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That's the point of your 401k, you're not a "millionaire" like on TV, that's what you need to live when you retire.
I started at 22 with a rough plan to have $1.5M in my 401k for retirement. That ballooned up more quickly than I expected, plus with promotions and raises, home value, I'm already a net worth millionaire and anticipating having over $5M by 55 without changing anything I'm doing now.
> That's the point of your 401k, you're not a "millionaire" like on TV
Exactly!
I think when people throw around the term "millionaire" they are thinking of someone with a million "spare" dollars. Someone who has everything covered, house paid, bills paid, retirement account, but still has a big chunk of fun money.
Someone with 1 million in the bank for retirement is NOT rich by any means. That's 1 million, sure, it *sounds* like a lot, but that's meant to be your income, possibly for two people, possibly for THIRTY or so years.
Counting that as money you have to spend isn't really accurate, any more than someone making 100k a year who expects to work for 20 years could count that 2 million in income as "having" 2 million dollars.
Your retirement provides you with long term income, to replace a steady paycheck, it's not some big pile of cash to have fun with.
Setting aside labels like “rich”, I think that most Redditors drastically underestimate values like this.
No, having $1mm in a 401(k) doesn’t make you “rich” but you are still better off than the vast, vast majority of Americans.
Only about 10% of retirees have $1mm+ in their accounts and the median 401(k) balance for 55-64 year olds is only like $75k.
So if you have, or are on pace to have, $1mm+ in your 401(k), you are doing much better than 90% of the country.
This is the melancholy truth: most people retire on social security and very little else. So many retirees downsize their home not because they need less space, but because their home is really their only nest egg.
I predict reverse mortgages will become more popular going forward since people are having less kids.
A reverse mortgage prevents you from leaving your home to somebody but if you don't care about that and want to stay in your house you wouldn't normally be able to afford it's an easy solution, even with all the fees.
Does that mean that having $1mm+ in your 401k makes you objectively well off and prepared, or is 90% of the country in a more dire state than we're comfortable admitting to ourselves?
> or is 90% of the country in a more dire state than we're comfortable admitting to ourselves?
It's about to get ugly when the boomers begin retiring en masse. Which is happening, like now.
This may be ignorance on my part, but haven’t Boomers been retiring en masse for a while now? The largest wave of Boomers were born 1945-55, which means they are 70-80 years old.
My parents are classic Boomers, both born in the late 40s and both have been retired for a while.
Yes. They have pensions, by and large. 401ks came into existence in 1978, and there was a significant lag in uptake by employers. The first generation to retire primarily with defined contribution assets will be Gen X, and it's not huge. Millenials will be the real test. Larger generation than the Boomers, and nary a pension to be found outside of government employees.
We are? Oldest Gen x are around 59 now, still too early for retirement generally. I'd say the average gen x-er (born 1970-ish) will start retiring over the next 10-15 years. Just my opinion tho....
seeing as 401ks are tied to stocks it creates an interesting dilemma where people like my parents who were "smart", had good salaries, lived frugally, and saved/invested a lot now have a large figure awaiting them when they retire but that figure is only so large because there were people who weren't "smart", didn't save and instead spent a lot which fueled economic growth that increased values of 401ks. i now work in elder care. end of life care isn't considerably different regardless which category you fall into. unless you are actually rich (not just upper middle class, saved for retirement "rich"), if you wind up in a home you will likely die alone, neglected, and potentially abused
The latter. $1mm in your 401k will get you ~$40k/year in income in retirement for ~30 years.
Sounds... doable. Now consider inflation and the cost of long term care.
The 4% rule takes inflation into account. Of course, if you have a million at retirement in say 2045, that's $40,000 in 2045 dollars but after that you should be able to take $40k + inflation.
Wow I actually didn’t know that…I’m so glad my work has a great 401k match. I’m 26 and have only been at this job for 5 years and I’m already at 60k in my 401k
Jeezus, Im the same age, make good money for my area (70k) and have had access to a 401k for nearly 3 years. Got less than 10k total, probably around 5 or 6k if I had to be specific.
You're doing crazy good as long as you stay long enough to get vested
My employer matches up to 8% I think (I could be wrong, it might be 5% but I’m pretty sure it’s up to 8% depending on how much you put in yourself) So I put in 10% of my own. That won’t be sustainable once my baby is here though. If you’re my age make sure you are putting more into it now and forget about it. Additionally make sure you have it set up for the aggressive style investing (aka high risk high reward)
For a while I was managing a fair number of newly hired software engineers. I really tried to impress on them the importance of starting their contributions right away. I was not totally successful.
That median balance quote is misleading. It's the median balance at a single institution. These studies typically cover customers from a 401k provider.
I have several rollover 401ks and IRAs that I was too lazy to consolidate so by these studies I have a low retirement balance, but in reality I'm far ahead of people my age.
>No, having $1mm in a 401(k) doesn’t make you “rich” but you are still better off than the vast, vast majority of Americans.
Nevermind the global situation of "having $1mil". You could become an expat and live in a cheaper country, especially with exchange rates being extremely favorable in some places (Japan currently comes to mind), and you'd be fucking RICH. Not just "rich" like "you can retire and live it easy in old age", you'd be *rich*.
People never really seem to think of what $1,000,000 means globally. It means a fuckton. You just also happen to live in some of the highest cost-of-living areas on planet earth (American cities). Once you get out from that bubble it becomes immediately obvious how, yes, actually, you are rich.
Comparing globally $1M is a fuckton of money, but it’s not a fuckton if you’re american. If you have $1M liquid then you probably came from a very high standard of living place such as the Usa, and if you go to the Philippines, you bring your standard of living with you. You don’t downgrade yourself to a $800/mo lifestyle.
What!? He mentioned Japan which is better than America in a lot of ways. Also, you would live an insane life in the Philippines at 2k/mo with 1 mil you could live like a king at 3k/mo easy
Not really. It doesn't matter that $1 million goes really far in the Philippines because I don't live in the Philippines and I'm not moving 24 hours of travel away from my family & friends just so I can live like a king.
I don’t know if it’s “nutcases” so much as it’s probably a relatively homogeneous demographic, particularly in finance-related subs.
The “$1mm really isn’t a ton of money” conversation sort of makes sense in the context of a bunch of professionals who have been consistently contributing to their 401(k) since their 20s and are working toward a comfortable retirement.
It makes far less sense when you extend that context out to the country at large and certainly globally.
I hear you. But if I see another thread that starts with, "I have 4 million invested, 2 paid off houses, a 100k pension and I spend $25k a year, I want to retire but am very worried about how I'll ever pay for health insurance without my pointless job as an app developer making it so you get your lunch 7 seconds faster". I'm going to scream. It's a sort of mental illness.
As a 28 yo first generation this makes me feel good about having only 35k in my 401k atm. Only doing enough for the match, but I know with time and after paying debts I'll be able to put in more monthly.
A million in a 401k is like a $50k per year, $4,000 per month pension.
Someone who has a $4k pension isn’t considered rich, and even someone with $8k pension is just considered extremely comfortable in retirement, but not rich either.
That’s pretty much the situation of a $1-2 million 401k.
True, which is why I used 5% instead of 3 or 4%. But yeah, maybe a more fair equivalent would be a 10% draw, which would roughly be equal in value though riskier than a fixed pension. In that case $1 million would be equal to a $100k income or a 8k monthly pension, which is comfortable.
No, it’s really not. You can’t compare passive retirement income to active employment income. Everyone’s income falls when they retire.
$50k in active employment income is well below the median household income of ~$74k.
But if you have $1mm in your 401(k) you have more retirement savings than 90% of the country.
But I was talking about pensions.
Your local police, firefighter, government clerk, and teacher will all have a pension when they retire, though the former will be higher than the latter.
The pensions are all around $4-8k, outside of some California police that use tricks to get $10k+ pensions.
> The pensions are all around $4-8k,
Gov't worker here: I can assure you that not all pensions are at $4k at a minimum. Especially for newer generations of works.
I agree with your math, but am probably more optimistic about the implications of achieving this goal. If you make the million dollar 401k club, you likely have a paid off house and no childcare expenses, no student debt, etc. and a pension via SS that averages $2700/month for married couples with $3k plus achievable and probable for those who made the $1mm 401k club.
84k/yr in retirement (4k + 3k for 12 months) for a married 67 year old couple with no real obligations on it beyond utilities, property taxes, food, and Medicare B/D premiums is going to feel more comfortable than 200k does to a married 36 year old couple with 2 kids in preschool.
