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How much do you really need to contribute to your 401k to get to $1,000,000?

31/7/2014

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Editor: Crass Cash
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Here are the assumptions.  You want to be a millionaire by the time you retire at 65.  You're currently making $50k at the age of 25.  Your employer does a company match dollar for dollar for 3% of your income.  You're in the 25% tax bracket and you invest your money into an index fund that averages 7% over the next 40 years.  All very commons standard stuff.  How much do you actually have to contribute to get there?

Well you're going to need to put away $5,000 a year for the next 40 years.  You'll save $1,250 on taxes by contributing to your 401k.  The company will also contribute $1,500 to match your contribution.  This means that you actually only need to contribute $2,250 per year!  

The $1,250 + $1,500 in employer matching + $2,250 = $5,000.  You do this over 40 years and all that you end up contributing is $90,000.   That's right you save $90,000 and you end up being a millionaire!

How much do you end up with if you save the full 10% of your income?  The full $5,000 plus the other two benefits of tax savings and employer contributions this comes out to a approximately $1,500,000.  
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    This website was created due to the atrociously misguided financial advice that I've heard over the decades.  Financial freedom is not intellectually strenuous, but it takes discipline. 

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