Everyone Run and Open a Roth IRA Right Now

Friday, March 20, 2009

Being a huge nerd, I have been reading many personal finance blogs lately. I cruised through college with my parents paying for my credit cards, so being on my own financially is both terrifyingly confusing and extremely exciting. It also does not hurt that my job is all about making crazy dynamic Excel spreadsheets of money moving around, so I feel very empowered to take charge of my finances. I can understand and track where everything is going.

My favorite personal finance blogs are Get Rich Slowly, I Will Teach You to Be Rich, Tough Money Love (this one is superbly feisty) and, most recently, No Debt Plan.

In fact, learning about personal finance is one of my new obsessions, which is kind of ironic, given how my iPhone was just stolen 2 days ago and now I have to pay $541.42 to replace it at the early upgrade price. But that is a whole different (and tear-inducing...in myself) story where I hate on AT&T and Apple and low life thiefs. Back to personal finance.

I started following No Debt Plan a few weeks ago and today stumbled upon a post on how to retire easily on $1,000,000. Now, given my inability to trust calculations unless I do them myself and my mastery of Excel spreadsheets, I decided to test Kevin's conclusions, as well as play around with some sensitivity analyses by altering assumptions about the annual return, compounding, etc.

Kevin basically says that if you start contributing $5,000 annually to a Roth IRA account at 24, STICK WITH IT, retire at 66 and assume a "conservative" annual return of 7%, you will have amassed $1.2 million of untaxable (!) income by the time you retire.

Astounding, but true. I seriously have to open a Roth IRA account:

Omg I Need to Open a Roth IRA Omg I Need to Open a Roth IRA irina.issakova6516

Get this. If I start at 23 and retired at 64 and stick to this plan, I would contribute a total of $205,000 and earn a total of $1,018,036 (!!!) in interest. OMG! You never believe it until you make your own dynamic spreadsheet.

I am now keeping this spreadsheet as a shameful reminder of the fact that I currently do not have a Roth IRA. But all of you out there. Run. Open one tomorrow. I know I will be (well, at least by the end of 2009).

Next step: figure out asset allocation based on my retirement profile. I'm guessing somewhat aggressive during these crazy stock market times.


Jaime said...

Open at Self-Directed IRA with Equity Trust Company. http://www.trustetc.com

Also, check out http://www.trustetc.com/2010 to learn about the 2010 Roth Conversion opportunity.