Retire using only 401k and IRA

funky money

How long would it take you to become a millionaire if you were maxing out your tax-advantaged retirement accounts and nothing else?  What about if both you and your spouse were doing that together?  And when would you be able to retire?

Maxing out retirement accounts is not easy by any means, but it is a really nice concrete goal to shoot for.

The numbers:

Assuming that you save $17,500 per year in a 401k and $5,500 in an IRA, plus a $3,000 employer match on the 401k, your total annual savings would be $26,000.  In a two-person household, it would be double that, or $52,000.  Here is how long it would take for you to reach millionaire status (in today’s dollars):

  • 1 Person: 23.7 years
  • 2 People: 14.5 years

And just as an FYI, in case you don’t have as generous of a 401k employer match, it only saves about 1-2 years, depending on the scenario.

So how long would it take you to retire?

If you were comfortable with $40,000 per year passive retirement income, you would be set with a million dollars based on a 4% withdrawal rate, which could theoretically be maintained indefinitely.  But what if you had other spending needs?  This chart and table should help:

Max out retirement accountsThe left axis is the value of your portfolio over time and the right axis is the annual safe withdrawal amounts.  The blue line is for one person and the purple line is for two people.  Here are the actual numbers:

Max out 401k IRA Plus Match Table

Again, I’m keeping this in real dollars by using a 4% long-term growth rate on the portfolio.  This means that a million dollars will have the same purchasing power in 30 years as it does today.


There are all sorts of finer considerations for this kind of calculation, but I’m just going for the 80% quick and dirty overview.  For one thing, the stock market might not grow as quick as it has in the past, or it might grow faster.  Then you have taxes to consider, which I won’t even touch.  And then there is the problem of not being able to get the money until a certain age, but there are work-arounds for this.  Mad Fientist does a good job with that kind of stuff, if you’re interested.

So, as mentioned above, I’m writing about this scenario because it is a really nice measurable goal.  Not everyone is in a position to be able to do this, but for those that are fortunate enough to have the willpower and earning power, now you know.

And if you’re not in a position to do this, contributing to your 401k enough to get the full employer match is a really nice goal to start out with.  It is essentially free money for the taking.

If you want to see someone who has made retirement accounts work in their favor, check out J. Money’s net worth tracker from Budgets are Sexy.  By mainly focusing on maxing out retirement accounts his net worth is almost 10x higher than what it was when he started tracking it 6 years ago at $50,000.

Like J says, simple, but not easy.  Happy saving.



TP makes a great point about investing in Roth IRA vs. a traditional IRA below mostly due to higher income thresholds.  I don’t mean to encourage investment in one type over the other; saving is the main point.

Also, an implicit assumption that I didn’t highlight above is that the IRA and 401k contributions are pegged to inflation.  Obviously this isn’t formally the case, but I hope it is reasonable to assume that higher limits will be set at least every decade to keep up with or outpace inflation.

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  1. Preach on, brotha!

  2. I’m not saving enough! Love the post, straight to the point.

  3. Dwayne Hoover says:

    Good stuff. What’s a reasonable amount to keep in taxable accounts/cash in case of medical emergencies/future automobile replacement/etc?

    Was just thinking that even if you do want some money in taxable accounts to ease transition into early retirement, that it would be so much smarter to accrue to save up in the taxable accounts just before retirement… because, due to the power of compounding and the impact of gains being taxed in a taxable account, that you’d much rather have your earliest investments be in tax-deferred accounts as opposed to taxable accounts.

    • I prefer not to keep a lot in cash because it doesn’t earn much interest and I know that I have the options of using credit, suspending investments, and also (worst case scenario) relying on friend / family loans. I think standard advice though is 3-6 months of expenses in your emergency fund.

      Nice thought on the taxable account back-loading, by the way! Thanks for sharing.

  4. If you are covered by a 401k at work, you can contribute to a traditional IRA, but there are limits based on adjusted gross income. Single filer tax-deductible restrictions begin to phase out at $60k per year and phase completely out at $70k per year for 2014. There are many combinations for filing jointly and one or both having a plan at work. Eligibility to make Roth IRA contributions is higher and phased out once an single filer’s income is between $114,000 and $129,000 for 2014.

    An example I’ve been using talking with my friends teenagers, with all things being the same, if they make a one-time retirement contribution at 18 of $5,000 and never did again, they will have more money at retirement than if they started at 40 and saved at the limits.

    I’m glad someone said something to me at 24 that got me saving, but like everyone else my age now, I wish I had started at 18. Even if it was only a couple hundred dollars a year!!

    • TP, thanks for the comment! Great point about income eligibility requirements on traditional IRA. I wish I had contributed more earlier as well, but better late than never 🙂

  5. At the rate I am going, I can pitch a tent. Rid of my debt and I might be able to afford a shack. While I am proud that I do have almost 100K in retirement acct, its not up to par with my age. Eeks. thank you for pointing out the bold #. Time to get crackalackin and make some serious financial moves.

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