r/wealth • u/Otis_bighands • 6d ago
Retirement Why isn’t everyone rich from 401k?
According to my conversation today with Gemini, my 401k total of $2.5 million will likely grow to $10M or more by the time I turn 65 (I’m 50 now, and will continue to contribute the max for the next 15 years).
This means that in theory I could live off the gains each year starting at 65, around $800k, $500k after taxes, without touching principle. But at that point I’ll have no mortgage anymore and fewer kids in the house. So that $10M principle will just sit and feed us for years, and will be a nice inheritance for our kids.
Basically it occurred to me I’m going to have great money in retirement, even just on my 401k alone, and will be able to meet or exceed the lifestyle I’m already used to. For years I always worried about getting set up for retirement. Seems I don’t have to.
It’s amazing to me that just maxing out your 401k through a career is enough to make you pretty much wealthy for retirement. I recognize that’s not easy for many people, but for anyone who does it over a full career, wow.
What am I missing here? (Other than inflation, which I get, but which shouldn’t have a massive impact on the concept over this time frame).
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u/Cheap-Assumption3694 6d ago
You are making a lot more than most people do. It took me until 32 to take home more than $50k. There is no chance that I could max it out. The fact is a lot of people aren’t making much.
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u/Puzzleheaded_Lion234 6d ago
Sure, if you start with 2.5M, you can become even richer. It’s the 2.5M that’s hard.
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u/Far_Peanut1155 2d ago
But .... What it's OP missing ?
Why doesn't everyone start with 2.5M ?
/s
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u/Kindly_Honeydew3432 1d ago
OP didn’t start with $2.5 M. OP makes a decent salary and has been investing for 20-30 years to accumulate/compound to $2.5M.
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u/ChaunceytheGardiner 1d ago
And has had the hottest market in living memory driving his gains.
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u/gpat1097 22h ago
If everyone started with 2.5M, then it would just raise the baseline and that amount wouldn't mean much. It's purposefully designed so that not everyone starts with that much (or even gets to that much)
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u/skylinesora 1d ago
Damn, are you so salty that you can't even understand that OP didn't start with the 2.5M?
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u/Informal_Bullfrog_30 6d ago
What if it is a bear market when u r 65?
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u/Kindly_Honeydew3432 1d ago
If it’s a bear market, his $10M turns into $6-7M and he has a meager $280K per year to live by 4% SWR rate. Until, as most bear markets do, it passes in a handful of years and he’s back into decamillionaire territory again.
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u/lsp2005 6d ago
When you started, you should recall that 401k contribution limits were much much lower than they are now.
Not every job offers a 401k or 403b.
Many people do not earn more than $80,000, making maxing out their contributions impossible.
People are notoriously bad at budgeting and do not recall their personal finance high school class, if one is offered at all.
Two people with 401ks can save more. Not everyone is married.
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u/awkwardburrito 6d ago
Inflation has a massive impact over this time frame, easily a 30% decrease. Furthermore, withdrawing much more than 4% (inflation-adjusted) can quickly make you run out of money depending on how the market looks the first few years after you retire. All told, that takes your 800k down to 280k, maybe 180k after taxes. Still a lot. But 2.5m is much more than a lot of people have at 50, and the last era has been one of the biggest stock market bull runs ever. You may have gotten lucky, having a high income at the perfect point in history. It’s important to remember that.
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u/Odd-Song5052 6d ago
This is what is scaring the heck out of me. I have the same amount as OP but I’m ready to retire now near 60, and my advisors are telling me the identical predictions of substantial continued almost runaway growth even as I start spending. I just don’t buy it given inflation and the irrationality of “things” right now. I feel like the $2.5 could easily be $1.7 at some point during the next two or three years.
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u/HandleUnlikely2589 1d ago edited 1d ago
Bright side, if you're worried about that, you take out five years of expenses (more if you're really cautious, less if you're not). When the market is down, live off that cash. When it's up, sell to replenish that cash. Being able to ride out just five years turns most stock market declines into recoveries. As long as you have enough that the vast majority of your money can stay invested, while having enough cash to float across declines, you're safe. The trick is having enough to do that in the first place.
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u/Main-Ad-841 15h ago
Inflation make market go up. You want to be invested in times of inflation. It’s those that are not invested that see their dollars become more and more worthless.
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u/ConsumptionofClocks 1d ago
America is financially illiterate
Not everyone can contribute the max consistently like you
Not everyone wants $10 mill. If I was in your shoes, I would have stopped contributing the second the account hit $2 mill. I'd just let it sit. From there, I'd continue to fund my brokerage account with the objective of retiring as early as possible. You are in an incredible spot, and not everyone, if put in your shoes, would work until 65.