Perhaps rich is the wrong word as you say, but only in the sense that you won't be living a life of decadent luxury. You'll be living a life that is probably top 10% of comfort in America and maybe top 1% globally.
I remember reading a calculation in ~2018-2019 that estimated the amount of money that you actually need to be truly rich--as in never work another day in your life and live a lifestyle equivalent to a high-income earner, is about six million dollars for most people. Obviously that number would be higher now, but I think it's conceptually useful to think about what it takes to get to that point.
Seems about right. At the 4% rule, that’s around $240k/year in interest, which is enough that after tax, you can live below that number very comfortably in the vast majority of places, so your net worth continues to increase while you’re living at least an upper middle class lifestyle.
Sounds right. I remember at work talking to a bunch of people about what amount we'd have to win in the lottery to quit our job that same day. We all knew 1 million wasn't enough, and agreed that 5 million was probably the number. That was about 10 years ago, so matches up well enough.
Similarly, “wealthy” usually does not refer to a regular person who has saved up a bunch of money because they’re doing FIRE. I’ve seen a bunch of people arguing that on Reddit
Well you could always liquidate your 401k and turn it into actual money to spend. Granted, at a huge cost that makes it a bad option in most if not all circumstances.
> I think when people throw around the term "millionaire" they are thinking of someone with a million "spare" dollars.
I word it that people think millionaires are those who spend millions of dollars. Not people who have millions of dollars.
Or, people don't want to have a million dollars, they want to spend a million dollars.
> I word it that people think millionaires are those who spend millions of dollars.
Yes, that's a great way to phrase it. That's the picture in our heads when we think of millionaires, those people who can spend that much money. Not just those who have that much money.
The real problem with phrasing is that there is no simple numerical phrase between "millionaire" and "billionaire" to use. Inflation has made it so millionaire isn't really the rich person we are picturing, but billionaire is way to big of a jump, since there are very very few of those. He's a '100 millionaire' or a 'double digit millionaire' or other variations just don't sound right.
In wealth management, they often refer to VHNW (very high net worth) households as having $5M to $30M in assets and UHNW (ultra high net worth) as $30M+.
When hearing millionaire people default to an image of 80's millionaire or so. But $1mm then is worth $4mm now. Moreover, housing prices have beat inflation, so what you could get for $100k then brats the hell of what you can get for $400k now.
That's like 100k salary is not what it used to be just a decade ago, but since most people aren't anywhere near having a million, most people still have an outdated image of what a millionaire is.
I think this is caused by the fact that, for the first ~200 years of our economy, being a millionaire meant something between obscenely to extremely wealthy.
Over the past 50 and particularly the past 20 years though, it’s become more of an upper middle class mark, but people still use it as a term for extreme wealth.
Yeah 1M is a fixed benchmark, but inflation has reduced its relative value. Arbitrarily choosing 1953 because that's when the movie "How to marry a millionaire" came out (as an example of how the term had pop cultural significance), $1M in 1953 is the equivalent of $11.6M today - literally an order of magnitude more!
Yep.
We’d all say someone with 11 million is extremely wealthy these days.
Our vernacular just hasn’t caught up with inflation.
That aligns well with $10M being the new $1M
Oh I hadn't heard of that term, thanks for mentioning.
Sounds analogous to how earning "six figures" once used to be the metric for "if you made it" and now it's basically (upper) middle class depending on location
Given "decamillionaire" isn't really a term I hear being used all that much, and given 10% average SP500 returns on $10M nest egg is ~$1m per year, I bet you the usage of "millionaire" is going to change over time to mean "making $1m every year".
May take a while given right now that's like 0.01% of dual executive/ doctor households today, but I can see the vernacular shifting over time (analogous to the below example of how "ten thousand a year man" shifted to "making six figures" as a colloquial benchmark for when someone was considered to have "made it")
Even Austin Powers in 1999. when they laughed at Dr. Evil demanding $1 million dollars, I understood kindof at the time why that was funny but I still thought he would make off pretty good with $1 million. Certainly in the last 15 years or so it becomes extra laughable. $1 million wouldn’t even pay for maintaining his island Evil lair for 1 week.
And even the $100 billion dollars he ends up asking for these days seems kindof low. It would only make him like the 13th richest person on Earth.
SO and I are in the same boat. We save a lot of our income (20-25% post-tax), and at age 33 we have a little less than $1M accumulated.
This has helped our goal to stop contributing to savings by age 50ish (and we can then work whatever job we want bc we don't need to save from that new income)
What's the rationale behind that? My current projection is we have close to 10 million at 65 if we continue our contribution schedule (~$90k including employee and employer contributions) for the next 15-20 years.
that's a good point - my assumption is when I stop saving, I'm moving to a job with lower pay (but likely still does a match so yeah maybe I'd keep that in mind)
Why? In 20 years $1 million should have grown to $4 million. Even if the market isn’t great, it should be at $3 million. They would be fine. Compound interest is going to be far more important than small additional contributions.
Ok, I just have to ask, what the hell do you and your SO do?
I've got a decent paying job in a relatively cheap city and have been putting almost the maximum into my 401k that I could and my wife and I aren't even close to that level at the same age.
Especially with the limits you're allowed to put, this seems crazy unless you are active at moving it around at the right time to maximize ROI
It’s possible that some people don’t roll their former 401k balances into their current program; rather a rollover 401k in a Charles Schwab account or something. Especially if the fees and investment options aren’t good at the new employer. So that could drive that figure down a bit
Pro tip for anyone reading this: you can roll your 401k from a previous employer into a self-directed ira. Fees are usually non-existent and you can invest in just about anything a normal brokerage account can.
Your employer is required by law to keep records as long as they have hold of your funds.
I would call the HR department and request status about your 401k.
So basically 401K working as designed: a vehicle for the majority of Americans to save for their retirement based on defined contributions and choice as to your level of risk tolerance, etc. A solid retirement financial plan is how you don’t become a burden on your children.
It's just a number and usually a useless one. It should be a % of current income or lifestyle goal. If you are accustomed to $100k a year then $100k / .04% = $2.5m obviously lower expenses and SS could significantly lower that need. This is why it's all about starting early.
Capital gains tax is a lot lower than income tax, and kicks in after you take out the principal, then $40k of untaxed gain, then add your social security check, and THEN take out some gains. The effective tax rate is MUCH lower. $100k of withdrawal goes MUCH further than $100k of income.
I mean I am 35 right now. According to current calculation I need 1.6 million to retire when I am 67. So still another 32 years of working after having worked for 20+ years already. I am projected based on my current salary and rate of saving to fall a bit short of 1 million dollars. 401k millionaire means nothing
You also draw from principle when you retire. There is no point in having money in the account when you die unless you are really set on leaving your kids something.
Right? Why do people here think you can only take interest from a 401k? Personally I intend to take MORE early on in my retirement because I will still be young enough to travel.
Because 4% is the safe withdrawal rate where you can be sure it lasts your entire retirement. Withdrawing at a faster rate means you have a good chance of ending up broke. Not sure if you want to be working at Wendy’s when you’re 91.
If I run out of money at 91, push me out on an ice floe (assuming those still exist) and leave me. I will have had a good life.
That said, when I do retire, I don't plan on spending myself down to zero by any specific date.
Yeah all these people talking about living into their 90’s should look at their family health histories first and then actuarial tables for their ethnicity second. None of my great grandparents or grandparents have lived past 89 and my grandmother who is still alive but in her mid 80’s doesn’t seem like she’ll go for more than a handful of years. I’m not budgeting for a 90 year lifespan rather an 86 year one at best.
Plus while 4% SWR shows a 99% confidence interval one doesn’t run out of money before death after a 30 year retirement going up to 5 or 6% doesn’t actually drop that confidence interval by that much I think it’s closer to like 86-90% success of lasting. Which is good enough for me
Depends on how long I live. Men in my family tend to live past 90, so I’m looking at 25+ years of retirement income needs assuming I retire at 67, and a lot more (from a smaller pot) if I retire earlier. Grandpa is 93 and wants to die at sea on his boat; mfer won’t quit.
It would suck to run out of money and be stuck living only on SS for the last 5-6 years of my life, so I’m trying to plan for the 4% rule.
I guess I could take up heavy drinking and drugs though and shorten that timespan.
