The 28-year old has featured 62 times in all competitions since his switch from Tottenham last year, but speculation this summer saw him linked with a return to Premier League football.
Despite reported interest from Manchester United, Modric committed himself to the Primera Liga side and he believes his decision to leave England has proved to be the right one.
"I have no doubt that the best thing that ever happened to me in football is to play in Madrid," he told Croatian newspaper Sportske Novosti.
"Where will I be in four years? Here. Besides being a great club, my family feels amazing in Madrid.
"In football it is difficult to plan, but if you ask me, I would like to retire in Madrid. With titles, of course."
Real were edged out by Atletico in the Madrid derby last weekend, their first league defeat of the season, and Modric admits there is still work to be done.
"We had a good start but we need to be more compact, we must defend and attack with harmony between the lines," he said.
"We know the expectations are constantly growing and you cannot relax for a moment. The crowd always expects a lot from us, as it should be at Real Madrid."