How much will I have if I max out my IRA for the next 20 years?
Assuming you are under the age of 50 and contributing the maximum allowable amount to a traditional or Roth IRA annually for the next 20 years, you will have contributed about $130,000. However, the actual amount you will have in your IRA after 20 years will depend on a number of factors, including the rate of return on your investments and any fees associated with your IRA account. It is important to note that past performance is not indicative of future results!
So taking a hypothetical and conservative rate of return of 6% annually and assuming that you contributed about $6,500 over the next 20 years, you would have about $239,106.34 in your IRA after 20 years. That may or may not seem like a lot of money to you but there are a few more things you need to consider when looking at that amount. Of those few, let’s consider one first.
Did You Contribute To A Traditional IRA?
An IRA is a qualified account that allows you to contribute pre-tax dollars. This means that even if you received tax benefits while depositing money into this account, any funds withdrawn will be taxed as an ordinary income. Most people do not take into account taxes when they save for an IRA. However, this is one of the most common factors that can impact the amount of money you have in your account. For example, even if you have $239,106.34, the true value of the account is far less because a good portion of that will be paid out to the IRS.
So how long will $239,106.34 in your IRA account last during your retirement? If you were to take out about $2,000 a month, also assuming that you'll receive an interest rate of 3.5% during the life of the withdrawal, you will deplete the entire balance after 12 years and 3 months. This means if you retired at the age of 65, in this particular retirement model, you will run out of your IRA at the age of 77. You will also need to calculate the tax you'll pay on the withdrawal and inflation. Furthermore, in the case you have calculated for a fixed income model, inflation will lower the value of money you are taking out every month. So today's $2,000 will be a lot less than when you retire and start withdrawing money from your investments.
Because of these kinds of daunting figures, many people hold off on properly planning for their retirement. But the worst thing you can do is bury your head in the sand and hope that one day something will work out. So the best thing you can do is take one small step at a time and make small changes that will help you reach your retirement goal. You may also need to make some minor adjustments in your expectation of retirement as well as look into simple strategies, such as relocation options after you retire. So with that said, the very first step is to meet with a financial professional and come up with a simplified retirement plan that will give you some clarity and focus on your retirement strategies. So schedule an appointment with us today and we will be happy to help you achieve your retirement goals.