Don’t listen to the lies...Your 401(k) is awesome!
Sure it doesn’t do much overnight or over a week or month. Yep, the fees are too damn high. It sucks that Pensions are dying because you only had to show up to work and look busy to get a fairly guaranteed retirement.
But make no mistake the 401(k) is the best way to get rich, slow. Anyone with a job with a 401(k) with an employer match (big boss match or BBM) can get to $401,000 – or Turbo 401(k) Gold - by retirement or age 67 if you start relatively early with minimal sacrifice to your paycheck.
$401,000 at retirement would mean you can draw $20K a year for the rest of your life ON TOP OF what you get from whatever is left from Social Security. You will pay hardly any tax on it. That could easily be a cool $50k a year to drink Margaritas at the beach.
Sadly less than 15% of Americans get to this level of financial assets at retirement. But many of them don’t have a 401(k).
Anyone with an above average salary and a more generous match can break $1M – Turbo 401(k) Platinum.
How does this happen? There are no hot stocks in my 401(k) plan? And I barely make enough money to live let alone save $401,000!
Here is how:
When you are paid $100, depending on your level of income and local taxes, you only see maybe $70. This can be as low as $50 for high earners in expensive places to live. When you put $5 in your 401(k) – 5% contribution – Big Boss might have to put in some dough – often about $3.50. This can be as high as $5 and as low as zero for crappy 401(k) plans from horrible bosses that hate you.
Your 401(k) just went up by $8.50. It will growth there at perhaps 6% a year until you retire TAX FREE until you need it later. If you are 30 and you retire in 37 years that $8.50 at 6% a year will grow to about $51.
Believe it or not, that is a conservative estimate. $8.50 invested 37 years ago in a stock index fund grew to $X.
Yeah, but how much fun money did you give up today? $5 bucks right? Wrong. That $5 if you didn’t put it in your 401(k) would be taxed at your highest rate as it comes off the top. So if on $100 in pay you only see $70 or 70% that particularly $5 may get cut to $3.25.
So you gave up $3.25 this week to have over $50 in retirement. Why not invest more? You can and may need to but Turbo 401(k) isn’t in the game of telling you you need millions to retire and are woefully behind and should not spend money today on fun stuff so you can be a rich geezer.
Sorry to break this to you but you need to know this now - 67 ain’t 27 it basically sucks other than you have more money and don’t have to work (if you follow the plan). But you will get more enjoyment out of $50 today than $50 in the future. In fact you will probably get more enjoyment out of $10 today than $50 in the future – but you need some enjoyment later.
You are not going to get rich skimping on lattes or avocado toast. Who are these financial experts who don’t know you but know how much you like avocado toast? What if you don’t have teeth at 67 and can’t eat toast anyway? Don’t let experts tell you what you should and shouldn’t do with your spending money. Your goal is to maximize enjoyment AFTER you setup your retirement and that takes a remarkably small sacrifice if you have a 401(k) with a match and time.
Remember this formula:
401(k) Contribution + Big Boss Match + Time = Boat with Pet Alligator
If you want to roll around naked on 10 avocado toasts that is your business with your AFTER 401(k) contribution money. You don’t need to be one of these internet tightwads who shames those who own nice cars. Max Turbo leases an M5 and drives it to get a $5 coffee all the time and the whole community can hear him blasting Duran Duran.
Does somebody on the internet drinking tasteless coffee in a travel mug in his practical car from one of those Keurig home machines have more money in their retirement accounts? Maybe. They can show off their larger account statements at the nursing home. If you enjoy being aggressively thrifty – good for you. Monks seem to like the monastery. Maybe they don’t like consuming $5 coffees as much as you do.
OK $5 is $50 to future me…but how can I get to $401,000?
If you earn $40,000 at 30 – not even the median income of your average job that has a 401(k) heck not even the median income of everybody with any job and non 401(k) jobs tend to pay less and you put just 5% in your plan – just $2,000 a year pretax and maybe just $1,300 AFTER tax or $25 a week of actual lost spending money AND YOU DON’T ever save ANY more than 5% of your pay AND don’t get ANY raises beyond inflation (you make $40,800 next year, etc.) AND your investments earn even LESS than the last 37 years you will break $401,000 by 61 and hit almost $600,000 by retirement!
$401,000 in your 401(k) is almost a worst-case scenario retirement with a 5% savings rate and a match.
With a slightly higher savings rate, or a higher salary, or better than average match, or just historically normal investment returns (not below normal) you will blow through $1M well before 67. Best cases with those saving the maximum allowed… you can get into the millions.
What do you do with the rest of the 95% of your income? Pay the tax you owe and then do whatever you want it doesn’t really matter. Try to buy a home (or boat or motorhome) you are cool living in in retirement and own it outright by 67 so you can enjoy your 401(k) money – and social security – and not have to pay rent. If you like this savings thing and don’t like home ownership you can make the case for renting for life and targeting more savings
Beyond that – seek maximum awesome on your dollars. You don’t need to chop anything out of the budget because it is wasteful other than for something that costs the same but gives more enjoyment.
If you would rather spend $5 on a vintage record than a fancy ass coffee then do it. If you would prefer to buy a $12 Kale Salad than a $12 Avocado toast then do so. If you would rather travel more than own a car, do that. Just don’t cut something because some tightwad on the internet shames you. They don’t know what you like you do, hopefully. You don’t need to worry about anything other than maximum enjoyment for your remaining dollars.
You don’t need to worry because you turbocharged your 401(k).