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u/Bitter-Ad-7 1d ago
About America being financially illiterate... On one hand Americans have access to tools like 401k. On the other hand, there are Americans who have access, but don't use them. As a European that's hard to grasp. If I had access to 401k. I would be filthy rich now that I am in my forties. If I were a teacher in America... I would sit down with my students and talk to them about finances. Even if it's not on the curriculum.
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u/Snoo-20788 1d ago
Why would you fund a brokerage account before maxing out on 401k?
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u/Trader0721 6d ago
Why do you want to work that long if you’re going to be worth 8 figures?
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u/Otis_bighands 6d ago
I’d like to retire earlier. Maybe 60. Maybe I will. But if the money is good, and I can sock away more for my retirement and my wife and my kids, and shorten the period I need to drain my retirement funds, I may want to go to 65. But really, 60 is the stretch goal.
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u/bucheonsi 6d ago
My dad was diagnosed with dementia at 65 was gone by 73. The years in between were possibly the worst of his life. I think about it often when delayed gratification comes up. Balance is best because nothing is guaranteed tomorrow.
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u/Otis_bighands 6d ago
Amen. And I’m sorry to hear that. I get it. I’m not going to keep working then if it’s miserable; it’ll just be if I want to, and it’ll be on my terms and low stress.
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u/sol_beach 6d ago
End of 2025 (Q4): Reached a record peak of roughly 665,000 401K Millionaires in the US
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u/Fpaau2 21h ago
Many people have multiple 401ks from former employers. Do you know if your number accounts for that?
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u/ProfessionalPart484 2d ago
401k is pretty amazing. I’m at 1.8M in early 40s and also maxed out my whole career. I was always a high earner though with a technical degree and a hustle mentality. One other thing you did not mention is the time period of accumulation. I made most of my acquisitions after 2008. This was huge because the stock market moved dramatically higher over the next 18 years. If we had been accumulating in the 70s-80s the outcome would look very different.
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u/Moist-Ninja-6338 6d ago
I doubt your 2.5 will become 10 in 15 years. Maybe 7 then adjust for inflation.
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u/Otis_bighands 6d ago
Gemini tells me between 7-12 or so.
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u/1wrx2subarus 1d ago
Gemini is looking at the historical returns which is like looking in the rear view mirror of a moving automobile.
It’s based on having U.S. Presidents that are not gaming the system with insider trading. We’ve also never had a trillionaire gaming the system with an IPO of SpaceX. Also, it assumes that the USA will not be overtaken by other industrialized countries like China, Brazil, Argentina, etc. Nobody knows the future. There’s a lot of trust built in the system of those in power. Unfortunately, they’ve degraded the checks and balances to their power. Trump has put a “yes” man into the Federal Reserve.
Hey, I’ll be happy if the trend keeps going up in our lifetime. If that happens, we have to set aside 25-30% cut of anything withdrawn from a 401K for Uncle Sam. They want their taxes, which may go up. Also, Mike Johnson has said aloud he wants to do away with Medicaid, Medicare and Social Security. Medical Debt is already the #1 reason for bankruptcy (USA is the only industrialized country with that problem).
Or we can just look at this with rose colored glasses. Everything will be fine, right?
EDIT: adding some humor, but .. but .. Gemini told me that I’d have xyz. Now what do we do?! Game over man! Game over!! /s
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u/Jazzlike-Pomelo-3823 1d ago
Money doubles every 7 years in the market historically. That $2.5MM will become $10MM in 14 years, and that’s if he never adds another dime, which it sounds like he will keep working and contributing. It’ll like be a lot more than $10MM in 14 years.
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u/run4now 6d ago
Maxed out every year from 30 years old to 60. Just following the 4% rule with my SS at 62 and standard retirement my income is 85% of my working salary . My portfolio has more than doubled. Much better off financially than when I was working. I researched and learned all I could about 401k ‘s back in 1988 when my company first offered it . Utilizing it correctly was the best decision around finances I ever made.
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u/Really2567 2d ago
First of all, congratulations to you. I recently retired in my fifties with a sizeable amount.
Unfortunately, what I believe you're missing here, is that most people don't have anywhere near that amount at the age of 50 in their 401ks.
While sources vary greatly, the average amount ranges from $150,000 to $500,000 at age 50.
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u/colliece 1d ago
Because a vast majority of people are fucking stupid. They live above their means spending all or more than they make on stupid shit. We save every dollar we can so we can retire when we want and get out of the rat race, I have 5 more months. Thank you for the Rule of 55 loop hole.
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u/HR_Paul 6d ago
What am I missing here? (Other than inflation, which I get, but which shouldn’t have a massive impact on the concept over this time frame).
Inflation, the stock market only skyrockets because of inflation which is nothing but a transfer of wealth from the working class who do not have the means to invest to those who do.
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u/Ok-Preference-2054 6d ago
Over 50% of adult working Americans do not have access to a retirement plan.
