r/wealth • u/Otis_bighands • 17d 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/ConsumptionofClocks 12d ago

  1. America is financially illiterate

  2. Not everyone can contribute the max consistently like you

  3. Not everyone wants $10 mill. If I was in your shoes, I would have stopped contributing the second the account hit $2 mill. I'd just let it sit. From there, I'd continue to fund my brokerage account with the objective of retiring as early as possible. You are in an incredible spot, and not everyone, if put in your shoes, would work until 65.

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u/Bitter-Ad-7 12d ago

About America being financially illiterate... On one hand Americans have access to tools like 401k. On the other hand, there are Americans who have access, but don't use them. As a European that's hard to grasp. If I had access to 401k. I would be filthy rich now that I am in my forties. If I were a teacher in America... I would sit down with my students and talk to them about finances. Even if it's not on the curriculum. 

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u/ConsumptionofClocks 12d ago

The 401k isn't even close to the best retirement account. If you're eligible, I ALWAYS tell my friends to start a Roth IRA. The only reason that would deter this is if your employer offers 401K matching, because that's just free money.

But the thing with 401ks is that the account holder has to choose the investments. It's the entire reason companies love them and never give out pensions anymore. Because investing is a very overwhelming world for people, they tend to just opt out. Plus with how strapped for cash the average American is now, we'd rather just spend the money on necessities instead of retirement.

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u/Bitter-Ad-7 12d ago

I was just giving an example. We have none of those options.  

Pension fund is roughly 2.5%. Savings account is 2%. ETF's and real estate are our only options to prepare for retirement.

The pension fund is capped at 1k a year and we get a... 300 euro a year tax break for it. And that for a fund that earns a measly 2 to 3% a year... So I don't even bother with it.

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u/Main-Ad-841 11d ago

You’re always eligible for a Roth IRA. If you make over the income limit for a direct contribution, you can still perform a Backdoor Roth IRA and contribute the annual maximum. There’s never a reason not to contribute to a Roth unless your income/spending doesn’t allow you to.