Who Wants to Be a 401(k) Millionaire?

The last paragraph of the MarketWatch article sums it up (the keyword here is “assuming”):

Given that today’s crop of 401(k) millionaires benefited from the long bull market that stretched from 1982 to 2000, how likely is their experience to repeat? Fidelity calculates that someone who earns $40,000 a year and starts saving at age 25 will have $1 million by age 67, assuming he or she receives 1.5% annual raises, saves 16% a year, and earns a 7% annual return.

Start saving!

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11 Comments / Post A Comment

EA_Mann (#5,000)

dunno – I hear that kind of negative sentiment a lot, like ‘if only we’d starting investing back in the day then we’d be rich, but why bother now what with the economy blah blah blah’. But in reality, even if you invested a large amount of your money before the Great Recession in 2008-2009, as long as you kept investing through it you’d be up, and up big. The S&P 500 in particular is up about 80% from 5 years ago (not exact – don’t quote me)

Kthompson (#1,858)

@EA_Mann You’re right about keeping investing despite the Recession. Longterm is the only way to win–that’s why it’s so crucial to start early. If you only have 10 years, you’re hit or miss. But start 40 years out, you’re guaranteed to win.

I read in a personal finance book that if you had invested $1 in the stock market back in 1925, today it would be worth more than $3,000, despite the Depression, stagflation in the 70s, the Great Recession, and a bevy of other dips and twists in the market. (The point of the example was to show that if you had instead put that $1 in gold you would have…$83.)

pinches (#3,520)

I feel like my 403(b) is growing so slowly… but I just calculated the rate of return in these past seven months since I started contributing, and it is squarely 7.78% so I guess I’m super normal?

CL (#3,590)

@pinches not really. The S&P is up 10.94% since 4/12/13, and up 23.94% since 1/1/13. Compare your investments to the current market, not historical averages.

karenb (#2,685)

and then someone will tell you that since you’re going to live ’till 90 and inflation and etc, 1 million isn’t going to be enough if you want to retire before you’re 80, and and and. *eep*.

but yeah, some money is better than no money, start early and save as much as you can is really the only hope.

Mike Dang (#2)

@karenb Yes, definitely, and as I wrote previously, not everyone needs a million dollars to retire.

clo (#4,196)

that seems like a lot of assumptions though…. 1.5% raises? yeah, nope, haven’t had a raise in 3 years. 7% return? yeah, i wish.

SterlingCooper05 (#2,529)

@clo 7% is a pretty weak average return in a retirement account. The stock market alone has averaged close to 10% historically. If a person making $45K, invested 15% of their income over 30 years and earned 10%, they would have $1 Million. That is without ever getting a raise or investing more than $6,750 a year.

Eric18 (#4,486)

Alot of people have seen their investments recover and their portfolios are now doing well. The important thing to remember is you’re playing the long game. We’ll probably go through another recession and we’ll probably have another boom. But most years will likely be pretty normal, investment-wise. Save early and cut as much unneeded expenses as possible.

Also important to remember that while your health care costs may go up in retirement, you also won’t have alot of expenses that you have while working (mortgages, work clothes, daily commute costs etc).

eatmoredumplings (#3,808)

Wow, that forecast is supposed to be hopeful, but it is a little depressing. What if you don’t have a full-time job with a middle class income and raises by 25? Or 30? Just figure you’ll get so good at being frugal that you won’t need so much in retirement? I feel accomplished in the years that I can put away 15% of my $20K earnings but that ain’t much.

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