How feasible would it be to retire just maxing out a Roth IRA?
Interesting. The answer can be as convoluted/complex as one wishes to make it, or back-of-envelope.  My claim is that if one starts at 21, and deposits 10% of their income each year, they will likely hit a good retirement nest egg. At an 8% return each year (Keep in mind, the last 40 years produced 10%, even with the lost decade) the 10% saver has just over 15X their final income as a retirement account. At 4% withdrawal, this replaces 60% of their income, with social security the rest, to get to nearly 100% or so replacement. Note - I wrote an article about Social Security Benefits, showing the benefit as a percent of final income. At $50K it's 42%, it's a higher replacement rate for lower income, but the replacement rate drops as income rises. So, the $5000 question. For an individual earning $50K or less, this amount is enough to fund their retirement. For those earning more, it will be one of the components, but not the full savings needed.  (By the way, a single person has a standard deduction and exemption totaling $10150 in 2014. I refer to this as the 'zero bracket.' The next $8800 is taxed at 10%. Why go 100% Roth and miss the opportunity to fund these low or no tax withdrawals?) Assuming you max-out your Roth IRA with $5000 in inflation-adjusted contributions every year from 25-65, your balance at age 65 will depend on the post-inflation return you get in the account.  Assuming you withdraw 4% per year after that, here is what your income will be: (All numbers are in inflation-adjusted 2011 dollars.)   If your post-inflation return is zero - if you buy treasury bonds, money-market accounts, or something like that - you'll have a simple $5000 * 40 = $200,000, which will give you an income of around $8000 per year. If you get a 3% post-inflation return - e.g. fairly safe Muni bonds, corporate bonds, and boring stocks - you'll approximately double your money to around $393,000, giving you an income of over $15,000 per year. If you get a 6% return - e.g. more aggressive stocks and more risk-taking - you'll approximately double your money again to over $825,000.  A 4% withdrawal rate will give you an income of around $33,000 per year. Stocks have historically returned around inflation + 8% - that will get you over $1.4 million - and an annual income of over $56,000 per year. So, yes, it is feasible to retire on nothing but a maxed-out Roth IRA. "I wouldn't settle for 10%, and I certainly wouldn't settle for a Roth. I'd recommend not retiring.  I'd recommend building up a side business in your ""free"" time while you're working that's closer to your calling that you can ""retire into."" Don't be complacent."
Couple of factors here to consider: 1) The savings vehicle  2) The investments  Savings Vehicle: Roth IRAs allow you the flexibility to save for retirement and/or your house. Each person can save up to $5,500 in a Roth and you can withdraw your principal at anytime without penalty.  (There is a special clause for first time home buyers; however, it limits the amount to $10k per person.  Given your estimate of $750k and history of putting down 20%.  It would require a bit more.)  The only thing is that you can't touch the growth or interest. When you do max out your Roth IRA, it may make sense for you to open a brokerage account (401Ks often have multiple steps in order to convert or withdraw money for your down payment) Investments: Given your timeline (5-7 years) your investments would be more conservative. (More fixed income)  While you should stay diversified (both fixed income and equity), the conservative portfolio will allow less fluctuation in your portfolio value while allowing some growth potential. "If I understand correctly, the Traditional IRA, if you have 401k with an employer already, has the following features: Actually, #1 and #2 are characteristics of Roth IRAs, not Traditional IRAs. Only #3 is a characteristic of a Traditional IRA. Whether you have a 401(k) with your employer or not makes absolutely no difference in how your IRAs are taxed for the vast majority of people. (The rules for IRAs are different if you have a very high income, though). You're allowed to have and contribute to both kinds of accounts. (In fact, I personally have both). Traditional IRAs are tax deferred (not tax-free as people sometimes mistakenly call them - they're very different), meaning that you don't have to pay taxes on the contributions or profits you make inside the account (e.g. from dividends, interest, profits from stock you sell, etc.). Rather, you pay taxes on any money you withdraw. For Roth IRAs, the contributions are taxed, but you never have to pay taxes on the money inside the account again. That means that any money you get over and above the contributions (e.g. through interest, trading profits, dividends, etc.) are genuinely tax-free. Also, if you leave any of the money to people, they don't have to pay any taxes, either. Important point: There are no tax-free retirement accounts in the U.S. The distinction between different kinds of IRAs basically boils down to ""pay now or pay later."" Many people make expensive mistakes in their retirement strategy by not understanding that point. Please note that this applies equally to Traditional and Roth 401(k)s as well. You can have Roth 401(k)s and Traditional 401(k)s just like you can have Roth IRAs and Traditional IRAs. The same terminology and logic applies to both kinds of accounts. As far as I know, there aren't major differences tax-wise between them, with two exceptions - you're allowed to contribute more money to a 401(k) per year, and you're allowed to have a 401(k) even if you have a high income. (By way