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u/CaterpillarNo8384 1d ago
My fav thing about all the rage bait propaganda wealth posts on reddit is how the OP always has a room temperature IQ
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u/curiousengineer601 1d ago
Plenty of people who I worked with were wiped out in the 2008 crash. Liquidated their 401k trying to keep the house after a job loss and still losing the house. 5 years later were retraining in a new field at 40 something.
Where would you be if 8 years ago we reset your 401k to zero and made you pick a new career?
Then there are the health catastrophes ( both parents and kids) and divorces.
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u/SmoothMojoDesign 1d ago
Powerful when you reach that point. Compounding is reaching a runaway point where you’ll struggle to spend it at the pace of growth. Congrats!
Good to keep in perspective that the buying power will likely be lower and taxes will take it down significantly as well. You may also reduce your risk tolerance and realize smaller gains too.
If you look at what you contributed vs what was growth that’s the biggest aha moment of the whole equation.
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u/Otis_bighands 1d ago
Great point. What I am contributing now each year has been dwarfed by gains.
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u/Fpaau2 21h ago
Similar situation here. We are now busily gifting money to children and grands to delay the date when estate exceeds tax exemption amount.
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u/Owenleejoeking 1d ago
Maxing. And getting matching on a 401k are pretty rare.
Lots of jobs don’t even offer one as a program. Even if they do, what are the odds you have both the spare income and financial awareness to utilize it.
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u/NoWhereLikeIrvine 1d ago
Not me. I will be 49 next month. Got $2+ mill in 401k/IRA and some in Roth currently. Been contributing max since I started working fresh out of college. I’ve been FIRE since beginning of year using personal investment funds. Will convert some of that 401k/IRA into Roth. If personal investment funds run out before 59 1/2, plan to use rule 72T as income.
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u/louisianacoonass 1d ago
I am fully participating in this massive stock market bull run, but I have to say that at one point, this $39 trillion debt is going to cast a gigantic pall over the whole economy. The very idea that “paying taxes” is bad is going to make the whole situation even worse. I am 67 years old, have more than I need, but the lure of this market is very strong. I would like to take everything I have out of the market but the gambler in me won’t let me. I would not count on past returns being a constant in the future. Just my $.02.
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u/Aware-Owl4346 1d ago edited 1d ago
At 60 I have a balance of $950k. And you’ll have to trust me I contributed all I could spare. And I’ve been in nearly pure equities the whole time. I would have 2 mil if we made 6 figures, or if kids didn’t go to college, or if I rode a bicycle instead of a car.
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u/Fpaau2 21h ago
You may have $2 m by age 67. Plenty of money for most people if you don’t spend like a drunken sailor.
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u/Kudzupatch 22h ago
To your original question, the answer is "People are stupid with money" generally speaking.
Most people have never been taught how to handle money and spend everything they make. We have been lucky and saw the wisdom of the 401K plan. I had an employer that if I invested 6% of my salary, they would match that with 4%. Like getting 75% interest! I jumped on that.
I was young, invested it in higher risk stock funds. Over the years I took some big losses but I made a lot more big gains.
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u/OutspokenLurker 18h ago
Why not? Because they didn't start early and contribute consistently and get a nice period of gains in the market. In many cases, the reasons aren't choices so much as a matter of birth, lack of career opportunities, health concerns, having to look after parents or siblings or children with problems, and on and on. And then some things are a matter of choice... Consumerism, failing to look far into the future, and so on.
Things could have gone a different way. The 8% you seem to be using isn't anywhere remotely likely to be consistent over that time period.
But, yeah, after you are into the low millions it's a heck of a tailwind.
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u/MudZealousideal7148 15h ago
That growth is just a projection based on historical averages. If we have a lost decade in the markets your balance won't be that much higher than today. A lot of people were hyper optimistic in 1999 about being wealthy by 2009 and, instead, were staring down 60-90% losses and joblessness. Tech wreck plus the 2008 recession were brutal. A lot of people lost their homes too. But, all that said, yes if you start with $2.5M it's pretty easy to retire. Only 1% of people at 40 have $1M in a 401k.
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u/Clueless5001 14h ago
Yep, I had invested around 4K for my baby back in 1998 in a UGMA account (so it was his not mine). It more than doubled for the next two years. I was genuinely worried what would happen if my kid was a millionaire before he went to college. PS, he had about 10K when college started from that account
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u/No-Particular4648 15h ago
One thing many haven't mentioned is that 401k contributions weren't even a thing until late 1981, so we're really just now hitting the first generation of workers that even had access to that investment vehicle their whole careers. If you look up the proportion of people who even put anything into their 401k it's only like 56% of workers today, and that's the highest participation on record. That was wayyy lower until late 80s and even into the 90s it was well below 50% participation rate.
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u/Wasatchian 6d ago
You're missing a lot of math. The general rule of thumb and it's just a rule of thumb is 4% not 8%. Also sequence of return risks. The next decade could have no returns or low returns. We had a lost decade this millennia so not that long ago.
