I plan to have 4 million for retirement in 25 years.
I’ll put my whole plan out there and explain it in detail on how I’m working to have 4 million by the time I retire in 25 years. I’m doing this by investing Notes in my Self Directed ROTH IRA.
The 4 Step Grand Plan:
1. Use my Self Directed Roth IRA because of the TAX FREE benefits. I’m also betting that all the rules pertaining to it stay the same. I expect to be able to contribute 4,000.00 per year to it for the next 25 years. If I stop adding additional money every year then I will end up with less but it will still be over 2 million.
2. Because of the Power of Tax Free Compounding, also known as reinvesting profits with the principal, my account will be able get to the 4 million mark in the allotted 25 years. If I had to pay taxes on all my gains then it would be much harder and take much longer to attain this lofty goal.
3. I’m starting with $52,216.00 in my Roth IRA. I rolled over several IRA’s and a 401k to get that much together in my Self Directed Roth IRA account. You can see that from my last post http://willsugg.com/irablog/2007/08/10/i-have-4-notes-in-my-self-directed-roth-ira/ what I had in cash, because of what I paid for the Notes I currently have in my portfolio.
4. If you throw out the highest Yield of 72% in my current portfolio, and average the rest. I’m investing at 17%. I expect to be able to continue to find good Note investments for that return or greater, as needed in the future.
If this sounds too good to be true here’s the math broken down for every 5 years to prove it. The chart below shows that I start with $52,216.00 add $4,000.00 every year and invest at 17%.
Over the next 25 years I will contribute a total of 100,000 but because of the Power of Compounding, the 17% Yield, and the fact that I am able to do this in a TAX free account. I can make my contributions grow to unbelievable amounts like $4,012,199 in 25 short years. The above calculations were done using an excel spreadsheet and the FV or Future Value function in case you want check my math.
If I cannot contribute to my Self Directed Roth IRA account every year due to something like income limits, I can still reinvest the cash flow my investments produce. Assuming that I keep the rest constant I will have $2,645,149 for Retirement.
I’m sure someone will also point out that in 25 years my account will be worth 2.6 to 4 million but it won’t all be in cash. That is correct, but I will expect that the cash flow my Self Directed Roth IRA portfolio produces at that point will be quite welcome and I can start selling Notes when needed. I also expect that I will have bought a Vacation Home using my IRA money along the way, as well as diversifying into other asset classes as well. It’s going to be an interesting 25 years, that’s for sure.
Will
September 26th, 2007 at 7:27 pm
Hi Will. Thanks for the interesting blog, I actually have not heard of Self-Directed IRAs until stumbling upon your blog. It’s definitely something to consider. In this post you came up with your figures for retirement using a 17% average gain (not counting that one high outlier) and projected it into the future and I just wanted to point out a few things that will probably affect your projections: 1) You forgot to account for the inflation, which runs at about 2-3% annually, this alone will make a big difference; 2) You have not mentioned how long that 17% average is for - 2, 5, 10 years? - and it is likely to get lower over time when you account for recessions and economic slowdowns when you might not be able to achieve a return like that. Thanks for the great blog and hope you found my comments useful!
September 26th, 2007 at 8:19 pm
Hi AF,
First thanks for the Comment, you are right I’m not counting for inflation and 4 Mill will be worth less in 25 years than it is today, However I’m banking on 4 mill being enough to have a comfortable retirement if all my other investment activites don’t work out.
As for my 17% ROI I have 25 years to retirement left. I also disagree with you a little, as I expect to be able to find enough Notes that I can buy at a discount during the next 25 years, to carry me through.
Also once my account starts to have enough cash I’ll diversify somewhat into other things than Notes, like buying rental property, equpiment leases, etc.
I think it’s worth your while to spend a little time investigating what you can do with a Self Directed IRA.
Will
November 27th, 2007 at 2:03 am
Hey Will - does the limits imposed on the ROTH IRA then run the same for the SDIRA? So can I contribute 4k to my ROTH and 4k to my SDIRA per year? Or is it 1 or the other? Still liking the blog, and certainly interested… What do you say about a guest post interview on my site?
November 27th, 2007 at 5:38 pm
Hi Hank,
Thanks for the comment. The IRS imposed limits apply. You are right thinking it’s 1 or the other. Right now you only can contribute up to 4K to any IRA per year, regardless of Self Directed or not. You could have 4 Self Directed IRA’s and contribute to 1K to each per year, of course you have to keep in mind the Eraned Income limits as well.
Really there are 2 types of IRA’s. Roth or Traditional. Having your IRA be Self Directed only means that the owner of the IRA is taking more of the role of the manager. I don’t have a mutual fund manager staff thinking for me. You are taking a more active role in investing your money using specific knowledge that you have. In my case I like to buy or create Notes and Lend money from mine. Instead of buying only Stocks and mutual funds you can invest in many other things, like Real Estate, Leases, Notes, etc.
It’s not for everyone since any mistakes will hurt, but for those with understanding of financing and making money a Self Directed IRA can be a useful tool.
hope that helps.
Will