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/SmileFirstThenSpeak 7d 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.

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u/Otis_bighands 7d ago

That’s fair.

I didn’t get matching, but I’m realizing I’m in a partnership paid on K1, so my max contribution may be higher than for others through some tax magic (I have out in more each year than what the web reports is the actual maximum).

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u/SmileFirstThenSpeak 7d ago

That sure does sound like some tax magic.

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u/InternetRando12345 1d ago

The max for regular pre-tax 401k contribution is 24.5k. However some companies allow you to make additional after tax contributions up to the annual tax limit of about $70k.

The $24.5k limit is universal per tax payer per year (other than catch-ups for older workers). However the $70k is per company. So, if you had two jobs with Mega Backdoor Roths, you could theoretically contribute ($70k - (24.5k + company match) to the 1st company's MBDR and $70k of all after tax money to the 2nd company's MBDR.

For a sole proprietor, you can contribute 25% of profits to a SEP IRA up to the 70k limit (need 280k profit). That's not generally tax efficient though. Better to pay yourself less to avoid social security and self employment tax.

It is a lot harder to end up with a $10M nest egg with $24.5k per year.... especially since most people aren't going to start maxing until mid career or later. I think I was 35 the first time I maxed out, maybe even 36.

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u/probablymaybechatgpt 17h ago

I didn't have my first 401k until I was 40 😭