This is the first in a series of my what-if scenarios for retirement.

I love thinking of what-if scenarios for retirement. I personally don't think I will ever stop working, even if I have enough wealth to retire at some point in time.

What is that wealth for me? A healthy family, a paid-off mortgage, no education related expenses for my next generation, about 5 Million USD in cash, and 20 Million USD in the capital markets.

So, first step to that could be just trying to see what it would take to reach 5 Million USD in retirement.

Let's run through a story.

Assumptions

Assume I am a salaried individual in the US, having a 401K with a company match, working with a plan to accumulate 5 million dollars by the time I retire.

I need to think about how much money I should keep in my Checking account, what kind of Savings I should have in a High Yield Savings Account, how much should I invest in my 401k (I want to max-out IRS limits), and then any additional index fund style investment I should target.

Let's see if I can establish timelines and some %-age of salary numbers for investments. Let's assume I have an annual salary of 100K USD, and let's assume that it grows by 2% every year.

Goal

Retire at 65 with 5 Million USD in investments.

Plan

Here is one possible plan based on a $100K salary with 2% annual growth:

Checking Account ($5,000-$8,000)

• Keep 1-2 months of expenses
• Set up automatic transfers to savings and investment account
• Maintain a small buffer to avoid overdraft fees

High Yield Savings Account ($25,000-$30,000)

• Emergency fund: 6 months of expenses
• Short-term savings goals (1-3 years)
• Target rate: Currently around 4-5% APY

401(k) Strategy

• Contribute maximum allowed ($23,000 in 2024)
• This is 23% of the initial salary
• Take full advantage of employer match (assume 3-6%)

Investment Strategy

Low-Cost Index Funds

• Invest in FXAIX, VOO
• Traditional vs Roth decision based on tax situation

Additional Investments

• After maxing 401(k), invest 15% of remaining income in S&P 500 index funds
• Consider opening a Roth IRA if eligible ($7,000 limit in 2024)

Timeline

Here is a potential Timeline and Percentage Breakdown:

1. Immediate (First 3-6 months):

• Build emergency fund (25-30% of take-home pay)
• Start 401(k) contributions at least to match

2. Short-term (6-12 months):

• Max out 401(k) (23% of gross salary)
• Establish automatic investment plan (15% of remaining income)

3. Long-term (Ongoing):

• Maintain emergency fund
• Increase investments with salary growth
• Rebalance portfolio annually

Experiment

Conclusion

Retirement seems achievable in theory. The challenge is staying disciplined and having some luck with the vagaries of life. I am going to refine the story with more fiction and planning in a future post.