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401k was not designed to be a main retirement income. It was meant to go along a pension and SS benefits. What about the insane medical costs during old age? A lot of people will be eating dog food during retirement.
Initially no but now it's largely designed to just go along with your SS benefits and as such you see some solid employee matches.
Re: medical costs, some places have HSA's which act like 401ks for medical costs. I put about 4k a year in mine and am accumulating a decent balance over time into it.
A guy making 50k a year (lets assume that salary increases and inflation are a wash over the long haul). He puts 10% in his 401k, gets 6% match from employer. Starts at age 25. If he averages a 5% return (after inflation), he will have the equivalent of >700k in todays dollars by age 60.
With that amount he'd be able to easily keep his standard of living and Soc. Sec. would be gravy on top of that.
I put together little spreadsheets like this when I was 25......it seemed so far off and I'd get benefit statements telling me I had 16,000 in it or whatever. It's like a stone rolling down the hill, it just starts picking up momentum.
Um, I started steadily putting $$$ in my 401k back in the 1990s when I was in my 20's and I'm roughly on pace to hit around 2mil by age 55.
Yeah, the 5mil is a bit of a stretch by age 60 but if you steadily put 10% in since age 22, depending upon your career path and employment you'll be in good shape.
I wouldn't call it a crock but certainly "real life" can bit you in the butt whenever long term planning is going on. (Divorce, illness, job loss etc.)
Maybe the 5 million target would have been realistic if company matching etc had stayed the same, but they didn't. They were reduced, and reduced and in many cases completely eliminated. Also, salaries started to stagnate about 15 years ago. So, I guess those predictions assumed the 1990s economic conditions would last forever.
That's fine and dandy for desk jockeys, but many others might not be able to work. And chances are you will be eliminated from your job by then. Like I said earlier a lot of folks will look forward to eating canned dog food in retirement.
If someone works at a place with no pension and no 401k (or doesn't participate) then yeah, as their body wears out as they age they are indeed pretty screwed if all they have is Soc. Sec.
This figure should be much higher, but a lot of 401k plans are rip-offs: high fees and poor investment options result in the lion's share of profits going into the pockets of the financial companies administering these plans. Add to that the reality that 90% of Americans are lousy investors. They invariably buy high and sell low by panicking every time the market drops more than 2%.
Maybe the 5 million target would have been realistic if company matching etc had stayed the same, but they didn't. They were reduced, and reduced and in many cases completely eliminated. Also, salaries started to stagnate about 15 years ago. So, I guess those predictions assumed the 1990s economic conditions would last forever.
You are of course correct. Any really long-term predictions are heavily impacted by assumptions.
If you put 10% in, 6% match, 40k salary at age 22. Salary grows 5% a year, 401k balance goes up 10% a year....then you have 5mil by age 61 or so.
Change the 401k balance growth to 7% and decrease the salary increases to 1% after age 45 and it's less than half that amount.
However, 1/2 that amount would still mean that the guy would have over 15x his gross salary in his 401k at age 60 which is a heckuva nice retirement.
The surging stock market helped boost average 401(k) balances to yet another record high in 2013. But many young and low-income workers are not doing such a great job of keeping that cash in their accounts.
The average 401(k) balance hit $89,300 at the end of the year, up 15.5% from $77,300 in 2012, according to an annual tally by Fidelity Investments. Most of the boost came from stock market gains as all three major stock indexes ended the year more than 20% higher
People on the verge of retirement, ages 55 to 64 years old, saw their nest eggs grow to an average balance of $165,200 from $143,300 in 2012, Fidelity said. Savers with both a 401(k) plan and Individual Retirement Account managed by Fidelity had larger nest eggs, with an average balance of $261,400, up from $225,600 in 2012.
The real take-away from this particular story is that "young workers are still cashing out". 401K retirement savings, IRAs and personal savings absolutely work to save for retirement .... none of them will work if the money is pulled out short of a serious emergency. It's not a serious emergency to pay off a college loan, buy a new car, take a vacation or even buy a house.
An anecdotal story that is not all that unusual.
~Man gets first job after college with beginning salary of $1,000 a month in early 1970's).
~He and his wife decide to live on exactly the same amount of money they had in college and save the rest.
~4 years later - they had saved enough to put down 20% on a home loan. Along come 2 kids.
~They continued to save about 15% of their salary each month, stick to a budget and joined the IRA program when it started.
~Stayed in first house for 5 years, (twice the price they paid for it) & bought a new house (which they paid off and still live in). This couple also maintained and added to a person savings every month.
~In 1984, they bought their very first New Car, have only every owed 1 TV & still have a used Dryer & are using their 1st purchased New Washer. They took a vacation every year, but it was almost always to either visit relatives OR a camping trip - mostly camping trips.
~ Due to a possible sale of the company, Man had the chance to sell out his stock savings and start his private portfolio .... which did well.
~401K program comes along and they put the max into it every month with company matching half in stock. At that time - the contribution had to be in company stock, but that changed after the ENRON scandal. The options other than company stock were not great, so most of it stayed in company stock.
~Put 2 kids through college with NO college loans and the Dad managed to complete 2 more degrees with company paid programs and night school.
~After the kids were gone, saving went to about 1/2 of salary and they have zero debt - both Man a wife drive vehicles that are 12 & 14 years old.
~Wife did some part time work for "extra spending money", but never a full time job at all.
