How feasible would it be to retire on just maxed out Roth IRA contributions each year?

Obviously this depends very much on how old you are when you start, and your living expenses when you retire. But what would be an expected income solely from a Roth for someone who retires @ ~65 while contributing/maxing a Roth starting in their 20's?

Some assumptions such as a typical rate or return need to be made. Also hard to estimate what the max contribution limits will be in the future. I believe this question would make what the person earned throughout their life irrelevant as long as they didn't exceed the income limit.

I could probably calculate something close for this out on my own, but there may be more to this than just compounding interest (Social Security, taxes, inflation, limit changes). Some of this may be speculative (isn't all retirement?), but I think a close number can be achieved given what is known.

I am curious if this would possible to live on in many places.

  • I think this has the making of a good question, but a more productive question would be "what factors should I be aware of if I am considering a maxed-Roth IRA as my sole retirement fund?"
    – Nicole
    Dec 19, 2011 at 21:57
  • I have no issue with someone editing this question a bit. But I am more concerned with the final number and what sort of quality of life could be expected. I am pretty aware of many of the factors as listed, although there could certainly be much debate over each one's contributions to the scenario I suppose. I am also in no way attempting to do this myself, was just curious as to how feasible it could be.
    – radix07
    Dec 19, 2011 at 22:19
  • @Renesis - Hmm. Change the question just enough and my answer mat not seem like a direct response. That would be bad. Not as bad as withdrawing an inherited IRA in full and paying taxes all at once in an inflated bracket, but as in "I just wasted my time on a good answer to a question that no longer exists." Dec 19, 2011 at 23:20
  • 1
    I think the question is fine. Dec 20, 2011 at 14:33

3 Answers 3


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?)

  • That sounds about right. I kind of think of a Roth as similar to a minimum wage for retirement. Given inflation, that may very well be comparable. Probably justifies where the limit is at the moment...
    – radix07
    Dec 19, 2011 at 21:16
  • Thank you for +1, but remember, the median family income in the US is $50K. The IRA doesn't cover just 'minimum wage' but fully half the work force. And my math ignores that at age 50, there's an extra $1000 allowed. Dec 19, 2011 at 21:20
  • Well is that number 50K in today's dollars of 50K in the future? That makes a big difference. My minimum wage comments was more of an analogy than a direct comparison. But you could probably debate this question for a very long time diving into all the minutiae (had to look that spelling up).
    – radix07
    Dec 19, 2011 at 21:29
  • Yes, today, $50K. And We'd assume that the IRA limits rise with inflation as would the income, so $5000 that's 10% today would increase as well. And the median income would rise too. My only point is that the $5K happens to be 10% to fully half the working population. I expect IRA limits to suffice for that same half +/- a few percent. Dec 19, 2011 at 23:11
  • "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." Why is that? The number that matters is how much you're SPENDING at retirement, not how much you're earning. Dec 20, 2011 at 21:32

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.

  • 1
    Inflation plus 8%? That's a very generous estimate!! You should be more conservative than that!
    – user296
    Dec 29, 2011 at 2:16
  • I misremembered - after a bit more research, it seems that the average return on the S&P 500 since 1950 has actually been around inflation + 6-7%, still giving you a nice $40k+ per year.
    – Shawaron
    Dec 29, 2011 at 4:39

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.

  • 3
    -1 not bad advice per se, but irrelevant advice, and tries to be a little too universal; ultimately some of us are not meant to be business owners and shoulder all the risk that comes with that, and not everyone who retires will be well enough to work...
    – user296
    Dec 29, 2011 at 2:18

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