The article explores the potential retirement savings for someone who contributes $7,500 annually to an IRA starting at age 27. If invested entirely in an S&P 500 index fund, this strategy could yield approximately $1.38 million by age 67, assuming a consistent inflation-adjusted annual return of about 6.69%. Conversely, a more conservative 60/40 stock-to-bond portfolio might result in around $882,000, with an average annual return of 4.89%.
The article also discusses the implications of these figures for retirement planning. It mentions that while $882,000 could support a first-year withdrawal of about $35,280 using the 4% rule, combined with potential Social Security benefits, the total annual income could exceed $59,000. Conversely, with $1.38 million, the first-year withdrawal might be around $55,200, leading to total income exceeding $79,000.
Lastly, it cautions that a portfolio composed solely of stocks, though potentially more profitable, carries greater volatility and withdrawal risks, particularly in the face of market downturns. The assumptions primarily focus on a Roth IRA setup, where contributions are taxed upfront but withdrawals are tax-free.
Source link