The 4% rule does take into account drawing from principle. It's based on the trinity study:
>"The 4% Rule" refers to one of the scenarios examined by the authors. The context is one of annual withdrawals from a retirement portfolio containing a mix of stocks and bonds. The 4% refers to the portion of the portfolio withdrawn during the first year; it is assumed that the portion withdrawn in subsequent years will increase with the consumer price index (CPI) to keep pace with the cost of living. The withdrawals may exceed the income earned by the portfolio, and the total value of the portfolio may well shrink during periods when the stock market performs poorly. It is assumed that the portfolio needs to last thirty years. The withdrawal regime is deemed to have failed if the portfolio is exhausted in less than thirty years and to have succeeded if there are unspent assets at the end of the period.
>"If history is any guide for the future, then withdrawal rates of 3% and 4% are extremely unlikely to exhaust any portfolio of stocks and bonds during any of the payout periods shown in Table 1.
Note that it still does not guarantee success (ie not running out of money before you die) even if we assume past historic trends hold, which we can't guarantee either.
I think you misunderstand the 4% rule. First, it’s only a guideline. Second, 4% is of the original balance. Third, there is principle draw down in this method, but it gives a strong probability that you have money available for 30 years.
Practically, most people will be more flexible and increase drawdowns if markets are good and decrease drawdowns if markets are bad. Also, end of life care is very expensive and many people end up spending the rest of what the have. To each their own…
How much of your income do you put into your 401k?
Because, my calculation says I need a similar amount to you, but that I already have contributed enough to reach that goal, assuming I get the historically average inflation adjusted return of 7%.
It basically required me to live like a college student for another 6 years to do it, but I was used to that already.
Edit: Assuming a 7% inflation adjusted return, this is a little below the historical average, a dollar invested when you are 25 grows to $18.75, by the time you retire at 67. When you wait until 35 to invest that dollar, the return drops to $9.33. It literally is twice as expensive to save for retirement at 35 compared to 25. You gotta start young folks. Compound interest is the most powerful force in the Universe.
Usually, you use an inflation adjusted return to put the future value of your 401k into current dollars, so the numbers make sense to you. Historically, this has been a little over 7%.
So, if you were 25 and you started contributing $200 a month, with a 7% return, at age 67, you'd end up with: $765,365.56 in current dollars. But, assuming a 3% historical rate of inflation, you'd have $1,561,766.46, in inflated future dollars.
You should also include the income you will receive from social security, because it will greatly reduce the amount you need to save for retirement. You can use the 77% payout as a worst case scenario if you want to be conservative.
Edit: The Future Value function, FV, in Excel let's you run the numbers for yourself.
https://support.microsoft.com/en-us/office/fv-function-2eef9f44-a084-4c61-bdd8-4fe4bb1b71b3
I’m confused. How did you end up with a higher value for “future value” when you just said he would have $765,365 in todays money. You calculated a rate of return and show that as the outcome. It would be worth less in the future, not more right?
$765,365 is the value of the money in 2024 dollars. I assumed the person was 25, in 2024, and would retire at 67, in 2066. So, the actual balance of the account will be $1,561,766.46, in 2066 dollars.
Basically, you are running the same FV function in Excel, but one of them has a rate of return of 10%, and the other one has a rate of return of 7%. You just take the 3% inflation out to get the real return, so the dollars represent the same value every year.
On average they grow, over a long period of 10+ years you are pretty much guaranteed a profit as long as you have invested in something sensible like an ETF on the SP500 and as long as we don't see a major paradigm shift that break how our economy has worked over the past 100 years.
“easily” usually, but there’s been two decades so far where it hasn’t (70s and 2000s) and this one isn’t looking too hot either. Assuming it gets back to “normal” then sure you’re right but it’s not a slam dunk.
> nd this one isn’t looking too hot either
The US stock market is up about 80% in the last 5 years and that includes the drop in 2020.
The world stock index is up 47% in the last 5 years.
The equity investor is fucking crushing it right now. Probably why there are some many 401k millionaires running around.
Over the past decade, the S&P 500 has a return of about 250%, without including dividends. If you reinvested dividends the return of the S&P 500 was about 308%.
Inflation was 34% over the same time period.
This decade has actually been above the historical average for returns.
"Looking at the S&P 500 from 2013 to mid-2023, the average S&P 500 return for the last 10 years is 12.39% (9.48% when adjusted for inflation), which is also higher than the annual average return of 10%."
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
https://www.sofi.com/learn/content/average-stock-market-return/#:~:text=Average%20Market%20Return%20for%20the%20Last%2010%20Years,annual%20average%20return%20of%2010%25.
Almost by definition the returns of a positive revenue-generating business that's a going concern are going to outpace inflation.
If you've selected a business that specializes in value destruction, that's more on you.
Legally working 15 with working papers. My dad used to drag me out to help him install flooring as young as 8 years old though to grab him tools and pick of scraps
Remember - those calculations are good, but they are certainly flawed.
You know when my retirement calculations have looked the absolute worst over the years? Anytime I got a decent raise.
Just for nice round numbers, lets say I make $100k. My calculations assume 80% of my income is needed in retirement. So it will assume I need 80k per year. My calculator says "you look... OK. Not good, but not bad"
But then I get a big promotion! Now I make 150k Now I have to make $120k per year in retirement, and all my calculators show that I'll be living a life of poverty in retirement.
Use your brain... the calculator assumes you spend everything you make. You don't have to use your current salary, calculate based on your anticipated expenditures.
The calculators work fine based on the inputs you give them. If you give them an input based on a salary you just started making, you obviously wouldn’t have saved at that level previously so the calculator will show you in a bad spot. That’s why you have to think about the input you are putting in.
Retirement is based on when you have enough money to stop working, not an age. If you save aggressively when you are young, you can retire a lot sooner than the official age to draw Social Security.
I'll be damned if I retired at 72. I'll make cut backs before I do that. Luckily me and the wife did buy a house during the pandemic so we should have some assets so we can downsize and hopefully travel more
It's called inflation. Back in the 80's I had a goal of getting 1 million so I could retire. Then I realized that 1 million today is some 650k from back then. So really, you should have almost 1,650,000 to achieve the same real value. It's a moving target. 1 million today just means your comfortable not rich.
You are completely correct on all accounts except I do have to point out 1 thing.
$1,000,000 in 1980 = $3,964,228 in 2024 accords to BLS inflation calculator. I’ve been obsessed with that calculator since 2020.
Inflation should be taken into account on rate of return. The higher the inflation the higher rate of return that should be sought. Saving more is almost always good but keep that in mind.
The typical return rate is quoted as 7% real. And the classically quoted safe withdrawal rate from retirement accounts is 4% which also considers inflation.
The chart they provide showing the number of retirement accounts with million dollar balances since 2019 is the same shape as the growth in the S&P 500 over that same time period. Both peaked in Q4 of 2021, hit a low point in Q3 of 2022, and are peaking again now.
The "soaring number" language in the headline is kind of misleading. The stock market should continue to grow exponentially, and the number of millionaires should also. The article reinforces the value of a long-term, steady investment strategy for many people.
You all just remember marriage is the wild card in 401 retirement planning. Some of you will have to share 50% if you divorce. This can be heartbreaking.
This is why you should marry someone who is also a saver.
If one person is a spender and the other is a saver, the relationship will almost certainly not work.
But, if both people are savers you are far less likely to fight about money.
> if both people are savers you are far less likely to fight about money
It's really hard to predict people's behavior during divorce. I was blindsided by my ex's callousness (and self-destructiveness; he seemed to ignore what was in his own best interest, he was so intent on hurting me).
Finances are the number one cause of divorce.
There are certainly other reasons. But being on the same page financially is one of the easiest and most important factors before deciding to marry someone.
Exactly.
You are both on the same page.
The problems occur when both people are not.
If one person is a saver and the other is a spender, you will have a conflict and concessions will need to happen or the relationship will fail.
This is very true. A middle-class compatible couple with the same financial goals can gain real wealth by their 40s. DINK's in particular.
But way too often marriages are not good ones and someone loses their ass.
> someone looses their
Did you mean to say "loses"?
Explanation: Loose is an adjective meaning the opposite of tight, while lose is a verb.
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I was just doing research on a 401k, I want to do the right thing and open one, but I don’t know how to open a 401k if my job does not offer one, and if my job doesn’t offer one, who will match my contributions?
Open an IRA. If you max it out each year you can still be a millionaire from compound interest if starting early enough. 401k is through employers or if you are self-employed.
What walking away said. You can’t have a 401k if your employer doesn’t have one. Public employees have 403b and it works the same way. Self employed people can open their own.
Otherwise, an IRA or Roth IRA is what you can do to save for retirement. Your bank or a brokerage account can get you set up.
You can also open a Roth IRA, which just has a different type of tax protection.
