Very soon, I will be celebrating my 30th birthday, and I thought it would be interesting to take a look at my retirement portfolio as it currently sits. I’ve rounded each amount to the nearest $100 to make the math easier as I evaluate where I’m at and what my future plans may be.
My Current Retirement Portfolio
My retirement portfolio consists of two different 401(k)/403(b) accounts and a Roth IRA. The investments are currently as follows:
I hold $27,500 in an international equity index fund in a tax-deferred account
I hold $22,800 in a small cap stock index in a tax-deferred account
I hold $1,200 in the Vanguard STAR fund in my Roth IRA, which I just founded this year
This gives me a total of $51,500 in my retirement savings. In the near future, I will be setting up a SEP IRA through Vanguard to hold additional retirement savings.
In addition, my wife has a pension from the state, as well as a 403(b) plan which holds $22,000 as of her last statement, but I’m focusing on balancing and maximizing my own portfolio for now.
How Am I Doing?
In order to compare my savings to a realistic picture of my living expenses, I’ll use my income from my previous full time job in 2007, where I earned about $47,000 (I don’t have enough data yet to make a fair estimation of what my annual income will be as a self-employed worker). This means I have about 1.1 times my annual income in retirement investments – right about where I want to be at age thirty. I use Money Magazine’s retirement benchmarks for this conclusion:
Assuming you want to retire at age 60 and plan to have no pension and no job in retirement, you need to have…
1.6 times your salary in savings at age 35
3.5 times your salary in savings at age 40
5.8 times your salary in savings at age 45
8.5 times your salary in savings at age 50
11.9 times your salary in savings at age 55
16.0 times your salary in savings at age 60
Using those benchmarks, I would say I’m in fine shape, considering that even without any additional input, my portfolio would likely grow enough to meet the target for age thirty five (and I plan on contributing more, so it should be a cake walk).
Where Will My Portfolio Go in the Future?
Right now, I’m young. I’m not quite thirty yet, and my retirement portfolio is very aggressive. Let’s look at it in terms of percentages.
53.4% international stocks
44.3% small cap stocks
2.3% large cap stocks
In other words, my portfolio right now is 100% in stocks, and some of the options are fairly risky. Within two years, I’d like to smooth things out and have the following allocations:
40% international stocks
30% small cap stocks
20% large cap stocks
10% emerging market stocks
Again, very risky, but I’m looking at a retirement age that’s still almost thirty years down the road. I plan on keeping that portfolio until I’m forty, then slowly easing back by reducing the risky stocks and moving them into more stable stock investments, like a total stock market index fund. As I approach fifty, I’ll start moving things towards bonds gradually, too.
How will I do that? The key is to fully fund my Roth IRA each year and also open an SEP IRA, then use all of the accounts together to achieve my desired proportions, rebalancing each year to keep things in alignment. Steady, small contributions here on out will win the race – right now, for example, I’m contributing $100 a week to the Roth IRA and putting aside $100 a week with the intent of putting it into the SEP IRA once I’ve decided how I want to execute that plan (likely through Vanguard as well, but I’m still reading the rules and contrasting it with a SIMPLE IRA).
Can You Do the Same?
So now the question comes to you. Can you do the same type of analysis over all of your retirement accounts? Are you hitting your targets, and are you in line for future milestones? If you’re behind, now’s the time to kick your contributions up a notch. If you’re looking good, feel happy about it – but remain vigilant. If you have no idea where you’re at, it’s well worth your time to sit down and figure it out – it took me about twenty minutes to put the above numbers together, but I had a pretty good grasp on where I was at before I started.
Good luck with planning your future!