A while ago, I thought of a clever idea; write up the steps to a budget like a recipe. I thoroughly enjoy budgeting – I’m one of those weird people who actually likes crunching numbers and paying bills. As much as I don’t enjoy cooking, I thought it was a cute idea to simplify budgeting into easy, readable steps, like a recipe.

Today, I’m going to do the same thing with retirement. Of course, there’s no one way to prepare for retirement, so feel free to substitute some ingredients with others, as you would a true recipe:

Gather the following items (preferably somewhere safe and where you can accrue interest!)

  • 15 – 35 years of work. Some people might be able to do this in less time, but the majority of folks need a solid 20+ years to gather enough wealth through employment to retire.
  • 10 – 20% saved.  Give or take 5 percent, you should be saving at minimum 10% of your annual income. The more you can save, the earlier you can potentially retire (or the more you’ll have available in retirement!)
  • 3 – 10 investments. A random number, I know, but the more money you have to work with, the more likely you’ll vary your investments.
  • 1 401K or 403B plan. Contributing to a company’s retirement plan will automatically save you money in the form of taxes and could allow you to grow wealth quicker, especially if the company offers a match of some kind.
  • 1 IRA of some kind. Roth or standard, take your pick. The difference is in the taxes. Taxed up-front on the ROTH, on the back-end on a traditional IRA.
  • 1 savings accounts. (Some people like more of these for different categories, it’s your choice)
  • 1 checking account.
  • All student loans paid off well before retirement.
  • Zero credit card and/or auto loan debt.

Don’t forget to prep and grease the budget at least bi-annually. Since incomes and expenses can vary from year to year, it’s a good idea to tweak as you go. Now that we have the basics in place, with a good mix of savings and investments in place, you’ll want those investments to simmer for quite a few years. Here are some examples of what that might look like:

money– 5 years into your career: You’ve contributed 10% to a 401K and another 10% to an aggressive mutual fund along with maxing out your IRA every year. You’ve also managed to pay off your student loans and are living debt free. Net worth:  $78,810.30 (using a simple savings calculator with a monthly compounding interest rate of 2% saving $15,000 annually – very conservative not taking into account the interest earned from the aggressive mutual fund).

money-10 years into your career: You’re now contributing 15% to a 401K and another 10% to an aggressive mutual fund along with maxing out your IRA every year.  Still living debt free, but paying off a mortgage aggressively. Net worth:  $206,680.84 (saving $20,000 annually I’ve bumped up the interest to 4%).

Clock-20 years into your career: You’re now contributing 15% to a 401K and another 10% to an aggressive mutual fund, plus a mix of stocks,  along with maxing out your IRA every year.  Still living debt free and mortgage free. Net worth:  $671,017.27 (monthly deposits of $1,800 at 6% interest rate.)

These figures are based on conservative interest rates and using a simple calculator, I’m sure I’ve made a few mistakes on the math. For instance, if a person deposited $1,800 a month for 20 years at 5% they’d have saved $739,863.32. (Maybe my math isn’t too far off based on the above variable interest rates). However, with mutual funds, stocks, and 401K’s, there are usually periods of time when the growth is much higher than 5 or 6-percent. During those periods, the amount invested increases greatly.

The bottom line is that after 15 – 20 years of investing, a person should have saved quite a few hundred-thousand dollars. 

To spice up the above recipe and build net-worth quicker add the following:

-Rental properties. Not for everyone, but for some it can accrue a nice monthly amount that can be invested and the property itself should build some equity.

-P2P lending. Earn more than 2 – 5% on your investments by loaning out money through Prosper Loans or Lending Tree.

-Start a side business. Offer your skills and services on the side and weekends. Use that money towards more aggressive investments while slowly building wealth.

I’ve been fortunate throughout my career that my employer forces us to contribute to a pension plan, but I’ve also started investing in mutual funds to increase my total nest egg. Next on my agenda: an IRA and possibly rental properties.

What does your recipe for retirement look like?


  1. That’s a great recipe for the regular people. I think we should max out on the 401k contribution as soon as possible. That’s not possible for most people, but it will give you a huge head start if you can do it.

    • @Joe – Good tip! But, yes, I think it’s hard for people just starting off unless they can get their living expenses super low (like living with mom and dad!)

  2. krantcents Reply

    I like the concept! I usually make everything into a game because that is my way of keeping myself motivated. A recipe can work for those “foodies” out there too. Whatever works for you is right.

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