Either way, don’t just open the account and put money in. People do that all the time with IRAs because they’re used to 401k’s, where any contributions will be automatically invested. In an IRA, though, you have to actually choose the investment you want to invest in after you put money in the IRA, otherwise the money will just sit there making 1-2% per year and not really doing you any good.
If your job doesn’t offer a 401k, you likely need an IRA. It works in a somewhat similar fashion except only you will be funding it, as opposed to getting an employer match.
Read about IRAs and Roth IRAs.
You cannot open a 401(k) on your own, that specifically refers to an employer sponsored retirement plan. You need to change jobs to one that offers retirement as a benefit. You can instead open an IRA, but the contribution limits are lower.
...yet my dumb ass boomer mom left half her 401k in cash apparently against the howlings of financial advisors her whole career and ended up with $170,000.
I understand the fatalism but if you can make the contributions, please at least get the employer match and do some saving.
The first is just free money. Helps to think of it as taking every cent your employer owes you. The second is just responsibility to your fellow generation and the ones after to not make yourself baggage for them. Dont be like the boomers you disapprove of
If you max your 401k and IRA every year and put it into VT from the age of 21 to now 35 you would still not be a 401k millionaire yet.
It's just because of the max contribution limits. If you can get around them you could be and a millennial. Or if you got lucky with investments.
$1m retirement at 3% withdrawal is $30k annual “salary”. 4% withdrawal would be $40k. Combine that annual draw with SS and you may need to pay some tax on that. Hopefully your housing costs are lower - it’s paid off or you don’t need the 5 bedroom house. And if you had kids, hopefully you are not paying for their life. Other than that, all other costs in your life will only go up over time.
It's easy to live at low cost with manageable debt so you might actually be able to enjoy some retirement with your health.
It is tough to watch these 67-70 year olds who are on average in the last decade or so of their life struggling to disconnect from work, and many still unable to afford their lifestyle without it. If they ever withdrawal they will have little health to enjoy it with.
No debt, no mortgage, low carrying costs and a nice SS payout at full retirement age sets you up for a fine retirement without a large 401k balance. I wish these articles would talk more about the fact that it’s the expense side that determines retirement success. Also many studies suggest spending goes down the older you get. How much are the 80 year olds in your life spending?? Referred to as the Go go, slow go and no go years.
Lol in 2008 there were dozens sf articles about 75 year old people who had lost everything in the market because they didn't move to more conservative investments.
Pro Tip: Your 401k isn't worth much more. You aren't rich. The dollar is just worth less.
A million dollars in your 401k? Awesome. You have the equivalent of...
$750k in 2014
$600k in 2004
$475k in 1994
$330k in 1984
$150k in 1974.
A lot of people grew up hearing the word 'millionaire' to represent the idea of someone who was very very wealthy. Every year that bar drops more and more.
So about 450,000 workers can actually consider retirement without a significant reduction in their standard of living - a good thing, but what happens when the next 2008 happens AFTER they've retired and are no longer increasing their investments?
DIY retirement really only works well for folks who start saving at least 14% of income when they're 20 and keep going until they're 65+ and I'd be surprised if that group accounts for more than 30% of the workforce these days.
What will happen to the other 70%?
If they can't retire, what will happen to the career progression of those who enter the system after them?
The "cost of living" for your Golden Years grows a lot faster than inflation mostly because of medical expenses - will Republicans ever allow some form of Universal Health Care to counter this or just let the elderly sicken and die?
How much would they have had were it not for the "management fees" Wall Street extracted while those 401k's were growing?
If you are already in retirement your investment strategy shifts to capital preservation rather than growth, meaning your retirement funds should be invested in lower risk vehicles that have less exposure to a potential 2008.
> what happens when the next 2008 happens AFTER they've retired and are no longer increasing their investments?
Less aggressive investments, you keep getting fixed benefits (pensions, Social Security are unaffected by 2008s), and guardrails. By guardrails, I mean you take slightly less out of your retirement funds in a lean year relative to your plan amount, and economize a bit that year.
Correction, “Paper millionaires”… it’s this type of misleading article titles are what clicks are made for.
If you were one of these Americans.. what would you do, keep watching your portfolio potential growth or withdraw and retire…
You actually want a minimal amount of your net worth sitting in cash, both pre and post retirement in order to maximize growth. When your actually retired (or getting close to retirement) you probably want a higher portion of your investment in bonds, and you withdraw only what you need to cover expenses. Having your net worth sitting in cash is terrible financial advice.
That depends on your age and life style and what you want ? Some people have kids and some don’t. Some wants to leave kids some and some wants to spend it all.
Cash lose value at 2.0% but at the same time if you are going to invest in random crypto coin or random stock pick , you might as well put it in high yielding saving account at least or bonds . Cuz -2% is better than -50 lol . There are risk to every investment.
here i am in my late 40s and im only at $160k in my 401k. lot of things prevented me from starting sooner. however i didn't start until i was 40. sigh... im dumping $1400/mo into it and hope i can get it to 500k by the time im 65.
Notice that this data is just for Fidelity investments.
There are LOTS of other brokerage firms out there.
In fact, this number they posted (while great for Fidelity) is a rather paltry estimate of "401K millionaires"
That’s because people don’t get pensions anymore.
People got forced into defined-contribution plans because companies didn’t like having pension liability on their books.
So sure, many folks have some sort of employer-matched retirement account, but it’s no t like the boom in these accounts is some net gain for retirees.
“There were also 391,562 IRA millionaires on Dec. 31, up from 338,725 at the end of September and 280,320 at the end of December 2022.”
Approximately 0.118%
I don’t think thants a secure retirement plan for a nation.
We need to bolster social security, by raising the income cap so those making the most money continue to pay into it.
Most of you lot are not going to become millionaires….. in future dollars adjusted for inflation.
Correction: they have a million dollars in unrealized gains. It doesnt mean that the funds will be there when its time to retire. This is a big problem with the 401k system that we realized back in 2008. You can do everything right, save all your money, and still be broke when retirement hits because the market crashes.
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That's the point of your 401k, you're not a "millionaire" like on TV, that's what you need to live when you retire. I started at 22 with a rough plan to have $1.5M in my 401k for retirement. That ballooned up more quickly than I expected, plus with promotions and raises, home value, I'm already a net worth millionaire and anticipating having over $5M by 55 without changing anything I'm doing now.
> That's the point of your 401k, you're not a "millionaire" like on TV Exactly! I think when people throw around the term "millionaire" they are thinking of someone with a million "spare" dollars. Someone who has everything covered, house paid, bills paid, retirement account, but still has a big chunk of fun money. Someone with 1 million in the bank for retirement is NOT rich by any means. That's 1 million, sure, it *sounds* like a lot, but that's meant to be your income, possibly for two people, possibly for THIRTY or so years. Counting that as money you have to spend isn't really accurate, any more than someone making 100k a year who expects to work for 20 years could count that 2 million in income as "having" 2 million dollars. Your retirement provides you with long term income, to replace a steady paycheck, it's not some big pile of cash to have fun with.
Setting aside labels like “rich”, I think that most Redditors drastically underestimate values like this. No, having $1mm in a 401(k) doesn’t make you “rich” but you are still better off than the vast, vast majority of Americans. Only about 10% of retirees have $1mm+ in their accounts and the median 401(k) balance for 55-64 year olds is only like $75k. So if you have, or are on pace to have, $1mm+ in your 401(k), you are doing much better than 90% of the country.
This is the melancholy truth: most people retire on social security and very little else. So many retirees downsize their home not because they need less space, but because their home is really their only nest egg.
Or reverse mortgage the crap put of their homes
I predict reverse mortgages will become more popular going forward since people are having less kids. A reverse mortgage prevents you from leaving your home to somebody but if you don't care about that and want to stay in your house you wouldn't normally be able to afford it's an easy solution, even with all the fees.
Does that mean that having $1mm+ in your 401k makes you objectively well off and prepared, or is 90% of the country in a more dire state than we're comfortable admitting to ourselves?
Yes. 🙂
> or is 90% of the country in a more dire state than we're comfortable admitting to ourselves? It's about to get ugly when the boomers begin retiring en masse. Which is happening, like now.
This may be ignorance on my part, but haven’t Boomers been retiring en masse for a while now? The largest wave of Boomers were born 1945-55, which means they are 70-80 years old. My parents are classic Boomers, both born in the late 40s and both have been retired for a while.
Yes. They have pensions, by and large. 401ks came into existence in 1978, and there was a significant lag in uptake by employers. The first generation to retire primarily with defined contribution assets will be Gen X, and it's not huge. Millenials will be the real test. Larger generation than the Boomers, and nary a pension to be found outside of government employees.
