Retire with $3 million by driving paid for cars

Can you imagine how much there is to gain from driving a paid for car? Ever since I started investing, I’ve been thinking about what the possible returns are, and how worthwhile it is to focus my intention on investing in quality mutual funds inside tax sheltered accounts. Since my car will be paid off by next summer, I decided to run the numbers and see what would happen if I did nothing else other than putting my $420 a month car payment directly into a mutual fund Roth IRA.

According to this calculator, if I invest $4000 a year (the maximum contribution in a Roth, and noticeably less than $420 a month) into a mutual fund with a 12% rate of return inside a tax free Roth IRA, when I turn 65 I will $3,064,000.

If I continue to earn 12%, I can draw the interest of $360,000 (tax free!) every year and never touch the principal. Can I live on $360,000 a year? I think so.
But what if I’m wrong? What if something happens, and the market doesn’t do as well? If I only earn 8%, then when I retire at 65, I will have about $1 million, and I will be able to draw $80,000 a year. A little less exciting, but still probably quite reasonable.

And all this is by doing nothing but putting my car payment into a Roth. I could do that without our income ever going up, which it almost certainly will once hubby finishes grad school (well, it better anyway!). I could do that without sacrificing any lifestyle we have now. In fact, since $4000 a year is less than $420 a month, I would actually have a little more disposable income each month. And truthfully, chances are I will have at least some kind of a teacher pension by then, and at least one if not both of us will have some kind of a 401(k) of 403(b) with an employer match.

Now of course there are some other issues here. I will, eventually, need another car (although, if I get my way that’s at least 6 or 7 years out). We are eventually going to buy a house. But again, our income will go up and we just have to decide not to do either of those things until we can afford to without stopping that Roth contribution.