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401k Shocker

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Last response: in News & Leisure
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November 26, 2012 2:10:09 PM

http://www.foxbusiness.com/personal-finance/2012/11/19/...

I'm actually shocked at how low portfolios are for people's savings. When I was 27 years old, I already had 41k in my 401k. I expected to retire with an adjusted amount (inflation/interest/investment rule of 7/choose your number) amount of $500,000. I would image it'll likely be well over $1 million in 30 some odd years.

You put 10% of your tax free income into your 401k, employer contributions is around 3% or so? Making $50k a year, you're putting in about $5000 a year and with employee contibution another $1500. $6500 a year for say.. 30 years? $50,000 a year age 35 until age 65. That's not accounting for increases in pay, or decreases in pay. That's just average.. that's nearly $200,000 without interest or stock price changes! Let's say over the course of 30 years, it should double at least once.. so you're still looking at say $300,000 (not the 200k doubling but at some point, so I'm taking half of the double). Today, that should easily net someone $500,000 after all adjustments.

Assume by 65 your mortgage is nearly paid off, or is paid off.. your car is paid off or nearly paid off, you're mostly debt free, if not completely. Your expenses should be pretty much nil for debt. Seems pretty simple.

More about : 401k shocker

November 26, 2012 9:40:54 PM

What is your opinion on IRA and ROTH IRA?
November 27, 2012 1:28:04 PM

Depends. IRA for later in life, Roth IRA earlier in life. Assuming you'll make more in your life, the Roth is the way to go. If you're not going to make more later on, the IRA is good.

If you're young, basically the Roth is the way to go. If you're older, the regular IRA is the way. Though, they're talking about changing the Roth to start taxing it because so many people are switching to them and taking away a tax revenue stream. They're still the way to go.

Roth is tax free later on when you pull it out, whereas with an IRA you have to pay taxes on the money you pull on top of your regular income. It could boost you into a new tax bracket and you end up paying more.
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December 2, 2012 2:04:04 AM

riser you missed your calling in life.

You should have been a financial adviser.

:) 
December 2, 2012 4:53:04 AM

He could do it as a retirement job...
December 3, 2012 12:24:13 PM

haha. I was going over finances with the fiance last night. I had to figure out how much money she could spend a week.. her eyes got wide when I told her how much she could spend. She thought I was going to cut her back on her spending but it ended up going up significantly. 3 months of savings will be used to cover our 2 weeks of vacation a year, one being on a beach out of the country and another stateside at the beach. We'll have 20% down for a house in 2-3 years, depending on what size/price of a house and still have a very good savings account and spending money. I figured our current expenses on a house payment (higher) than our rent payment. Worst case scenario, we're debt free by the end of 2013 and by 2015/2016 we will have 20% for a down payment. Really though, you only need 3% for a down payment.

Life is good... all those years of working has finally paid off.
!