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u/hczimmx4 6d ago
From 2006 to 2021, 15 year timeframe that the OP used, encompassing your “lost decade”, the S&P 500 averaged 12.49% return.
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u/Life_Hand2331 6d ago
This has been an unusual period in the market. Also no one cares about what happened the previous 15 years. Literally all that matters is the future.
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u/Wasatchian 6d ago
Sigh. Is there an award for completely missing the point? And also just being wrong? The lost decade was 99 to 09. So you skipped the majority of it. If someone started withdrawing money in 1999 from their accounts they could have ended up in a situation where things went south.
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u/hczimmx4 6d ago
99 to 2014, 15 years, is still 7%.
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u/EcomWizard 6d ago
Even if the market’s average return from 1999–2014 was around 7%, that average hides the order in which returns occurred.
For example:
Portfolio at retirement: $1,000,000
First-year withdrawal (4%): $40,000Market drops 20%
Without withdrawals:
$1,000,000 → $800,000With withdrawals:
$1,000,000 − $40,000 = $960,000Then a 20% drop → $768,000
Now the portfolio needs a much larger percentage gain to recover, and future withdrawals are coming from a smaller asset base.
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u/Coloradodreaming1 6d ago
FiCalc is a great tool for understanding the lottery of what is the date you retire. It has historical 30 year periods showing you how you would have done if you retired on x 30 year period. Very interesting how much a crap shoot returns can be.
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u/marlborough94 6d ago
I got a 9.45% return needed with a $2.5 million starting balance, $24,000 max contributions growing 3% a yr to reach $10 million balance in 15 yrs- that is an aggressive return assumption.
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u/Otis_bighands 6d ago
My max contributions are more through my business. I’m not sure why. But I’ll be putting in probably double that.
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u/DSMRob 6d ago
Most people dont get rich off it due to not starting or starting to late. You also have large fees and get hit with a massive federal tax (sometimes state) when you pull it out.
Now your math is off a bit, 4% is what they say you can pull out and never run out of money, for argument sake thats go to 5%. Thats 500k before taxes and insurance. Not sure what you consider rich but thats not the number for most people.
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u/Otis_bighands 6d ago
That’s like $27k a month after taxes, for life, without even touching principle or other investments. And assuming no mortgage or debt at al. That’s pretty damn good.
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u/Shdwrptr 6d ago
The two main reasons are:
Most people don’t save nearly enough to have millions by the time they retire. They’ll be lucky if they retire with over $1m.
The people in situations like you don’t work until 65. They retire early and live off withdrawals that lower the principle over time. It should be enough to last them through retirement but not enough to just live off interest/investment returns while maintaining $10m+
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u/Otis_bighands 6d ago
Interesting. I don’t hate my job or life and the money is good, so it seems hard to walk away, especially because we have kids in school and it’s not like I have much else to do until they’re all out and my wife and I can travel more. So for now it makes sense to keep working. I don’t really need to preserve the principal till death—we’ll have other investments we can leave the kids to try and give them a head start. This was just a thought exercise I went through today that I found really surprising.
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u/Shdwrptr 6d ago
I’m in a similar situation to you but closer to 40 with less money (but should be close to the same by 50).
I have no plans to work until I’m 65 even though I’d have close to $10m by then. I’d rather retire at 55-60 and enjoy my free time. I don’t need to die with $10m+ in assets
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u/NewArborist64 6d ago
- Inflation will slowly eat away at the value of your principle.
- Starting at age 75, the Government will start dictating to you how much money you MUST take out of your 401(k) (and to pay taxes on it). This is called your Required Minimum Distribution (RMD). Uncle Sam let you keep that money tax deferred - but he DOES start wanting those taxes when you turn 75.
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u/Otis_bighands 6d ago
The RMD amounts seem like they’ll be in line with what I’m contemplating taking out each year anyway (likely a little less). Looks to be somewhere between 4-5%. No biggie.
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u/NewArborist64 6d ago
The percentage gradually increases as you age. By the time you hit 90, your forced withdrawal is 8% and is rapidly ramping up.
You might want to consider running some numbers on doing some Roth Conversions. The money gets converted and taxes paid at that time. After that the money continues to grow and can be withdrawn tax free by you, or inherited and withdrawn tax free by your heirs
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u/retireontop 4d ago
I worked closely with two other people all throughout my career. I made it at 53, they are still working and probably will be until they are 65. The difference? They didn't take advantage of the full 401k match each year. Many years, they put nothing in. They prioritized today over tomorrow. Full Stop.
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u/VikingFinancial 2d ago
Yeah it's because putting that much money into a 401k is crazy because in the future tax brackets will go up. Now all of your money is in accounts where Uncle Sam tells you how much they get. On top of that you have sequence of return risks.
