How to turn your $6,000 Roth IRA contribution into $2,437,260

When it comes to your Roth IRA savings plan strategy, every little bit helps.

It's obvious, saving more is going to build your retirement faster.  There is no magic bullet, sorry to disappoint and be the bearer of bad news.  But, there is good news too! I'm offering light at the end of the tunnel.  Hope for all who seek it!  A road map for your Roth IRA savings plan.

Let's get started.

Table of Contents

    Roth IRA Savings Plan

    We will save $6,000 per year into the Roth IRA in the example.  You can save it as a lump sum, monthly, weekly, or whatever way you want, but for this example, I'm going to break it down monthly.

    The Roth IRA has income limits depending on your filing status.  Check your eligibility before making contributions.

    Saving $6,000 per year into the Roth IRA, broken down monthly, is $500. I'm also going to save for 35 years and assume an 8% rate of return on our investments.  To put this into perspective, the S&P 500, the most widely used index, has achieved a greater than 8% rate of return over a long period.

    You may do better or worse; these are assumptions to estimate how much you need to save to achieve your retirement goal.

    One of the biggest reasons people don't start to save for retirement is the feeling they are saving an inadequate amount.  Saving $500 per month may not feel like it will turn into millions in retirement, but that's not always true.  Saving a little today can positively impact your ability to reach your retirement goal.

    I'll start with some simple math.  Saving $500 per month for 35 years is $210,000.

    $500 x 12 (months) x 35 (years) = $210,000 (total saved).

    Investing at an 8% rate of return means that on your 1st day of retirement, you will have $1,154,587.52 in your Roth IRA.  Over a 5x return on your investments by investing into the S&P 500 and achieving an 8% annual compound rate of return.

    In retirement, you will likely reduce your rate of return, so we'll assume a 5% withdrawal rate.  In this example, the maximum we can withdraw is $5,802.88 per month for 35 years.  I'll round to $5,803 and multiply by 12 months and then 35 years to arrive at $2,437,260.

    In the example, we saved $500 per month, allowing us to spend $2,437,260 throughout our retirement.  While it is doubtful anyone's retirement will look exactly like this illustration, it's meant to give you hope that saving a small amount today can significantly impact your retirement.


    One of the biggest mistakes that I see when planning for retirement is focusing too much on the investment performance and not enough time on the investment strategy. So in this video, I'm going to show you how to take your $6,000 Roth IRA contribution and turn it into over $2.4 million throughout your retirement. If this is your first-time entertainment or you haven't subscribed, click on the subscribe at the Bottom.

    I am Travis Sickle, CERTIFIED FINANCIAL PLANNER with Sickle Hunter Financial Advisors. The Roth IRA contribution limits have increased from 50 $500 to $6,000. And if you're 50 or older, you can tack on an additional $1,000 called the catch-up contribution. So we're going to take just $6,000, and we're going to fund our Roth IRA. And I'm going to show you what that looks like over time.

    So you can see that it's not just money sitting in a retirement account for all eternity. Never to be seen again. Because, let's face it, that's probably how you feel when you contribute to your retirement plan, especially if retirement is far away. I'm going to do this math on my financial calculator. We're going to keep it super simple.

    But if you want to get a little more information, I will put a link in the description at the bottom. You can click on it, set up an account, and get a better idea of how much you need to save to reach your own financial goals. So I'm going to jump into the financial calculator, and we're going to start with that $6,000.

    So we're going to contribute $6,000, but we're going to make it a little easier. We're not going to do it once a year. We're going to do it monthly. So we're going to take that 6000 and break it up systematically over 12 months, which is $500 per month. So here's how we can get your Roth IRA to produce over 2.4 million throughout your retirement.

    So we'll start with the $6,000 annual contribution. So we're going to save $6,000 every year into a Roth IRA. And we're going to have to assume a few things. We're going to assume an 8% rate of return. Now, I know you're probably thinking, well, there's no way that I can get a steady 8% every single year.

    And you're right. But I want to show you so you can understand what it looks like when you invest systematically into a portfolio and what that looks like over time. And I'm going to give you a couple of tools to get a little better understanding of the rate of return. But like I said at the beginning of the video, let's focus on the strategy first, and then we can follow it up with the investments.

