Financial goals for retirement

My financial goals for our early retirement are to achieve the following by age 50:

  • House paid off
  • College saving account fully funded
  • Taxable accounts: $300K
  • Retirement accounts: $500K
  • Holdings in India: $100K

How did I arrive at these figures?

  • We want to pay off the house before even considering leaving our jobs. We are making early payments on our mortgage to reach this goal.
  • We want to fully find the college account before leaving our jobs as well. I estimate $60K for a 4-year college degree at a public university.
  • The taxable account target of $300K is intended for our early retirement years. This is based on a 4% yearly withdrawal resulting in $1000/month during the first year of our early retirement, with inflation-adjusted increases in subsequent years. This money will be held initially in dollars, but will be partially converted to Indian rupees as we get closer to retirement.
  • The retirement nest egg of $500K is intended to be used after we reach full retirement age. This should allow it to grow tax-deferred for about 15 years before we start withdrawals. This will be held in US dollars, with a significant portion in non-US equities. We should also be eligible for Social security and a pension at the time that we start withdrawing from these accounts.
  • The holdings in India of $100K are intended for initial setup expenses upon moving to India. This is partly in real estate, and the rest in safe fixed-term bank accounts.

All figures are in 2007 dollars. I expect to revise them in the future, depending on rate of inflation, currency exchange rate etc.

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Birundha said...

I am wondering how one can save $1000k in Tax savings, $300k in taxable account, $60k in education and home paid off with in 11 years as per your concept. If you can let us know how to save around 140M in 10 years. I think one should earn atleast 170k to achieve this goal..

Nigel said...

Over the next few days I will be updating my older posts, and posting details about our current net worth. I will also have periodic posts about the progress we are making. Please check back again.
The quick answer to your question is (1) we are a dual-income couple (2) we live well below our income and (3) we do not own an expensive house. We have a 15-year mortgage with 11 years left to go, so it seems achievable.

Horn OK said...

I am wondering if your "real" desire is really to retire in your fifties, and not necessarily "Retire2India", but rather to retire in your fifties.

Considering how fast India is "growing" everyday would you and your spouse not have the same opportunities to "earn" incomes here in India right now that are not much different to your present earnings?

I guess what I am saying is, if your desire is to "live in India in your fifties" then this is the time to move to India. Wouldn't you have the same amount of savings in the next 15 years here in India seeing that India has much higher return on investments (compared to US) and "professional incomes" are approaching US rate.
The rest (being with extended families, having Indian social life etc) are bonuses?

Nigel said...

Thanks for your comment. You are right that our primary motivation is to retire early. In fact, if we could afford to retire early in the US (without compromising on quality of life, of course), we may not have considered India seriously as a retirement destination.

We do not want to consider working in India since a corporate job in India appears to be even less attractive than it is in the US (which is saying something). Besides, we have no desire to live in a tier-1 city in India.

By my estimate, if we were to work in India, our income would be lower by a factor of at least 2, so I do not think that our savings would be comparable. I don't think that the return on investments in India, after factoring in inflation, is significantly higher in India.

Anonymous said...

If you plan to retire in India, why not sell your house now itself and live in an apartment that may be available for a rate lower than your interest on the house(minus tax benefits)?
Saving for college - is that for your child(ren)?
Have you considered that India's inflation is anywhere between 5% to 9%?

Nigel said...

We bought a house for the benefits it gives us (space, privacy). I don't consider the house to be an investment. You are right that from a purely financial point of view, it may be cheaper to rent. Luckily we live in an area where house prices are not insanely high, so the rent-vs-buy comparison works in our favor.
Yes, we want to fully fund our child's college account before we retire.
Yes, inflation in India is one of the risks that I have to consider (the other being the currency exchange rate). I will surely be watching these closely.