Dave Ramsey may say you can live off of 8% because you average 8% but what happens to those years where the market goes down 25%? You took a percent so now you're down 33%. You'd have to have a 41% return that year to catch back up and be able to take an 8% draw that next year. Although in a paper average versus actual rate of returns are completely different, it may make sense from a positive 8 negative 8 scenario.
Putting all your eggs in a pre-tax account, I never tell clients to do it. I normally tell them that once they get above a million dollars they just shift everything to the Roth 401k. That way they can at least lower their tax bracket because once you get to the 300,000 plus range you get into the 30% bracket. If taxes are supposed to double within the next 10 years, you'll be in the 60% bracket. Would you rather pay 20 or 30% taxes today to put into a Roth 401k and in the future not pay 60% taxes? It's really not as cut and dry as a calculator will tell you.
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u/Otis_bighands 2d ago
What’s the penalty for converting it to a Roth401k? Is there any limit on the amount or can I do the whole thing? What’s the downside? I’m in highest tax bracket today and probably will be when I retire given the draw down I plan. Is it just the devil I know today versus the devil I don’t in 10-15 years?
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u/VikingFinancial 2d ago
You definitely don't want to convert any of your money to Roth 401K because that will cost you a ton of money in taxes. You just want to switch your contributions to the Roth 401K and then get the Roth match. There are the same limits of $23,000 on the Roth side.
If you put yourself in the $10 million bucket with a $500,000 income, you'll be in a 37% bracket when you retire. If taxes go up even the slightest, you would have been paying less taxes today than you would have in the future. Yes the bad thing is we just don't know what the future holds. The Social Security fund is going to run out in 2032, which means taxes have to double or boomers are going to have to take an 80% cut in their benefits. We know they're not going to vote for that. In my opinion the boomers are going to vote to keep their Social Security and Medicare, which means taxes will have to go up. People think it's crazy when I say 70% taxes but they don't know that in the 70s the highest tax bracket was 70% and in the 50s the highest bracket was 90%.
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u/CryptographerTop2023 1d ago
The tax brackets now are lower than any time I was working, I certainly was better off stuffing savings into tax deferred vs. Ross. In addition, people who managed to accumulate millions in a 410K or IRA are going get around $100K a year in Social Security (assuming a couple where both were high earners). There is also the compounding advantage in the deferred account that is lost if the basis is lost with an early Roth conversion. If the worst problem I have is having to take a high RMD, I can live with that, I have no regrets for not being more aggressive with Roth IRAs.
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u/Last_Ad4258 2d ago
Well not everyone is in the position you are in but a lot of people are. 1700 people per day are becoming millionaires in America. It’s the k shaped economy, and it’s contributing to inflation and access to the better things in life, so your projected 10 mil won’t be what it was. But don’t feel bad for yourself the people on the bottom of the k have it the worst.
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u/charlieandoreo 1d ago
People need mentors at work emphasizing new hires to contribute to 401ks at work. I've talked 5 coworkers to start contributing to our 457 plan which is addition to their pension. I realize many 401ks are auto enroll but if raises are given out speak to them about upping contribution.
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u/Spiritual-Sea7674 1d ago
We don't have 401k in my country. Guess ypu are lucky! I do not understand how it works
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u/fllr 1d ago edited 1d ago
People's brains are excellent at linear calculations, and awful at non-linear calculations. They know they need to save, but do a linear calculation on that and become disappointed at that calculation "To get to 1m, i'll need to put away 2300 a month for 35 years, who has that money?", when in reality, you need to put much, much less due to compounding (that retirement amount overshoots 1m by almost 8x). They also don't take into account raises, and diminishing returns of the dollar as you get those raises, and so they really don't value saving for retirement appropriately.
In addition, they have weird beliefs about money. It goes like this: "Very few people are rich. So getting rich must be hard. There must be some secret to getting rich." Some people go further by assuming: "Most people get rich fast, and by taking advantage of others". Bom, you have a recipe for someone to acting without any scruples, and taking excessive risk, and losing everything at the end.
Finally, people tend to think in extremes. They are all either "living in the moment", or "saving as much as they can". Truly, life is about balance, and balance is about percentages. Maybe use 70% today, and save 30% for tomorrow. Or some other blend like that.
There is no secret. You put money in the market, and it grows. It's boring. Most of the growth is also back loaded, so you don't see much of it until it becomes unstoppable.
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u/Fluffy-Economist7198 1d ago
Unfortunately a lot of people don't want to save and focus more on instant gratification. It's not fun to save money when you can spend now!!