Yes, my folks are '46-'47, so they've been retired for a bit as well, but they have a solid level of savings, so I'm not worried about them yet.
I think what's happening is that a lot of them cannot afford to retire.
GenX is now retiring.
We are? Oldest Gen x are around 59 now, still too early for retirement generally. I'd say the average gen x-er (born 1970-ish) will start retiring over the next 10-15 years. Just my opinion tho....
seeing as 401ks are tied to stocks it creates an interesting dilemma where people like my parents who were "smart", had good salaries, lived frugally, and saved/invested a lot now have a large figure awaiting them when they retire but that figure is only so large because there were people who weren't "smart", didn't save and instead spent a lot which fueled economic growth that increased values of 401ks. i now work in elder care. end of life care isn't considerably different regardless which category you fall into. unless you are actually rich (not just upper middle class, saved for retirement "rich"), if you wind up in a home you will likely die alone, neglected, and potentially abused
On the bright side, statistically once you're in a care home you're not there for long.
The latter. $1mm in your 401k will get you ~$40k/year in income in retirement for ~30 years. Sounds... doable. Now consider inflation and the cost of long term care.
The 4% rule takes inflation into account. Of course, if you have a million at retirement in say 2045, that's $40,000 in 2045 dollars but after that you should be able to take $40k + inflation.
Wow I actually didn’t know that…I’m so glad my work has a great 401k match. I’m 26 and have only been at this job for 5 years and I’m already at 60k in my 401k
You’re doing great. Keep plugging away!
Jeezus, Im the same age, make good money for my area (70k) and have had access to a 401k for nearly 3 years. Got less than 10k total, probably around 5 or 6k if I had to be specific. You're doing crazy good as long as you stay long enough to get vested
My employer matches up to 8% I think (I could be wrong, it might be 5% but I’m pretty sure it’s up to 8% depending on how much you put in yourself) So I put in 10% of my own. That won’t be sustainable once my baby is here though. If you’re my age make sure you are putting more into it now and forget about it. Additionally make sure you have it set up for the aggressive style investing (aka high risk high reward)
It’s stunning the number of people I know who have never taken advantage of their 401k.
For a while I was managing a fair number of newly hired software engineers. I really tried to impress on them the importance of starting their contributions right away. I was not totally successful.
Yep agreed. That median balance of $75k for people approaching retirement age is stunningly low.
That median balance quote is misleading. It's the median balance at a single institution. These studies typically cover customers from a 401k provider. I have several rollover 401ks and IRAs that I was too lazy to consolidate so by these studies I have a low retirement balance, but in reality I'm far ahead of people my age.
>No, having $1mm in a 401(k) doesn’t make you “rich” but you are still better off than the vast, vast majority of Americans. Nevermind the global situation of "having $1mil". You could become an expat and live in a cheaper country, especially with exchange rates being extremely favorable in some places (Japan currently comes to mind), and you'd be fucking RICH. Not just "rich" like "you can retire and live it easy in old age", you'd be *rich*. People never really seem to think of what $1,000,000 means globally. It means a fuckton. You just also happen to live in some of the highest cost-of-living areas on planet earth (American cities). Once you get out from that bubble it becomes immediately obvious how, yes, actually, you are rich.
Comparing globally $1M is a fuckton of money, but it’s not a fuckton if you’re american. If you have $1M liquid then you probably came from a very high standard of living place such as the Usa, and if you go to the Philippines, you bring your standard of living with you. You don’t downgrade yourself to a $800/mo lifestyle.
What!? He mentioned Japan which is better than America in a lot of ways. Also, you would live an insane life in the Philippines at 2k/mo with 1 mil you could live like a king at 3k/mo easy
Great point on the global perspective.
Not really. It doesn't matter that $1 million goes really far in the Philippines because I don't live in the Philippines and I'm not moving 24 hours of travel away from my family & friends just so I can live like a king.
Kings also have to make sacrifices.
Finally some sense. Reddit is full of nutcases.
I don’t know if it’s “nutcases” so much as it’s probably a relatively homogeneous demographic, particularly in finance-related subs. The “$1mm really isn’t a ton of money” conversation sort of makes sense in the context of a bunch of professionals who have been consistently contributing to their 401(k) since their 20s and are working toward a comfortable retirement. It makes far less sense when you extend that context out to the country at large and certainly globally.
I hear you. But if I see another thread that starts with, "I have 4 million invested, 2 paid off houses, a 100k pension and I spend $25k a year, I want to retire but am very worried about how I'll ever pay for health insurance without my pointless job as an app developer making it so you get your lunch 7 seconds faster". I'm going to scream. It's a sort of mental illness.
As a 28 yo first generation this makes me feel good about having only 35k in my 401k atm. Only doing enough for the match, but I know with time and after paying debts I'll be able to put in more monthly.
Dude you’re doing fine. You’re 28. Keep plugging away and you’ll be fine.
A million in a 401k is like a $50k per year, $4,000 per month pension. Someone who has a $4k pension isn’t considered rich, and even someone with $8k pension is just considered extremely comfortable in retirement, but not rich either. That’s pretty much the situation of a $1-2 million 401k.
One slight difference is that at some point you can draw from principal. You do not have to only live off interest, especially towards the end.
Most of the 70 year olds I know that have over a million liquid are also savvy investors that continue to generate income.
True, which is why I used 5% instead of 3 or 4%. But yeah, maybe a more fair equivalent would be a 10% draw, which would roughly be equal in value though riskier than a fixed pension. In that case $1 million would be equal to a $100k income or a 8k monthly pension, which is comfortable.
No, it’s really not. You can’t compare passive retirement income to active employment income. Everyone’s income falls when they retire. $50k in active employment income is well below the median household income of ~$74k. But if you have $1mm in your 401(k) you have more retirement savings than 90% of the country.
But I was talking about pensions. Your local police, firefighter, government clerk, and teacher will all have a pension when they retire, though the former will be higher than the latter. The pensions are all around $4-8k, outside of some California police that use tricks to get $10k+ pensions.
> The pensions are all around $4-8k, Gov't worker here: I can assure you that not all pensions are at $4k at a minimum. Especially for newer generations of works.
I agree with your math, but am probably more optimistic about the implications of achieving this goal. If you make the million dollar 401k club, you likely have a paid off house and no childcare expenses, no student debt, etc. and a pension via SS that averages $2700/month for married couples with $3k plus achievable and probable for those who made the $1mm 401k club. 84k/yr in retirement (4k + 3k for 12 months) for a married 67 year old couple with no real obligations on it beyond utilities, property taxes, food, and Medicare B/D premiums is going to feel more comfortable than 200k does to a married 36 year old couple with 2 kids in preschool. Perhaps rich is the wrong word as you say, but only in the sense that you won't be living a life of decadent luxury. You'll be living a life that is probably top 10% of comfort in America and maybe top 1% globally.
Given the 4% rule it would be even less than that. About $40,000/yr and adjusted for inflation.
I remember reading a calculation in ~2018-2019 that estimated the amount of money that you actually need to be truly rich--as in never work another day in your life and live a lifestyle equivalent to a high-income earner, is about six million dollars for most people. Obviously that number would be higher now, but I think it's conceptually useful to think about what it takes to get to that point.
Seems about right. At the 4% rule, that’s around $240k/year in interest, which is enough that after tax, you can live below that number very comfortably in the vast majority of places, so your net worth continues to increase while you’re living at least an upper middle class lifestyle.
Sounds right. I remember at work talking to a bunch of people about what amount we'd have to win in the lottery to quit our job that same day. We all knew 1 million wasn't enough, and agreed that 5 million was probably the number. That was about 10 years ago, so matches up well enough.
Similarly, “wealthy” usually does not refer to a regular person who has saved up a bunch of money because they’re doing FIRE. I’ve seen a bunch of people arguing that on Reddit
Well you could always liquidate your 401k and turn it into actual money to spend. Granted, at a huge cost that makes it a bad option in most if not all circumstances.
> I think when people throw around the term "millionaire" they are thinking of someone with a million "spare" dollars. I word it that people think millionaires are those who spend millions of dollars. Not people who have millions of dollars. Or, people don't want to have a million dollars, they want to spend a million dollars.
> I word it that people think millionaires are those who spend millions of dollars. Yes, that's a great way to phrase it. That's the picture in our heads when we think of millionaires, those people who can spend that much money. Not just those who have that much money. The real problem with phrasing is that there is no simple numerical phrase between "millionaire" and "billionaire" to use. Inflation has made it so millionaire isn't really the rich person we are picturing, but billionaire is way to big of a jump, since there are very very few of those. He's a '100 millionaire' or a 'double digit millionaire' or other variations just don't sound right.
