155,772.38
8$18,000.00$10,904.07$184,676.45
9$18,000.00$12,927.35$215,603.80
10$18,000.00$15,092.27$248,696.06
11$18,000.00$17,408.72$284,104.79
12$18,000.00$19,887.34$321,992.12
13$18,000.00$22,539.45$362,531.57
14$18,000.00$25,377.21$405,908.78
15$18,000.00$28,413.61$452,322.40
16$18,000.00$31,662.57$501,984.96
17$18,000.00$35,138.95$555,123.91
18$18,000.00$38,858.67$611,982.59
19$18,000.00$42,838.78$672,821.37
20$18,000.00$47,097.50$737,918.86

With the assumptions, after 20 years, the value in the 401(k) will be $737,918.86, which is already 3/4th of the way towards my goal of $1,000,000 in investments.

For those who don’t know what the 401(k) is, it is a qualified employer-established plan where employees can make salary contributions to save up for retirement. Employers may also perform matching contributions or profit-sharing contributions to the plan. In short, this means that you may receive free money if your employer allows for it.

To simplify it some more, a 401(k) plan is just an employer-sponsored way to save and invest for retirement.

The maximum contribution limit in 2016 for the 401(k) is $18,000.00.

The IRA

YearContributionGainsTotal
1$5,500.00$0.00$5,500.00
2$5,500.00$385.00$11,385.00
3$5,500.00$796.95$17,681.95
4$5,500.00$1,237.74$24,419.69
5$5,500.00$1,709.38$31,629.06
6$5,500.00$2,214.03$39,343.10
7$5,500.00$2,754.02$47,597.12
8$5,500.00$3,331.80$56,428.91
9$5,500.00$3,950.02$65,878.94
10$5,500.00$4,611.53$75,990.46
11$5,500.00$5,319.33$86,809.80
12$5,500.00$6,076.69$98,386.48
13$5,500.00$6,887.05$110,773.54
14$5,500.00$7,754.15$124,027.68
15$5,500.00$8,681.94$138,209.62
16$5,500.00$9,674.67$153,384.29
17$5,500.00$10,736.90$169,621.20
18$5,500.00$11,873.48$186,994.68
19$5,500.00$13,089.63$205,584.31
20$5,500.00$14,390.90$225,475.21

With the assumptions, after 20 years, the value in the IRA will be $225,475.21, which is 1/4th of the way towards my goal of $1,000,000 in investments.

An IRA is a retirement account set up through a financial institution to allow individuals to save money for retirement. This is different from a 401(k) as it is not set up through your employer, but through a financial institution like Schwab, Fidelity, Vanguard, and more.

The maximum contribution limit in 2016 for the IRA is $5,500.00. A contribution limit of $6,500.00 is available for those who are age 50 or older.

The Health Savings Account (HSA)

YearContributionGainsTotal
1$3,350.00$0.00$3,350.00
2$3,350.00$234.50$6,934.50
3$3,350.00$485.42$10,769.92
4$3,350.00$753.89$14,873.81
5$3,350.00$1,041.17$19,264.98
6$3,350.00$1,348.55$23,963.52
7$3,350.00$1,677.45$28,990.97
8$3,350.00$2,029.37$34,370.34
9$3,350.00$2,405.92$40,126.26
10$3,350.00$2,808.84$46,285.10
11$3,350.00$3,239.96$52,875.06
12$3,350.00$3,701.25$59,926.31
13$3,350.00$4,194.84$67,471.15
14$3,350.00$4,722.98$75,544.13
15$3,350.00$5,288.09$84,182.22
16$3,350.00$5,892.76$93,424.98
17$3,350.00$6,539.75$103,314.73
18$3,350.00$7,232.03$113,896.76
19$3,350.00$7,972.77$125,219.53
20$3,350.00$8,765.37$137,334.90

Finally, the Health Savings Account (HSA)…

Now, you might be thinking, “SP! The HSA isn’t a retirement account”. Well, of course it is one, in fact, it’s actually one of the best retirement accounts out there.