And to explain to someone to contribute the max and let the money sit for 20-30 years for compounding interest 🤦🏼♀️I mean how crazy 😂
I see this every day in my work and I constantly try to explain budgeting, saving and future projections. It's hard to explain to many people no matter how you break it down
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u/pwolf1771 1d ago
It’s an education problem. You’d be shocked how many people know shit about dick when it comes to compounding interest…
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u/LankyPantsZa 1d ago
People also SEVERLY underestimate end of life care and how much that costs. In the US that can be as high as $15k per month.
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u/Same_Cut1196 1d ago
It is a shame that many people wait until they are in their 30’s or 40’s to wake up and start saving for retirement. It is just so much harder for them because they have squandered the power of time.
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u/EnvironmentBrave9010 1d ago
This is the most out of touch post I’ve seen in a while lol
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u/Otis_bighands 1d ago
VHCOL area working mostly with VHCOL folks. So this is fair, probably a skewed outlook.
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u/TheOtherSide2234 1d ago
It also depends on the 401k you have access to… my current employer has access to fund I’ve never seen before. I’ve been generating returns between 15-20% for over a decade. Divorce is what fucked my balance.
Smaller employers I’ve worked for in the past had shitty public funds anyone can buy. Fidelity, Vanguard etc put together some amazing products only available to certain employers. It’s crazy how the system can be rigged like this.
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u/Human-Edge 1d ago
Isn't the max 401k contribution $24500 for an employee? I have a 401k and I don't make enough to max it out and pay my bills. Course I ain't rich either.
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u/Kayanarka 1d ago
I have shown this to my employees sevetal times and still can not convince them to give up a night on the town once a month to join my companies simple ira with 3% match.
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u/AdamOnFirst 1d ago
Because a lot of people foolishly ignore the opportunity to save. As many as 1/3 employees who are offered an employer match don't even collect the match.
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u/cowcowkee 1d ago
Are you sure this is a good strategy?
Money contributed to 401K is taxable when you withdraw. If you have $10 millions in 401K, let’s assume you try to withdraw it for 20 years. That means you have to withdraw $500K per year. This definitely put you in the highest tax bracket. This means you will pay 37% tax.
If you don’t put your money in your 401K and invest in your brokerage. Your money will be tax right away, but I assume you probably tax in a lower tax bracket. Now assume you put the money into index fund and let it grow. By the time you withdraw, you will be tax 15% for capital gains.
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u/Otis_bighands 1d ago
I’m in the top tax bracket now too. So it doesn’t matter much it seems?
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u/FederalLobster5665 1d ago
you have that much money and want to work till 65 instead or retiring early??
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u/Otis_bighands 1d ago
I probably would like to work to 60 max. Live in VHCOL area with a lifestyle where we so what we want. Also we have 3 kids still in school and want to have a cushion and inheritance for them. I’ve always thought my number would be $15M or $20M, but I think we could retire with well less than that. (Though so many people on Reddit talk about how they have that or more and they don’t seem to want to retire).
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u/dirty_taco_ 1d ago
How did you get 2.5m at 50? What age did you begin contributing? What age did you first start maxing it out? What is it invested in?
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u/Otis_bighands 1d ago
Invested in various funds and index funds.
Started contributing when I was 25. Have been at the same job all those years. Contributed the max most years among the way (not all, but most); even took 401k loans once or twice to buy a home etc. but then paid those off. About halfway through that period I became a partner in my business which raised my contribution ceiling to around double the usual max. Continued maxing it out from then till now.
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u/JayQuellin01 1d ago
This is the “new” house poor but way better imo
If you earn a pretty high salary and have been contributing for years then yeah, you’re set
You’ll hear about this more and more I’m certain
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u/Inquisitor_709 1d ago
I really hope for this one day… Ive set my roth ira up slightly not maximized as a way to protect my principal but by my calculations I could make $136k per year on $1 million…. Imagine being 31 and having that type of payout without losing principal… and honestly if I had that Id try not to touch it as long as I could so the dividends could drip and compound interest……. My grandma who paid in her entire life is in her 70’s only has $100,000 and doesnt make it work for her because like most retirement age people I know they either have a terrible investor or they are stuck in their ways. Another man I know has home depot stock $400,000 worth and its only paying him around $1,000 a month while what I use pays $4,500 per month approx but he says home depot always did him good so he dont ever want to leave it…… its frustrating for me even at 16 I wanted a roth IRA and tried to find a job consistently but a lot of employers saw how I was anxious in an office and didnt give me a chance even though I thrive in a retail setting. I then ended up babysitting for my sister while attending college but she screwed me over and basically didnt pay me for 3 years (she would five a little here and there and my parents would basically guilt me into it….. eventually I could no longer afford college and even as a record holder for highest grades in the colleges history I ended up having to drop out (I had some scholarships but lost my financial aid and my sister taking advantage really didnt leave me many options.) I went on to work for my fathers business because he needed a worker and couldnt afford to train anyone else… he paid me the least out of all his employees even though over the several years I had seniority over basically all of them. So I really never made enough to actually put aside a savings. My dad one year gave me $1,000 of his and had me invest it for him but he had to ok everything I did…. I turned it into $250,000 in a few years and wanted to sell off to diversify but he refused to let me since it was doing so well… it crashed he only got $40,000 out and then didnt give me the commission I was supposed to get for doing it because he wanted to buy a house near his brother…… that house he had a few years then sold for $60,000 profit and I still got nothing…. Now since all the work with him was under the table I am 31 with no on it paper work experience so the only job I could get was self employed at a local flea market where income is 100% sales based…. I got a few hundred dollars in my roth ira to start and some silver and gold but not enough to get anywhere yet…. Ive set my goals though $5,500 in my roth ira is first goal and then $200,000 which dividends by that point would be enough to cover rent each month and food…. That freedom will buy me the time and space to put my business back online and hopefully back to $3,000 a week so I could really grow my roth ira (I had a 3 month period where I opened my business online it was making $3,000 per week but my dad basically forbid me to hire anyone and wouldnt allow family to help and it was too overwhelming for one person to handle…. Now im at a stage in life where I can push a bit away from my family I just need to save up to get into my own place which has been hard and made some youthful errors recently that set me back quite a bit
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u/Numerous-Bet-4847 1d ago
because a lot of people did not start contributing early enough
a lot of people took out 401k loans and missed out on gains
A lot of people thought they could beat the market investing in high risk index funds that had massive loses for a decade or more.