of contrast, people with very high incomes generally aren't allowed to open IRAs). A primary advantage of a Traditional IRA is that you can (in theory, at least) afford to contribute more money to it due to the tax break you're getting. Also, you can defer taxes on any profits you make (e.g. through dividends or selling stock at a profit), so you can grow your money faster." You are asking all the right questions. I predict a bright future! In addition to the excellent advice from Phil, I would add that NOW is the time to think about investing. If you have not yet started a retirement account, open up a Roth IRA and max it out ($5.5k in 2014) every year. The time value of money is strong and you will be thanking yourself in 40 years for starting now. Yes, paying down debt is important, and you should do that, too. It's a balance. If you get converted to a full-time employee, take part in any retirement plan they offer, and max out any matching because it's free money. Yes, I have done this and did not feel a change in cash flow - but I didn't do it a the age of 23.  I did it at a time when it was comfortable to do so.  I should have done it sooner and I strongly encourage you to do so.   Another consideration:  Is your companies program a good one?  if it is not among the best at providing good funds with low fees then you should consider only putting 6% into your employer account to get the match.  Above that dollar amount start your own ROTH IRA at the brokerage of your choice and invest the rest there.  The fee difference can be considerable amounting to theoretically much higher returns over a long time period. If you choose to do the max , You would not want to max out before the end of the year.  Calculate your deferral very carefully to make sure you at least put in 6% deferral on every paycheck to the end of the year.  Otherwise you may miss out on your company match.  It is wise to consider a ROTH but it is extremely tough to know if it will be good for you or not.  It all depends on what kind of taxes (payroll, VAT, etc) you pay now and what you will pay in the future.  On the other hand the potential for tax-free capital accumulation is very nice so it seems you should trend toward Roth. "Does your company offer a 401(k) and are you taking maximum advantage of it? 2015 limit is $18,000, an extra $5,500 if you are 50 or older.  The RMD shouldn't be too large, it depends on your age, of course. You're in no worse shape than anyone hitting age 70-1/2 and having to start taking their RMDs. If you are younger, your RMDs start pretty low. If I look at Pub 590, I find a 50 year old starts with a 34.2 divisor, less than 3% each year. At 60, it's 25.2, just under 4%.  Edit - someone around 30 will have a divisor around 53.3 the first year. Just under 2%. I don't know what you consider ""sizable,"" but much above $300K in that IRA and you'll have more come out than you can fund into a Roth. Regardless of the amount, the RMD is taxable. You just need to pay the tax from other funds if you wish to keep the money invested as it was.  You will pay the tax at your marginal rate, and that's it. This is the one downside of the inherited IRA, unlike regular money, it doesn't escape taxes. But, your dad put it in pre-tax (right?) so the amount you got is larger for that fact.  I'm sorry for your loss." The idea behind a Roth IRA is taxes will go up in the future so you are best off paying less in taxes now than in the future, which is why Roth IRAs are contributed to with post-tax dollars whereas traditional IRAs are contributed to with pre-tax dollars. The theoritical advantage comes when you want to withdrawal your money. With the traditional IRA, when you withdrawal money, you pay ordinary income tax on all withdrawals. With a Roth IRA, all withdrawals (after the age of 59 1/2) are tax free, including any gains you may have made. To illistrate, with a very simple example, assume you make $50,000 and your IRA grows at 5% for 40 years. Traditional IRA - $5,000 Roth IRA - $3,750 ($5,000 after taxes) Traditional IRA - $604,000 Roth IRA - $453,000 Traditional IRA - $604,000 / 15 = $40,266 * 75% (25% tax) = $30,200 / year Roth IRA - $453,000 / 15 = $30,200/ year First, this was not a contrived example and I was surprised the numbers worked out this way. Second, as you can see with this example there is really no advantage either way unless you by into the theory of higher taxes in the future. In addition to George Marian's excellent advice, I'll add that if you're hitting the limits on IRA contributions, then you'd go back to your 401(k). So, put enough into your 401(k) to get the match, then max out IRA contributions to give you access to more and better investment options, then go back to your 401(k) until you top that out as well, assuming you have that much available to invest for retirement. The plan is perfectly valid and legal as tax rules currently stand. There is no limit to the amount you can rollover or convert to Roth. Assuming your 401(k) is traditional pre-tax, you'll have to pay income taxes on the amount you convert above personal exemption + standard deduction, which is currently about $10k/year for single filers. The other caveat is you'll need funds to live off of while your conversion money is seasoning for 5 years in your Roth IRA. If you start the conversion while you are still working, you'll be paying taxes on it in your marginal bracket, which will negate much of the benefit of the pre-tax 401(k). If your living expenses are low, you can convert about $10k/year without federal income taxes, while living off capital gains from a taxable account which have a 0% rate in the 15%  income tax bracket (goes up to about $37k/year).