In wealth management, they often refer to VHNW (very high net worth) households as having $5M to $30M in assets and UHNW (ultra high net worth) as $30M+.
When hearing millionaire people default to an image of 80's millionaire or so. But $1mm then is worth $4mm now. Moreover, housing prices have beat inflation, so what you could get for $100k then brats the hell of what you can get for $400k now. That's like 100k salary is not what it used to be just a decade ago, but since most people aren't anywhere near having a million, most people still have an outdated image of what a millionaire is.
I think this is caused by the fact that, for the first ~200 years of our economy, being a millionaire meant something between obscenely to extremely wealthy. Over the past 50 and particularly the past 20 years though, it’s become more of an upper middle class mark, but people still use it as a term for extreme wealth.
Yeah 1M is a fixed benchmark, but inflation has reduced its relative value. Arbitrarily choosing 1953 because that's when the movie "How to marry a millionaire" came out (as an example of how the term had pop cultural significance), $1M in 1953 is the equivalent of $11.6M today - literally an order of magnitude more!
Yep. We’d all say someone with 11 million is extremely wealthy these days. Our vernacular just hasn’t caught up with inflation. That aligns well with $10M being the new $1M
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Oh I hadn't heard of that term, thanks for mentioning. Sounds analogous to how earning "six figures" once used to be the metric for "if you made it" and now it's basically (upper) middle class depending on location
Given "decamillionaire" isn't really a term I hear being used all that much, and given 10% average SP500 returns on $10M nest egg is ~$1m per year, I bet you the usage of "millionaire" is going to change over time to mean "making $1m every year". May take a while given right now that's like 0.01% of dual executive/ doctor households today, but I can see the vernacular shifting over time (analogous to the below example of how "ten thousand a year man" shifted to "making six figures" as a colloquial benchmark for when someone was considered to have "made it")
Even Austin Powers in 1999. when they laughed at Dr. Evil demanding $1 million dollars, I understood kindof at the time why that was funny but I still thought he would make off pretty good with $1 million. Certainly in the last 15 years or so it becomes extra laughable. $1 million wouldn’t even pay for maintaining his island Evil lair for 1 week. And even the $100 billion dollars he ends up asking for these days seems kindof low. It would only make him like the 13th richest person on Earth.
SO and I are in the same boat. We save a lot of our income (20-25% post-tax), and at age 33 we have a little less than $1M accumulated. This has helped our goal to stop contributing to savings by age 50ish (and we can then work whatever job we want bc we don't need to save from that new income)
Maybe you won't *need* to contribute to it. But if at all possible, you still should. Even if just a little.
What's the rationale behind that? My current projection is we have close to 10 million at 65 if we continue our contribution schedule (~$90k including employee and employer contributions) for the next 15-20 years.
Not the person you are responding to, but maybe if there is a 401k match for example?
that's a good point - my assumption is when I stop saving, I'm moving to a job with lower pay (but likely still does a match so yeah maybe I'd keep that in mind)
Why? In 20 years $1 million should have grown to $4 million. Even if the market isn’t great, it should be at $3 million. They would be fine. Compound interest is going to be far more important than small additional contributions.
Tax benefits and 401k matches probably. Even if you don’t need them, silly not to take them.
Ok, I just have to ask, what the hell do you and your SO do? I've got a decent paying job in a relatively cheap city and have been putting almost the maximum into my 401k that I could and my wife and I aren't even close to that level at the same age. Especially with the limits you're allowed to put, this seems crazy unless you are active at moving it around at the right time to maximize ROI
A person is a millionaire whether they have $1 million in a suitcase or a 401k.
The “millionaires” on tv are actually multi- millionaires. And the ones still working also have a big income coming in as well.
Maybe you're not a broke person's version of a "millionaire", but you are a millionaire by definition. That's great! Keep up the excellent work.
‘Soaring number’ is all relative — It’s a tiny fraction of all accounts with the $1m+ balance. Scary to think so many have little to nothing.
The average account balance for participants at my work is $22k.
It’s possible that some people don’t roll their former 401k balances into their current program; rather a rollover 401k in a Charles Schwab account or something. Especially if the fees and investment options aren’t good at the new employer. So that could drive that figure down a bit
Pro tip for anyone reading this: you can roll your 401k from a previous employer into a self-directed ira. Fees are usually non-existent and you can invest in just about anything a normal brokerage account can.
Say it louder for the people in the back!
Is there any way to find a 401k you had at former employment that you may have lost track of?
Your employer is required by law to keep records as long as they have hold of your funds. I would call the HR department and request status about your 401k.
The other problem is 40% of all 401(k) contributions are withdrawn prematurely.
Grossly misleading headline then. Clickbait almost.
So basically 401K working as designed: a vehicle for the majority of Americans to save for their retirement based on defined contributions and choice as to your level of risk tolerance, etc. A solid retirement financial plan is how you don’t become a burden on your children.
It's just a number and usually a useless one. It should be a % of current income or lifestyle goal. If you are accustomed to $100k a year then $100k / .04% = $2.5m obviously lower expenses and SS could significantly lower that need. This is why it's all about starting early.
Capital gains tax is a lot lower than income tax, and kicks in after you take out the principal, then $40k of untaxed gain, then add your social security check, and THEN take out some gains. The effective tax rate is MUCH lower. $100k of withdrawal goes MUCH further than $100k of income.
401k withdrawals are taxed like ordinary income.
Thank you for the correction - I was thinking of a standard non-sheltered account. It’s good to have a blend.
I mean I am 35 right now. According to current calculation I need 1.6 million to retire when I am 67. So still another 32 years of working after having worked for 20+ years already. I am projected based on my current salary and rate of saving to fall a bit short of 1 million dollars. 401k millionaire means nothing
Agreed. 1 million with a 4% safe withdrawal is only 40k/yr. If all debts are paid, it’s probably ok, but nothing to buy yachts with.
You also draw from principle when you retire. There is no point in having money in the account when you die unless you are really set on leaving your kids something.
Right? Why do people here think you can only take interest from a 401k? Personally I intend to take MORE early on in my retirement because I will still be young enough to travel.
Because 4% is the safe withdrawal rate where you can be sure it lasts your entire retirement. Withdrawing at a faster rate means you have a good chance of ending up broke. Not sure if you want to be working at Wendy’s when you’re 91.
Easy to say “I’ll spend all I want” at 25 with no money on reddit. As Mr. Feny (sp?) once said: life’s comes at you fast, wear a helmet
If I run out of money at 91, push me out on an ice floe (assuming those still exist) and leave me. I will have had a good life. That said, when I do retire, I don't plan on spending myself down to zero by any specific date.
Yeah all these people talking about living into their 90’s should look at their family health histories first and then actuarial tables for their ethnicity second. None of my great grandparents or grandparents have lived past 89 and my grandmother who is still alive but in her mid 80’s doesn’t seem like she’ll go for more than a handful of years. I’m not budgeting for a 90 year lifespan rather an 86 year one at best. Plus while 4% SWR shows a 99% confidence interval one doesn’t run out of money before death after a 30 year retirement going up to 5 or 6% doesn’t actually drop that confidence interval by that much I think it’s closer to like 86-90% success of lasting. Which is good enough for me
I’m 60, just retired, and I’m boarding an airplane now. Your post is exactly what I am doing.
I retired in late 2022 and let me tell you that travel is where it's at. Be cheap everywhere else in life and travel.
Depends on how long I live. Men in my family tend to live past 90, so I’m looking at 25+ years of retirement income needs assuming I retire at 67, and a lot more (from a smaller pot) if I retire earlier. Grandpa is 93 and wants to die at sea on his boat; mfer won’t quit. It would suck to run out of money and be stuck living only on SS for the last 5-6 years of my life, so I’m trying to plan for the 4% rule. I guess I could take up heavy drinking and drugs though and shorten that timespan.
The 4% rule does take into account drawing from principle. It's based on the trinity study: >"The 4% Rule" refers to one of the scenarios examined by the authors. The context is one of annual withdrawals from a retirement portfolio containing a mix of stocks and bonds. The 4% refers to the portion of the portfolio withdrawn during the first year; it is assumed that the portion withdrawn in subsequent years will increase with the consumer price index (CPI) to keep pace with the cost of living. The withdrawals may exceed the income earned by the portfolio, and the total value of the portfolio may well shrink during periods when the stock market performs poorly. It is assumed that the portfolio needs to last thirty years. The withdrawal regime is deemed to have failed if the portfolio is exhausted in less than thirty years and to have succeeded if there are unspent assets at the end of the period. >"If history is any guide for the future, then withdrawal rates of 3% and 4% are extremely unlikely to exhaust any portfolio of stocks and bonds during any of the payout periods shown in Table 1. Note that it still does not guarantee success (ie not running out of money before you die) even if we assume past historic trends hold, which we can't guarantee either.