Along comes the recession - company stock tanks, but Man is now buying more of it because it's cheap. Things turn around and all the Stock Market goes up - the 401K has now grown to that Million dollars by 2012. Man retired in 2010 with a company buy-out to reduce older employees. He is lucky enough to have been in a defined pension program (non-union) and it pension is about 1/2 of his salary which had grown to the mid 6 figures after 40 years of work.
The private savings and private portfolio equalled about a half million by this time - added a Financial advisor to help manage the portfolios and is still contributing money each month to the savings program, while not taking anything at all from the investment accounts. Neither one has signed up for Social Security and they are taking a few more vacations.
None of this happened by accident - this family had a PLAN and they stuck to it. They had a budget and they stuck to that. It's not that they never spent any money, but they were careful about where and how they spent it. A big part of that was not eating out much. Don't let anyone ever convince you that you can't go from $1,000 a month to Millionaire - make a plan and stick to it.
Quote:
Originally Posted by Iamme73
The 401k doesn't work for most American workers as a retirement vehicle.
The median 401(k) balance in 2008 was $12,655, dropping 33 percent from 2007 as the stock market fell precipitously.1
The 401K does work, but it's no good without a plan and using it for what it was intended for - Retirement Savings. As for drop in 401K balances during the recession - YEP, that sure happened and it was a lot worse for some than others. That was not necessarily a 'bad thing' for the kiddos - they were now buying equities at a much lower rate than before the recession and they were going to realize big gains when the Market rebounded ..... which it did. Those that maxed out during that period have seen very nice gains. For those near retirement - the picture was not so rosy. Those folks had to really work to restore their retirement accounts. Iamme makes a VERY good point about the "fees" associated with a lot of 401K accounts - people need to pay attention to the fees and speak up about them.
The real take-away from this particular story is that "young workers are still cashing out". 401K retirement savings, IRAs and personal savings absolutely work to save for retirement .... none of them will work if the money is pulled out short of a serious emergency. It's not a serious emergency to pay off a college loan, buy a new car, take a vacation or even buy a house.
An anecdotal story that is not all that unusual.
~Man gets first job after college with beginning salary of $1,000 a month in early 1970's).
~He and his wife decide to live on exactly the same amount of money they had in college and save the rest.
~4 years later - they had saved enough to put down 20% on a home loan. Along come 2 kids.
~They continued to save about 15% of their salary each month, stick to a budget and joined the IRA program when it started.
~Stayed in first house for 5 years, (twice the price they paid for it) & bought a new house (which they paid off and still live in). This couple also maintained and added to a person savings every month.
~In 1984, they bought their very first New Car, have only every owed 1 TV & still have a used Dryer & are using their 1st purchased New Washer. They took a vacation every year, but it was almost always to either visit relatives OR a camping trip - mostly camping trips.
~ Due to a possible sale of the company, Man had the chance to sell out his stock savings and start his private portfolio .... which did well.
~401K program comes along and they put the max into it every month with company matching half in stock. At that time - the contribution had to be in company stock, but that changed after the ENRON scandal. The options other than company stock were not great, so most of it stayed in company stock.
~Put 2 kids through college with NO college loans and the Dad managed to complete 2 more degrees with company paid programs and night school.
~After the kids were gone, saving went to about 1/2 of salary and they have zero debt - both Man a wife drive vehicles that are 12 & 14 years old.
~Wife did some part time work for "extra spending money", but never a full time job at all.
Along comes the recession - company stock tanks, but Man is now buying more of it because it's cheap. Things turn around and all the Stock Market goes up - the 401K has now grown to that Million dollars by 2012. Man retired in 2010 with a company buy-out to reduce older employees. He is lucky enough to have been in a defined pension program (non-union) and it pension is about 1/2 of his salary which had grown to the mid 6 figures after 40 years of work.
The private savings and private portfolio equalled about a half million by this time - added a Financial advisor to help manage the portfolios and is still contributing money each month to the savings program, while not taking anything at all from the investment accounts. Neither one has signed up for Social Security and they are taking a few more vacations.
None of this happened by accident - this family had a PLAN and they stuck to it. They had a budget and they stuck to that. It's not that they never spent any money, but they were careful about where and how they spent it. A big part of that was not eating out much. Don't let anyone ever convince you that you can't go from $1,000 a month to Millionaire - make a plan and stick to it.
The 401K does work, but it's no good without a plan and using it for what it was intended for - Retirement Savings. As for drop in 401K balances during the recession - YEP, that sure happened and it was a lot worse for some than others. That was not necessarily a 'bad thing' for the kiddos - they were now buying equities at a much lower rate than before the recession and they were going to realize big gains when the Market rebounded ..... which it did. Those that maxed out during that period have seen very nice gains. For those near retirement - the picture was not so rosy. Those folks had to really work to restore their retirement accounts. Iamme makes a VERY good point about the "fees" associated with a lot of 401K accounts - people need to pay attention to the fees and speak up about them.
I don't get it,.. Do liberals think 401k accounts are suppose to decrease over time? I guess maybe they thought they could take someone else's retirement money and give it to themselves...
Medicare? If 401k wasn't designed like that maybe we should be lifting the restrictions... It's the restrictions that limit nationwide adoption...
I agree. You should be able to contribute at least 40,000 per year tax deferred. Same with IRAs... We don't know what social security will look like 30 years from now so the government should raise the limits so we can save enough in case SS can't continue to do what it's doing now...
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