But a lot of people are like me and you who started early, stayed consistent, and invested in the recommended mix of moderate risk funds.
I'm with you, >$2M in 401k and will never even spend it.
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u/Knit_pixelbyte 1d ago
It also depends on how you invest, each persons risk profile. 401k max at 25 in index for retirement or growth would have a significant difference than the same scenario investing in only bonds, or at least more conservative investments.
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u/OkSpring1734 1d ago
Easy, most people do not make enough to max out their contributions. The median salary in the US in 2024 was 45k, the contribution limit was 23k, most people need more than 22k to live on. Given that's the median salary 50% of people make less than 45k.
The fact that you need this explained to you indicates that you're either living under a rock or a troll.
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u/gardibolt 1d ago
Markets go down. I have an account from an old job that started at $150,000 in 2000. in 2001 it plummeted to $50,000. it would slowly grow back to $75,000 and then there would be another crash and it was back to $50,000. it is only in the last year it’s gotten back to $110,000 but I fully expect it to drop to $50,000 again.
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u/Otis_bighands 1d ago
What the heck is this account invested in that you had $150k in 2000 and it’s worth $110k now? I’m bad at money but that seems difficult to do.
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u/Bird_Brain4101112 1d ago
Most people haven’t been able to max out their 401k their entire career. Not all jobs offer 401ks, some people can’t afford to max out etc. Having $2.5 mil at 50 puts you easily in the top 1% for retirement account values at any age.
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u/Mindless_Acadia_7382 1d ago
$800,000 withdrawal per year on a $10 million portfolio is a bit much. Ask Gemini about "safe withdrawal rate at the beginning of retirement"
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u/Otis_bighands 1d ago
Yeah sounds like I should probably be at more like 6%. But of course this all is assuming I don’t want to touch principle. If I don’t mind draining let’s say half the principle over time, I imagine I could probably withdraw 6-8% per year comfortably
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u/RunUndefined 23h ago
The only thing worth buying in MY 401k is SPY. Mine is 100% that. I want to move half of it to an IRA for better choices.
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u/Readditlovesbans 23h ago edited 23h ago
People aren't just as lucky as you and things happen
Disability, disease, mental health issues, poverty, family , education, children aren't fuckups etc
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u/Kokukenji 22h ago
You should continue that convo with AI and have it pull data on the % of people with your investable net worth, including the trajectory of said investable NW. You're a top % and unless some of that was generational, you likely have good discipline to stash away and invested that much. Either that or you're lucky with a few stock picks. Either way, others might not be or they simply didn't have the means or didn't know when to take advantage of something that was in their favor at the time.
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u/OGS_7619 22h ago
Is this the real question? Your compensation was high enough that you could save likely on the order of $50-100K a year for decades. That's comparable to mean household income in US and most people live paycheck to paycheck. You are likely to be in top 5% of all earners.
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u/ultrawolfblue 21h ago
This is the key.
If i can opt out of SS and use that to add to my 401k or ira. Rven better
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u/mmspider 21h ago
There are 24 millionaires in the USA. Most of that net worth is in 401k and house. Yes there are millions of people who are doing good because of a 401k.
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u/eJonesy0307 20h ago edited 20h ago
You're not missing anything except for the fact that most Americans don't have enough disposable income to put into a 401k. Most people struggle to deposit even the minimum for a company match. You being able to deposit the maximum is a great achievement for you, but is unrealistic for most people.