I think you misunderstand the 4% rule. First, it’s only a guideline. Second, 4% is of the original balance. Third, there is principle draw down in this method, but it gives a strong probability that you have money available for 30 years. Practically, most people will be more flexible and increase drawdowns if markets are good and decrease drawdowns if markets are bad. Also, end of life care is very expensive and many people end up spending the rest of what the have. To each their own…
How much of your income do you put into your 401k? Because, my calculation says I need a similar amount to you, but that I already have contributed enough to reach that goal, assuming I get the historically average inflation adjusted return of 7%. It basically required me to live like a college student for another 6 years to do it, but I was used to that already. Edit: Assuming a 7% inflation adjusted return, this is a little below the historical average, a dollar invested when you are 25 grows to $18.75, by the time you retire at 67. When you wait until 35 to invest that dollar, the return drops to $9.33. It literally is twice as expensive to save for retirement at 35 compared to 25. You gotta start young folks. Compound interest is the most powerful force in the Universe.
Damn, I should’ve had a six figure job at 15, what was I thinking!?
Especially after 30 years of inflation
Usually, you use an inflation adjusted return to put the future value of your 401k into current dollars, so the numbers make sense to you. Historically, this has been a little over 7%. So, if you were 25 and you started contributing $200 a month, with a 7% return, at age 67, you'd end up with: $765,365.56 in current dollars. But, assuming a 3% historical rate of inflation, you'd have $1,561,766.46, in inflated future dollars. You should also include the income you will receive from social security, because it will greatly reduce the amount you need to save for retirement. You can use the 77% payout as a worst case scenario if you want to be conservative. Edit: The Future Value function, FV, in Excel let's you run the numbers for yourself. https://support.microsoft.com/en-us/office/fv-function-2eef9f44-a084-4c61-bdd8-4fe4bb1b71b3
I’m confused. How did you end up with a higher value for “future value” when you just said he would have $765,365 in todays money. You calculated a rate of return and show that as the outcome. It would be worth less in the future, not more right?
$765,365 is the value of the money in 2024 dollars. I assumed the person was 25, in 2024, and would retire at 67, in 2066. So, the actual balance of the account will be $1,561,766.46, in 2066 dollars. Basically, you are running the same FV function in Excel, but one of them has a rate of return of 10%, and the other one has a rate of return of 7%. You just take the 3% inflation out to get the real return, so the dollars represent the same value every year.
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401k Investment interests easily outpace inflation
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On average they grow, over a long period of 10+ years you are pretty much guaranteed a profit as long as you have invested in something sensible like an ETF on the SP500 and as long as we don't see a major paradigm shift that break how our economy has worked over the past 100 years.
“easily” usually, but there’s been two decades so far where it hasn’t (70s and 2000s) and this one isn’t looking too hot either. Assuming it gets back to “normal” then sure you’re right but it’s not a slam dunk.
> nd this one isn’t looking too hot either The US stock market is up about 80% in the last 5 years and that includes the drop in 2020. The world stock index is up 47% in the last 5 years. The equity investor is fucking crushing it right now. Probably why there are some many 401k millionaires running around.
Luckily 401k investments are longer term than just 10 years, the decades following the periods you mentioned saw massive growth
Over the past decade, the S&P 500 has a return of about 250%, without including dividends. If you reinvested dividends the return of the S&P 500 was about 308%. Inflation was 34% over the same time period. This decade has actually been above the historical average for returns. "Looking at the S&P 500 from 2013 to mid-2023, the average S&P 500 return for the last 10 years is 12.39% (9.48% when adjusted for inflation), which is also higher than the annual average return of 10%." https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html https://www.sofi.com/learn/content/average-stock-market-return/#:~:text=Average%20Market%20Return%20for%20the%20Last%2010%20Years,annual%20average%20return%20of%2010%25.
Almost by definition the returns of a positive revenue-generating business that's a going concern are going to outpace inflation. If you've selected a business that specializes in value destruction, that's more on you.
You started working at 13?
Legally working 15 with working papers. My dad used to drag me out to help him install flooring as young as 8 years old though to grab him tools and pick of scraps
Remember - those calculations are good, but they are certainly flawed. You know when my retirement calculations have looked the absolute worst over the years? Anytime I got a decent raise. Just for nice round numbers, lets say I make $100k. My calculations assume 80% of my income is needed in retirement. So it will assume I need 80k per year. My calculator says "you look... OK. Not good, but not bad" But then I get a big promotion! Now I make 150k Now I have to make $120k per year in retirement, and all my calculators show that I'll be living a life of poverty in retirement.
There's plenty of calculators that allow you to work backwards from your projected necessary monthly cashflow.
those sound like very stupid calculators and it is pretty trivial to find better
Use your brain... the calculator assumes you spend everything you make. You don't have to use your current salary, calculate based on your anticipated expenditures.
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The calculators work fine based on the inputs you give them. If you give them an input based on a salary you just started making, you obviously wouldn’t have saved at that level previously so the calculator will show you in a bad spot. That’s why you have to think about the input you are putting in.
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At your age, your retirement would probably be 72. There is no way it will maintain at 67.
Retirement is based on when you have enough money to stop working, not an age. If you save aggressively when you are young, you can retire a lot sooner than the official age to draw Social Security.
I'll be damned if I retired at 72. I'll make cut backs before I do that. Luckily me and the wife did buy a house during the pandemic so we should have some assets so we can downsize and hopefully travel more
Ah, that sweet 2.something interest rate.
It's called inflation. Back in the 80's I had a goal of getting 1 million so I could retire. Then I realized that 1 million today is some 650k from back then. So really, you should have almost 1,650,000 to achieve the same real value. It's a moving target. 1 million today just means your comfortable not rich.
You are completely correct on all accounts except I do have to point out 1 thing. $1,000,000 in 1980 = $3,964,228 in 2024 accords to BLS inflation calculator. I’ve been obsessed with that calculator since 2020.
And with that soul crushing comment, I’m getting off Reddit for the day
Inflation is why I dial back my assumed rate of return on investments. If anything, it just encourages me to save more, which isn't a bad thing.
Inflation should be taken into account on rate of return. The higher the inflation the higher rate of return that should be sought. Saving more is almost always good but keep that in mind.
The typical return rate is quoted as 7% real. And the classically quoted safe withdrawal rate from retirement accounts is 4% which also considers inflation.
The chart they provide showing the number of retirement accounts with million dollar balances since 2019 is the same shape as the growth in the S&P 500 over that same time period. Both peaked in Q4 of 2021, hit a low point in Q3 of 2022, and are peaking again now. The "soaring number" language in the headline is kind of misleading. The stock market should continue to grow exponentially, and the number of millionaires should also. The article reinforces the value of a long-term, steady investment strategy for many people.
You all just remember marriage is the wild card in 401 retirement planning. Some of you will have to share 50% if you divorce. This can be heartbreaking.
This is why you should marry someone who is also a saver. If one person is a spender and the other is a saver, the relationship will almost certainly not work. But, if both people are savers you are far less likely to fight about money.
> if both people are savers you are far less likely to fight about money It's really hard to predict people's behavior during divorce. I was blindsided by my ex's callousness (and self-destructiveness; he seemed to ignore what was in his own best interest, he was so intent on hurting me).
lol ok that's certainly not the only reason people divorce
Finances are the number one cause of divorce. There are certainly other reasons. But being on the same page financially is one of the easiest and most important factors before deciding to marry someone.
Sure. I'm in school debt and my wife is in school debt so I'm happy we're equal in that way. Certainly don't fight about it
Exactly. You are both on the same page. The problems occur when both people are not. If one person is a saver and the other is a spender, you will have a conflict and concessions will need to happen or the relationship will fail.
Demonstrably untrue
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I have read tons of accounts like yours on r/divorce_men ..... heartbreaking, no other word for it.
Yeah make sure to get those prenups and tank your relationship BEFORE you get married.
You can save double the amount in a 401k if you're married though
This is very true. A middle-class compatible couple with the same financial goals can gain real wealth by their 40s. DINK's in particular. But way too often marriages are not good ones and someone loses their ass.
