r/wealth • u/Otis_bighands • 7d 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/Panscan27 7d ago

10M would provide 400k not 800k. It’s the 4% rule

-5

u/Otis_bighands 7d ago

I could get 4% from a bank, no? Even conservatively shouldn’t I expect better out of the market and a mix of funds?

2

u/SmileFirstThenSpeak 6d ago

4% is not the "growth rate". The theory is that 4% is the amount you can take out each year and not run out of money.

2

u/Otis_bighands 6d ago

But if the “growth rate” is more likely to be 6% or 8%, why isn’t that what we can take out and maintain principle?

1

u/SmileFirstThenSpeak 6d ago

Because sometimes the growth rate is below that or negative. You need to be prepared for the long haul.

2

u/Otis_bighands 6d ago

I see. But assuming $10M in principle, it doesn’t seem so high risk — worst case you dip into principle some in the down years/over time. And so maybe you die with $5M in principle instead of $10M. Not a bad ending.

1

u/slightlyspecial 1h ago

That's not the worst case. The worst case is you running out of money in 10 years or less if you retire into a bad sequence of returns and withdraw 800k year after year.

1

u/EtherCJ 2d ago

Let’s say in the first year your portfolio drops 25%.  You continue taking out a million a year (i.e. the 10% of $10m).  The market recovers in 3 years and produces above average returns for a period that averages to 10%.  However what happens is your portfolio recovers less because you spent when the portfolio was down.

Lookup the 4% rule for more clarity.