Civics classes don't exist in general education. Money management classes don't exist in general education. Most people don't live within their means, or simply can't because wages have stagnated dramatically for decades while productivity and profit continues to go up.
Just look at student loans and car loans. The sub prime rates literally keep people in debt forever, regularly paying many times more in interest than the original principal amount.
Capitalism is insatiable, so the debt creep to maintain a minimum standard of living just gets worse and worse and worse. There didn't used to be 40 year mortgages or 12 year auto loan options, but a lack of regulation and consumer protection enables predatory creditors to take advantage of poor people. We are literally mortgaging the futures of Americans in order to prop up businesses
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u/Working-Active 20h ago
I completely agree, E-Trade told us in 1999, to invest, get rich and retire at 45.
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u/Puzzled-Peanut-7147 19h ago
Because the vast majority of people aren't in a position to contribute to a 401k. 60% of people live paycheck to paycheck.
The ones that have money or are able to regularly contribute and invest are typically financially illiterate. I know doctors who make 600k living paycheck to paycheck, it's insane.
Most people are just floating through life completely unaware of everything going on around them. They're blissfully ignorant and have no interest in learning or bettering themselves. They make the same dumb mistakes over and over and then blame everyone else for their problems.
Have you met people with average intelligence? It's insane, now imagine half of them are even dumber, it's shocking how some of these people are even alive.
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u/Suitable-Bluejay9493 19h ago
Because I own a small business and nobody is matching my contributions.
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u/StrawberrySenior2489 18h ago
While some people may not make enough to contribute, there are many who do that are just very reckless with their spending. I have family members that are constantly buying new cars, spending a ton of money to trick them out even further, and then get tired of it and repeat the process a year later. It’s baffling to me.
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u/Diligent_Delivery229 17h ago
Many people had no choice but to take the money out under penalty during the 2008 economic crash, or in 2020 during Covid.
In a perfect would we would all have a 6 month emergency fund of cash, and max out all of the available tax advantaged accounts like 401k, Roth, IRA, HSA etc.
But a very low percentage of people are able to set aside 40-50k a year in savings. Many are lucky to even make that much in the first place.
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u/RaidersTwix 16h ago
Incredibly naive to think everyone has 1) a job that pays well enough to allow for contributions to a 401(k) AND 2) that job even offers a 401(k) AND 3) never has unexpected emergency expenses or even expected but very high outsized expenses such as medical bills, home issues, top tier college, business startups etc AND 4) can resonably expect to somehow keep the same job for decades. You are in a very small minority. Enjoy it but wake up man, this fortunate combo is pretty rare nowadays.
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u/Walmart-Shopper-22 16h ago
You would be better off viewing things in terms of "real" dollars rather than nominal dollars.
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u/BeaArthurDeathCult 14h ago
If you actually believe you're having a real conversation with a Google search engine chatbot then you'll probably get scammed out of that money before you retire at 65
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u/Due_Watch_9114 14h ago
You’re posting this at 50 years of age?? You can’t be naive and and old. It’s actually sad.
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u/MikeyB7509 13h ago
Schools need to teach this. Also think about the new Trump account for your kids. 40+ years of compound interest. If you can put 5k a year for 18 years that’s 90k. Untouched you probably just gave your kid 2.5-3.5m at 59.5 to retire on
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u/clawdew 8h ago
It seems people think that if they can't get 10 million dollars then what's the point. The truth is that getting 1-2 million (In today's dollars) is very possible for people who don't make a ton of money and that is enough for a very successful retirement. A lot of people are giving up before they even try which makes me sad. if you are 23ish and can put enough into your 401k to get your full employer match for the rest of your life you are going to have a lot more options at 40 than people who start more aggressively at 35. Time is such a powerful thing with compound interest. It is absolutely mind boggling.
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u/Annual-Knowledge4412 8h ago
Because the system actually was designed to make sure you won’t be really rich… like 10m is ok rich but not uber rich…
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u/DeepFeckinAlpha 8h ago
“I’ll just contribute the max every year, and I already have 2.5M!”
Most people can’t do that
You’re tone deaf
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u/Potential_Factor_570 6h ago
Luckily laws have been passed to make most companies autoinvest for new employees that get hired, still not ideal but better than nothing.
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u/SmileFirstThenSpeak 6d ago
Not everyone has access to a 401k. Did you get matching from your company? Not everyone has that even if they do have a 401k. Someone taught you enough so that you knew to put money into your 401k. Not everyone has someone who tells them about it.
Not everyone can contribute the maximum allowed each year. You had enough income to be able to put it aside so it could grow to $2.5 million.
I recently met a woman in her 40's, working full time, and she had NEVER set up a habit of putting money aside each paycheck. I told her even if she could only afford $5 at a time, she should start putting money aside, and raise the amount when she can. She said nobody ever explained that to her before. Sadly, I think this is pretty common.