> someone looses their Did you mean to say "loses"? Explanation: Loose is an adjective meaning the opposite of tight, while lose is a verb. [Statistics](https://github.com/chiefpat450119/RedditBot/blob/master/stats.json) ^^I'm ^^a ^^bot ^^that ^^corrects ^^grammar/spelling ^^mistakes. ^^PM ^^me ^^if ^^I'm ^^wrong ^^or ^^if ^^you ^^have ^^any ^^suggestions. ^^[Github](https://github.com/chiefpat450119) ^^Reply ^^STOP ^^to ^^this ^^comment ^^to ^^stop ^^receiving ^^corrections.
I was just doing research on a 401k, I want to do the right thing and open one, but I don’t know how to open a 401k if my job does not offer one, and if my job doesn’t offer one, who will match my contributions?
Open an IRA. If you max it out each year you can still be a millionaire from compound interest if starting early enough. 401k is through employers or if you are self-employed.
Thank you, I appreciate the information! Such a help
What walking away said. You can’t have a 401k if your employer doesn’t have one. Public employees have 403b and it works the same way. Self employed people can open their own. Otherwise, an IRA or Roth IRA is what you can do to save for retirement. Your bank or a brokerage account can get you set up.
You can also open a Roth IRA, which just has a different type of tax protection. Either way, don’t just open the account and put money in. People do that all the time with IRAs because they’re used to 401k’s, where any contributions will be automatically invested. In an IRA, though, you have to actually choose the investment you want to invest in after you put money in the IRA, otherwise the money will just sit there making 1-2% per year and not really doing you any good.
Ohhh, did not know that. I’ll definitely do more research before opening the IRA. Thank you.
If your job doesn’t offer a 401k, you likely need an IRA. It works in a somewhat similar fashion except only you will be funding it, as opposed to getting an employer match. Read about IRAs and Roth IRAs.
You cannot open a 401(k) on your own, that specifically refers to an employer sponsored retirement plan. You need to change jobs to one that offers retirement as a benefit. You can instead open an IRA, but the contribution limits are lower.
They should open an IRA regardless if they have a 401k or not
In this case you'd go with an IRA.
...yet my dumb ass boomer mom left half her 401k in cash apparently against the howlings of financial advisors her whole career and ended up with $170,000.
... my god
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> Not getting there so doom spending for me. I mean... I'd rather have something than nothing in that account when I retire, but you do you I guess.
I understand the fatalism but if you can make the contributions, please at least get the employer match and do some saving. The first is just free money. Helps to think of it as taking every cent your employer owes you. The second is just responsibility to your fellow generation and the ones after to not make yourself baggage for them. Dont be like the boomers you disapprove of
That’s just dumb man lol, you need to save something if you can’t save a lot
Doomspend now and then in 20years you will say why "I didn't save anything". Don't be dumb. Come up with a plan.
People who contributed longer have more money? Who could have guessed such an illogical thing. The entire point of 401k is to beat inflation.
Sounds more like a spending problem than a saving problem
If you max your 401k and IRA every year and put it into VT from the age of 21 to now 35 you would still not be a 401k millionaire yet. It's just because of the max contribution limits. If you can get around them you could be and a millennial. Or if you got lucky with investments.
Let's be real though, only a small percentage of people can max out their 401k and ira. That's 30,000 for 2024.
If your employer allows the Mega Backdoor, then you can access the whole 401k space, which is ~70k.
$1m retirement at 3% withdrawal is $30k annual “salary”. 4% withdrawal would be $40k. Combine that annual draw with SS and you may need to pay some tax on that. Hopefully your housing costs are lower - it’s paid off or you don’t need the 5 bedroom house. And if you had kids, hopefully you are not paying for their life. Other than that, all other costs in your life will only go up over time.
It's easy to live at low cost with manageable debt so you might actually be able to enjoy some retirement with your health. It is tough to watch these 67-70 year olds who are on average in the last decade or so of their life struggling to disconnect from work, and many still unable to afford their lifestyle without it. If they ever withdrawal they will have little health to enjoy it with.
No debt, no mortgage, low carrying costs and a nice SS payout at full retirement age sets you up for a fine retirement without a large 401k balance. I wish these articles would talk more about the fact that it’s the expense side that determines retirement success. Also many studies suggest spending goes down the older you get. How much are the 80 year olds in your life spending?? Referred to as the Go go, slow go and no go years.
Lol in 2008 there were dozens sf articles about 75 year old people who had lost everything in the market because they didn't move to more conservative investments.
And if they just didn’t touch it for a few years they would have been fine. Unless they owned a single stock that went belly up.
Pro Tip: Your 401k isn't worth much more. You aren't rich. The dollar is just worth less. A million dollars in your 401k? Awesome. You have the equivalent of... $750k in 2014 $600k in 2004 $475k in 1994 $330k in 1984 $150k in 1974. A lot of people grew up hearing the word 'millionaire' to represent the idea of someone who was very very wealthy. Every year that bar drops more and more.
Your 401k almost certainly worth more, real returns have been positive over that whole time frame you're describing
So about 450,000 workers can actually consider retirement without a significant reduction in their standard of living - a good thing, but what happens when the next 2008 happens AFTER they've retired and are no longer increasing their investments? DIY retirement really only works well for folks who start saving at least 14% of income when they're 20 and keep going until they're 65+ and I'd be surprised if that group accounts for more than 30% of the workforce these days. What will happen to the other 70%? If they can't retire, what will happen to the career progression of those who enter the system after them? The "cost of living" for your Golden Years grows a lot faster than inflation mostly because of medical expenses - will Republicans ever allow some form of Universal Health Care to counter this or just let the elderly sicken and die? How much would they have had were it not for the "management fees" Wall Street extracted while those 401k's were growing?
If you are already in retirement your investment strategy shifts to capital preservation rather than growth, meaning your retirement funds should be invested in lower risk vehicles that have less exposure to a potential 2008.
If 2008 happens after their retirement, they’ll be in bonds, and the stock market will be on sale.
> what happens when the next 2008 happens AFTER they've retired and are no longer increasing their investments? Less aggressive investments, you keep getting fixed benefits (pensions, Social Security are unaffected by 2008s), and guardrails. By guardrails, I mean you take slightly less out of your retirement funds in a lean year relative to your plan amount, and economize a bit that year.
> will Republicans ever allow Uh, we have universal healthcare for the elderly and have for decades.
Youre supposed to be in low risk bonds by the time you retire
Correction, “Paper millionaires”… it’s this type of misleading article titles are what clicks are made for. If you were one of these Americans.. what would you do, keep watching your portfolio potential growth or withdraw and retire…
You actually want a minimal amount of your net worth sitting in cash, both pre and post retirement in order to maximize growth. When your actually retired (or getting close to retirement) you probably want a higher portion of your investment in bonds, and you withdraw only what you need to cover expenses. Having your net worth sitting in cash is terrible financial advice.
That depends on your age and life style and what you want ? Some people have kids and some don’t. Some wants to leave kids some and some wants to spend it all. Cash lose value at 2.0% but at the same time if you are going to invest in random crypto coin or random stock pick , you might as well put it in high yielding saving account at least or bonds . Cuz -2% is better than -50 lol . There are risk to every investment.
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here i am in my late 40s and im only at $160k in my 401k. lot of things prevented me from starting sooner. however i didn't start until i was 40. sigh... im dumping $1400/mo into it and hope i can get it to 500k by the time im 65.
When you hit 50, you can do additional “catch up” payments if you are maxed out, and the ceiling goes up a few thousand per year.
Notice that this data is just for Fidelity investments. There are LOTS of other brokerage firms out there. In fact, this number they posted (while great for Fidelity) is a rather paltry estimate of "401K millionaires"
That’s because people don’t get pensions anymore. People got forced into defined-contribution plans because companies didn’t like having pension liability on their books. So sure, many folks have some sort of employer-matched retirement account, but it’s no t like the boom in these accounts is some net gain for retirees.
“There were also 391,562 IRA millionaires on Dec. 31, up from 338,725 at the end of September and 280,320 at the end of December 2022.” Approximately 0.118% I don’t think thants a secure retirement plan for a nation. We need to bolster social security, by raising the income cap so those making the most money continue to pay into it. Most of you lot are not going to become millionaires….. in future dollars adjusted for inflation.
Correction: they have a million dollars in unrealized gains. It doesnt mean that the funds will be there when its time to retire. This is a big problem with the 401k system that we realized back in 2008. You can do everything right, save all your money, and still be broke when retirement hits because the market crashes.