"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus
Calculate that scenario here.
The short answer is generate $800K and buy a CD at 5%. In reality, depending on your age, you need to find a way to put away 10-15% of your pretax income and continue to do so your whole working life. Live below your means and by the time you are 55-65 years of age you will have amassed a fortune. Start with fairly risky high return investments and move to more conservative investments as you get older.
Key elements are One house and one spouse. Stay married and avoid debt other than home mortgage.
I cannot stress highly enough, live below your means and save as much as you can.
Find a job in New York that pays $400,000 and pay your taxes ;->
What details? Well, when do you need that income stream to start? Are you retiring in 20 years or in 30 years or? When you retire and are receiving that income, do you want it to be $40k absolute or do you really mean as much income then as $40k buys now - meaning the real number will have to be higher by the amount of inflation between now and then? Then, will you want that amount as a level income each year, of will you need it to keep going up a few percent every year to keep pace with inflation?
Then, will you get that income as an annuity - meaning you only need it for your own lifetime or that and the life of a spouse, but don't need to leave any inheritance for your kids? Or do you want to get that income without impairing the capital, able to pass the capital on to your kids? Then, some assumptions about how much you will be earning on the money at that point, with a more conservative investment strategy (more bonds, less stock) in retirement.
OK, all those filled in, I can get a capital value for the amount of money you have to accumulate by the retirement date. I'll fill them all in one typical way, so you can see what I am saying.
(1) The income is wanted 30 years from now.
(2) The income needs to be $40k present value, and inflation will be about 2.5% per year over the next 30 years.
(3) The math therefore says the targeted income level will be $84,000 nominal.
(4) The income level then needs to still rise 2.5% per year.
(5) The income taken is not to impair the capital, which is instead to be left intact to be passed on.
(6) The return in retirement will be around 7.5% per year, gross. 2.5% of it will have to be left to fund the increases and prevent any impairment in the real value of the capital.
(7) So 5% can be taken out, meaning 20 times the income taken is needed as the capital value.
(8) The capital value needed is then 20 times 84,000 equals $1.68 million, 30 years from now.
(9) Assume the starting value is zero (no existing savings), but that contributions to the fund increase with raises and inflation etc at 4% per year.
(10) Assume the investment portfolio manages to earn 9% per year gross throughout the savings period.
Then the math says, each $1000 of inital annual savings rate results in 200,000 in ending value, and 8.4 times that level is wanted, ergo the initial savings rate needs to be $8400 per year.
Suppose your employer has the following match incentives - 100% match for the first $500, then 15% up to 6% of income. That means the gross going into the 401k will be the percentage of income you save plus 0.9% plus $425. Suppose your gross is $50k so 0.9% is another $450. Then your own contribution needs to be $8400 - $875 = $7525. If you instruct your benefits advisor to withhold 15% of your income for your 401k, you are there.
Suppose you change the goal to step up annuity (don't need to leave an inheritance, do need lifetime income rising 2.5% per year for self and spouse). Then the part that changes is the end return you can take out is more like 6.5% rather than 5%. (You would in that case actually take out a step up annuity on retirement, presumably). The end amount needed is therefore $1.29 million, total initial contributions needed are $6460, after the employer's $875 your portion needs to be $5585, so 11.5 or 12% of income is the number to tell your benefits manager.
Where does it get invested? Well, above we basically assumed you could earn 9% on average over the life of the investment. Not bonds, then. The simplest single way to get diversified investment is to put all of it in a single balanced fund. Most of those are about 60% stock and 40% bonds, though, and would be on the conservative side - more like what you want in retirement. There are some plans that have "lifecycle" funds with varying levels of stock, and you could take one that had 70%, 75%, or 80% stock. Which would be better. Either of those is dirt simple, everything goes in one fund and you never have to think about it.
Or you could use a simple 2 fund solution - one balanced fund and one pure stock fund. The balanced fund might favor "value" or "income" stocks and the pure one a broad index including smaller companies (like a total stock market fund). Then you can do one ongoing adjustment, only. Every year or two look and see if the two funds are about the same size, and if they aren't, level them off again. (That forces you to buy a little more stock when the market has been weak and to salt a bit more into bonds when it has been strong - a good discipline).
Or if you want to get fancier, you can put a third in a balanced fund, and put the other two thirds in two different stock funds, one typical big cap like the SP500, and the other smaller or midcaps (which have higher returns in the long run but also wider swings). You'd balance like the previous. The last thing you might add is a small 10-15% foreign stock fund (when the dollar swings in value, those zig as the others tend to zag etc). Only if you want to, though, not necessary.
The hard part is simply to save enough. The figures needed - 10-15% of income for almost everyone, and that can rise as high as 20% if you are starting late with only 20 years to retirement and have the most ambitious goals as to continued income growth in retirement and leaving stuff to kids etc - can seem quite daunting if you have been living on the whole takehome.
Here is the way to adjust up to what you need, if you can't start there right away. Start by telling the benefits advisor to take out at least as much as the largest that the employer matches, or 6%, whichever is less. Better is to start at 10%, but do either, what you are comfortable with. Then every year when you get a raise, increase the withheld/saved percentage by the amount of the raise, or the amount of the raise minus 1% if you need some increase for inflating expenses etc. In 5 years or less you should be up to the required level. After that the percentage going to the 401k can stay the same, the dollar amount is still rising every raise you get, as is your takehome.
The biggest things are the amount contributed each period, and time. Start as soon as you can with as big a portion as you can afford, and you will not be sorry.
I hope this helps. If you want to fill out the specifics differently, I'll be happy to give you the numbers for your actual situation.
And yeah, in the 90s I was an investment advisor - how I paid for grad school...
You could become a federal employee. I did.
I'm eligible to retire now at age 50 on a full pension, which will start out at over $50,000 with max. survivor benefits. The pension is indexed for inflation, too, so as inflation goes up, so does the pension.
I've also got a government 401(k) plan which includes a government match of 5%. And let's not forget the federal government health plan (most of which is paid for by the government), which retirees and their families can remain in for as long as the retiree or spouse are alive.
All in all, not a bad deal!
I wish I could tell you, but the fact that I know absolutely nothing about you, your circumstances, or you finances, precludes me from suggesting or hinting at anything. Regulations also forbid it on either forums, or chat sites, etc. Very sorry, gsg...