For those who don’t know, Health Savings Accounts (HSA) are tax-advantaged accounts available for people with high-deductible health plans (HDHP). Because of the high deductible in HDHPs, people would usually pay for their out-of-pocket medical expenses with the HSA. However, this is not the right path as you can use the money in the HSA to invest in funds. Furthermore, you can request a distribution in the future to┬áreimburse yourself for the medical expenses if you paid with something like a credit card or a debit card. You would have to keep the receipts in order to request a distribution.

Finally, there are also additional perks to the HSA:

  1. Your contributions to the HSA are tax deductible and any contributions your employer makes are not counted to be a part of your taxable income.
  2. Your HSA Account Balance grows tax-free. Any interest, dividends, or capital gains earned are not taxable.
  3. Your HSA gives you tax-free withdrawals. You can do this by reimbursing yourself through distribution requests as mentioned above.

The maximum contribution limit in 2016 for the HSA is $3,350.00.

Composite (all three accounts together)

YearContributionGainsTotal
1$26,850.00$0.00$26,850.00
2$26,850.00$1,879.50$55,579.50
3$26,850.00$3,890.57$86,320.07
4$26,850.00$6,042.40$119,212.47
5$26,850.00$8,344.87$154,407.34
6$26,850.00$10,808.51$192,065.86
7$26,850.00$13,444.61$232,360.47
8$26,850.00$16,265.23$275,475.70
9$26,850.00$19,283.30$321,609.00
10$26,850.00$22,512.63$370,971.63
11$26,850.00$25,968.01$423,789.64
12$26,850.00$29,665.27$480,304.92
13$26,850.00$33,621.34$540,776.26
14$26,850.00$37,854.34$605,480.60
15$26,850.00$42,383.64$674,714.24
16$26,850.00$47,230.00$748,794.24
17$26,850.00$52,415.60$828,059.83
18$26,850.00$57,964.19$912,874.02
19$26,850.00$63,901.18$1,003,625.20
20$26,850.00$70,253.76$1,100,728.97

With all three accounts (the 401(k), the IRA, and the HSA) added together, we can see that after 20 years, we will have a value of $1,100,728.97. That is more than my investment goal of $1,000,000!

Summary

Remember that these are only simple calculations that do not factor in any other income and only the three available retirement accounts that I have, so side income, extra unused income, bonuses, and more are not factored into the calculations.

And that’s it, that’s the simple plan for retirement!

Obviously, while this growth plan was 20 years long, my actual plan is a bit shorter because of all the residual income I have.

To clarify this a bit more, I will be releasing monthly net worth reports to show you where my money is coming and going. You can also see this on the Net Worth portion of the page.

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5 thoughts on “Meet the Plan

  • January 18, 2017 at 7:38 pm
    Permalink

    Thanks for sharing your retirement plan, SP. I appreciate the simplicity in it. Saving for retirement really isn’t rocket science, it just takes some good old-fashioned hard work and discipline. I look forward to seeing how your plan evolves over time.

    Reply
    • January 18, 2017 at 8:29 pm
      Permalink

      Thanks Cody!

      I agree with your comment on retirement.

      I think with time, my plan will start including a bit more about how I will withdraw from the account and the taxes concerning it. I’m not entirely sure yet, but it’ll be interesting to see!

      Reply
      • January 19, 2017 at 11:43 am
        Permalink

        I’m sure it will evolve and become more detailed over time, but in its current state, it is a solid foundation to build upon.

        Reply
  • January 20, 2017 at 9:56 am
    Permalink

    The good part is that you have a plan mapped out at an early age. Its important to give yourself options down the road and to be in a position to FIRE if you want to or need to. I always did a good job saving for retirement, but I could have done much better had I been more focused and had a plan mapped out. Many years ago they didnt have all the blogs to get you thinking like they do now.

    Reply
    • January 20, 2017 at 2:19 pm
      Permalink

      I agree with you Arrgo! Having a plan mapped out and being flexible with it is the best and a great place to start!

      Also, with the internet connecting everyone together. I expect to see a lot more blogs popping up with plenty of details for us to read and learn about!

      Reply

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