    So if we invest at $6,000 and we're going to assume an 8% rate of return, this rate of return will be the same throughout up until retirement. So we're going to do this, and we're going to invest over 35 years. 35 years. So if I plug it in here on my trusty financial calculator, that will be 35 years at an 8% rate of return.

    And right now, we have nothing saved. So we're going to put a zero for the present value, and we're going to save $500 per month. And that's going to give us $1,154,588. So we're already a millionaire by the time we hit retirement. So if that's the case, I'm going to put it up on the board. So we're going to have that equals $1,154,587.

    That's great that we have over $1,000,000. But how do we get to the 2.4? So here's where the real magic comes in saving for retirement and making smaller contributions to get a considerable sum of money down the road. That is turning this into an income stream. So when we're in retirement, we're going to take fewer risks for the most part.

    So this rate of return is going to come down. So now let's assume that we're going to get a 5% rate of return on our money, and we're going to start spending it. So we're going to get a 5% rate of returns, and we will spend it because, after all, that's why we saved it. Right. So when we hit retirement, we're going to take this amount right here.

    This is $1.1 million, and then we will turn it into an income stream. But I want this income stream to last my lifetime. So we have to make another assumption. How long is our retirement going to be? Let's assume that it's going to be 35 years. Well, we saved for 35 years. So let's see what that looks like when we spend it for 35 years.

    We'll take this math and do 35 years for retirement, bring it down to a 5% rate of return, making $1,154,587 today, and we'll have nothing when we die. So we're going to spend this money for over 35 years. So that's going to bring it to $5,803 per month. So we're going to turn this into this income stream.

    We can turn it into $5,802 per month. And again, we're assuming that we're going to get a 5% annual rate of return. And this is the maximum amount that we'll be able to pull out and have this last for 35 years. So we save for 35 years, and now we're going to spend over 35 years. So if we do some simple math, we take this, we multiply it by 12.

    Multiply it by 12. That will give us just under $70,000 on an annual basis. If our retirement is over 35 years, we will get that same amount every year. We multiply that by 35 years. And that gives us $2,437,209. So just over $2.4 million throughout our retirement. So let's take that $5,802 and write it up on the board again.

    So we have that $5,802. So this will be our income every month when we hit retirement. And we're going to multiply that by 12. And then we're going to multiply that by 35 years. So that's going to give us are 69,636. And then we're going to multiply that by 35 years. And that is going to provide us with a total of $2,437,260. Now, this is not only over 2.4 million, but it's also tax-free.

    So if you also were saving into your $41k. To figure out what this would be the equivalent, all you need to take is your tax bracket. Take the inverse of it. And that's how much money you need in your 401k to equal these Tax-Free dollars. So that might sound a little complicated.

    Let's do the math. So this is how much money we have, and we want to figure out what that is equivalent to. And let's say we're in the 22% tax bracket. So you'll take your calculator out again, and you can put in 100 and -22, which would be the percentage that gives you 78.78. Take this number and divide it by 0.78.

    And that's going to give you the equivalent in the same tax bracket. So if we do that, we take our two, $2,437,260, and divide that by 0.78. That's going to be $3,124,692. So that will be the equivalent of $3,124,692. So these two numbers would be identical if this was in your Roth and your $41k or your traditional IRA.

    So we started saving $500 into our Roth IRA, and that is the equivalent of having $3.1 million inside of your four. Okay. That's a tremendous amount of money. And that is only the strategy that's not focused on the rate of return. Yes, we're assuming a rate of return, but it's not focusing on it. It's getting an average rate of return of 8% and then bringing that down to 5% throughout retirement.

    Now, of course, if you use seven or six, these numbers will be a little bit smaller, but you get the point of the saving strategy behind it. Saving a little can turn into quite a bit. Now, there are two parts I'm going to point out because I know someone's going to comment on this. The rate of return is not going to be the same every year.

    Yes, that is true. But it's not the point. The point is to look at the strategy of saving because that is where you should focus on. You should save as much as possible, start as early as possible. And you're going to have a massive sum of money relative to somebody who doesn't save or saves in lump sums or waits ten years before they start to save.

    Then the other point is we do not look at inflation. So the 3.1 million here and the 2.4 million here sound like really huge numbers, but they won't be worth as much down the road. That doesn't mean you shouldn't start saving. That doesn't mean you shouldn't open up a Roth IRA and save. You absolutely should save and do the best you can for yourself financially.