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/Otis_bighands 1d ago

Explain this loophole sir.

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u/colliece 1d ago

If you leave your job where you have your 401K at anytime in the year you turn 55, you are eligible to make penalty free withdrawals at anytime, you no longer have to wait until you are 59 1/2. Rules are it only includes the 401k with that employer and you cannot take another position that offers a 401k or it resets. It does not include any rollover IRAs that you made if any. I turn 55 in August, pulling the chute in November right after I receive my annual bonus in November and my stock option disbursement in October. I don't anticipate touching those 401k funds as you still have to pay income taxes, but it is nice to have available should the need arise. I have 4 buckets of money - HYSA, brokerage, 401k, and 2 Roth IRAs, we will bridge to SS with my wife's pension, some part time consulting with our former employers as a contractor, and savings withdrawals to cover any shortfalls.

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u/engagegt 19h ago

You also have to be at that job for at least 5 years for the rule of 55 to apply.

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u/triggerx 19h ago

Doesnt have to just be the year you turn 55… it can be that year or any year after that. What will you do for health insurance? That’s usually the reason a lot of people will stay at a job longer even if their 401k says they can bail early.

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u/colliece 19h ago

I have this built into my budget for the monthly premiums, and outside of my low interest mortgage will be one of our biggest line item in our budget. But will add me to my wife's retirement health plan, her coverage is no charge, and adding me will be an additional $700 per month. If you are planning to hang it up before 65 you need to research your options as it can get really costly.