A few days ago, I wrote about a retirement plan that almost any 20-something can follow. It wasn’t the best plan out there, nor the most aggressive. In fact, far from it. But, it was something that I came up with to help motivate those who are not currently saving for retirement. My goal was to show how much good a little bit of saving each year can do you. If you haven’t started saving for retirement, and you haven’t read it – you should jump over there and read it through. I’ll wait.

Now that you are back, I figured it was time to share what my retirement plan looks like. Since I am still in my 20s, much of this is still a plan. Some of it is happening right now, and some of it is in the works. While I typically hold some information back for privacy reasons, this is one of those posts where my readers will get full disclosure. How’s that for entertaining?

I should clarify – there are many aspects of retirement planning: how much you are saving, when you plan to retire, how much money you need at retirement, etc. This post will only cover one piece of the puzzle, specifically the first part: how much we are saving for retirement (and through which investment vehicles).

Our Retirement Plan: Current Actions

While aggressive, our retirement plan, is pretty simple. As we get older and more established, I imagine I will add a little more variety, but for the time being, here’s what what we are currently doing to prepare for retirement.

Step 1 – Max Out Roth IRAs Each Year

Does this sound familiar? Well, it should. This is the cornerstone of my simple retirement plan that I talked about a couple days ago and for good reason. I love my Roth IRA and plan to use this as much as I can, until I no longer qualify. For the past two years, my wife and I have maxed out our Roth IRAs. Once we finish doing that for 2013, it will be three years straight – that’s quite an accomplishment for a couple who is living in the greater NYC area, paying for grad school in cash, and working for non-profits, if you ask me. If we continue to max out our Roth IRA’s each year for 30 more years (we plan on retiring early), we’ll have well over a million dollars just in these two funds alone. Not bad for a modest $11,000 annual sacrifice each year, right? And that’s estimating using conservative interest rates. Imagine what would happen if we average more than a 7% yield.

Step 2 – Invest 12% of Mrs. 20’s Income in 403(b)

If you don’t know what a 403(b) account is, it’s essentially the 401(k) equivalent for non-profits. In other words, an employer-run retirement fund. While my wife’s employer doesn’t have that great of a matching program, it’s better than mine (none). I expect my employer to get with the program in a year or two, but that’s another story. For the time being, we’re settling with putting 12% in her account without the match. Even if she doesn’t get a raise for the next 30 years (which is close to impossible) we will have another $750,000 30 years from now. When you add that to our Roth IRA projected nest egg, we’re starting to add up to a decent retirement package already – and we’re just getting started!

Step 3 – Real Estate Investing

While many of my friends are busy paying off student loans, I am already investing in real estate. In fact, my wife and I invested a chunk of change in a limited partnership that will begin to pay dividends at the end of this year. While there’s no guarantee on the rate of return, early projections are somewhere around 15%. Of course, this has its disadvantages (unable to cash out at any point like the stock market), but the dividends will be nice. As it stands right now, I’m estimating somewhere around $2,000 each year (minimum) for the rest of the existence of the business – which should be a long time. As another benefit of this limited partnership, I don’t have to do any work whatsoever. I still have to write another post on the details of this arrangement – I know many of you are waiting for this post.

Our Retirement Plan: What’s Next

Even though we are off to a great start (in my mind), I know we have a long way to go to feel financially secure. Who knows what the cost of living will be 30 to 40 years from now, so I would much rather be prepared. Here’s what I have planned in the next 10 years.

Use a 2nd 403(b) Account OR Max Out Mrs. 20’s 403(b)

After we buy our first home (we have to save up that down payment first), we plan to kick up the amount we are saving in our employer accounts. Depending on whether my employer offers a retirement account will determine whether we put more money into her account or open one of my own. I have a little bit of money sitting in a previous employer retirement account, but nothing to help me sleep at night. Doubling or even tripling our contributions to these accounts will significantly increase our retirement savings. Is it weird that this type of thing excites me?

Buy a 2nd Home, Rent out 1st Home

Another part of my plan is to have at least 1 rental property. I imagine 4-6 years after living in our first condo will be just about time to upgrade our home. This could present a great opportunity to keep our first home and rent it out. From what I hear, this is often the path to being a landlord. It’s easy, you already know the property, and it likely is very attractive to renters (since it was your first home). 25 years later (at the latest), the mortgage will be paid off and we will be pocketing a decent income from this property alone. Somewhere in the neighborhood of $18,000-20,000 net income according to my back-of-the-napkin calculations.

Side note: I also have another dream of buying a vacation home 4-5 hours from where we will live. We would buy the property and pay for the mortgage, taxes, and insurance by renting it out 1 week at a time for at least 12-16 weeks out of the year. I know people who are doing this and I really like the idea of building equity on high-value properties without paying more than a down payment. But, this is a number of years from happening.

Use Social Security as Extra Money

The last thing that is on my list that should not be ignored is social security. I don’t count on DEPENDING on this income, but I do plan on using this income. It is after all, money that I will have paid to the government for the 30+ years of work and I will use it to avoid digging into my nest egg. I’m too far away from retirement to have any accurate guess of how much my retirement benefits will be, but I estimate another $24,000 (in today’s dollars) minimum between the two of us – and that’s conservative. Again, this is considered extra money.

So there you have it. My retirement plan as it currently stands and where I see it forming over the next 30 years. Of course, this plan is likely to change over time, but at the very least, I know what it will take to have a stable retirement income. I know it is going to take sacrifice and hard work, but with starting early, I know I can make it work, even with two modest incomes.

Readers, how does your plan compare? Is there anything I should include in my retirement plan?