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Tip:

Think about how your dream life in 10 years is different from your dream life in retirement, and how your retirement plan would look like if you were to successfully have your dream life in 10 years.

1. At what age do you want to be “retired”

The way we define “retirement” is just when we don’t need to work anymore to sustain ourselves financially, as in the amount we need to live our lives the way we want to is less than the amount we make from our investment returns. We put it in quotes because many of us will likely continue making money doing what we love, but we won’t

need

to.

2. How do you plan on saving for retirement?

The way we define “retirement” is just when we don’t need to work anymore to sustain ourselves financially, as in the amount we need to live our lives the way we want to is less than the amount we make from our investment returns. We put it in quotes because many of us will likely continue making money doing what we love, but we won’t

need

to.

Do you have, or do you want to have at some point, a job with a 401K?

Start age

(if current job has a 401K, leave this at your current age)

End age

(move all the way

👉

to have 401K job until retirement)

Option 1:

Match 100% of your contributions up to this percentage of your total compensation:

Example: your employer offers a 100% match on all your contributions each year, up to a maximum of 3% of your annual income. Then, if you earn $60,000, the maximum amount your employer would contribute each year is $60,000 x 0.03 = $1,800. To

, you must also contribute $1,800. If you contribute more than 3% of your salary, the additional contributions are unmatched.

Option 2:

Match a percentage (A) of contributions up to a percentage (B) limit (most common): Percentage A:

,

Percentage B:

Example: your employer matches 50% of your contributions equal to up to 6% of your annual salary. If you earn $60,000, $3,600 of your contributions (6%) are eligible for matching, but your employer only matches 50%, meaning the total matching benefit is still capped at $1,800. Compared to Option 1, you must contribute twice as much to your retirement to reap the full benefit of employer matching. Again, if you contribute more than 6%, the additional is unmatched.

Option 3:

Match up to a certain dollar amount (least common):

Some employers may match up to a certain dollar amount, regardless of income, limiting their liability to

. For example, an employer may elect to match only the first $5,000 of your employee contributions.

Note 1:

The logic we use here for saving for retirement is the following. If your income is more than your expenses, then you have money to save. This is how that money is distributed:

We prioritize 401K first because of the possibility to get free money through employee matching, so if you have a 401K, then we contribute up to the max (see table below).

If there’s left over money, or if your company doesn’t have a 401K, then we look at contributing to an IRA. The max contribution is based on your income level, your tax filing status, and whether your company has a 401K (see table below)

If there’s still left over money after these 2 steps, the rest goes into your investment account.

Important to note that in this model, 401K and IRA are mixed into the same account and are treated the same, as pre-tax contributions that are taxed as ordinary income when distributions are made (when money is withdrawn). More on how distributions work on the next page.

These are the maximum amounts you and your employer can contribute to your 401k every year. Note that I assume here pre-tax 401k contributions (traditional 401k as opposed to Roth 401k).

There are no rows in this table

These are the maximum incomes you can have to still be able to contribute the maximum amount to an IRA, for the different filing scenarios. There is also an income range where you can contribute a partial amount to your IRA, but it’s annoying to calculate so I didn’t add it in here.

1

Single/Head, with 401K

$66,000

$6,000

2

Single/Head, no 401K

$50,000,000

$6,000

3

Married Jointly, both have 401K

$105,000

$12,000

4

Married Jointly, neither has 401K

$50,000,000

$12,000

5

Married Jointly, one is covered by 401K, other no 401K (just for reference, not used here)

$198,000

$12,000

There are no rows in this table

3. Calculate your expenses

Same exercise as before, but for “retirement” this time!

To help you, you can start off with your 10 year dream monthly costs, copy and paste them to the retirement row, then add or modify the things as needed. If there are items that are not relevant in retirement, put the monthly cost to $0 but

do not delete the row entirely

!

Important note

:

Do not include mortgage, rent, or kid related costs here. These have been calculated in already.

Input your retirement expenses!

Expense category:

you can choose how you want to categorize, just be consistent!

Monthly Cost (today):

how much you spend on that category each month, today

Monthly Cost (10y):

how much you’ll spend on that category each month, in 10 years

Months valid per yr (10y):

in case there are categories that only apply for part of the year, this column allows you to put in the number of months applicable per year

Because we plan to spend 3 months each year traveling or living abroad, we added a row for “3 months summer travel” with a cost that is all inclusive - that row is only applicable for 3 months, hence the 3 in this column. All other rows except “Pet Stuff”, “Rent/Mortgage”, and “Health Care” are set to 9 months for the same reason.

“Rent out home” is only applicable for 2 months, since we’ll only rent out our home when we’re on our 3 month summer travel, and because we made an assumption that we’re only able to rent it out for 2 months out of 3.

Average Monthly (10y):

a formula to calculate your average monthly cost

Clarifying notes:

any notes that help remind you of assumptions you’ve made

👉 This may seem daunting, but let’s calculate