401k millionaires

[9-10ths_Penguin]

Watch, for example, Antiques Roadshow where significant numbers happen to find an object that has value in the tens of thousands of dollars, a great starting point or boost to net worth.

I was thinking more about things like:

- speculation and other passive investment where it’s the money “earning” more money, not the owner of that money.

- business models where the profit is generated by exploitation as much as actual work (e.g. companies where the employees are declared “self-employed independent contractors” so that the company doesn’t have to pay the employer contributions of all the various fees that go along with having employees).

 

[9-10ths_Penguin]

There are two factors I would like to bring up.
The first one is: Have your parents paid your tuition fess all the way up to college ?
Being able to acquire a ( good ) college degree really early in your life will entail being able to earn bigger paychecks earlier in your life which results in having a much easier time becoming a millionaire. One might have earned a college degree and yet not have earned the tuition fees and this is huge.

Exactly.

My parents didn’t pay for all of my college - I was lucky enough to be in a program where we had paid co-op work terms - but there were a few points along the way where I couldn’t have made it without my parents helping me out. Not everyone is that lucky.

 

[9-10ths_Penguin]

No, I didn’t make any of those assumptions and most of them are actually incorrect. I don’t assume the person is in the top tax bracket. Reread what I wrote. I said that was the maximum possible. No, I don’t assume someone will only withdraw no more than the threshold for the first tax bracket ($19,050). What I wrote was that until his taxable income when he begins withdrawals exceeds that then all his withdrawals would be tax at only 10%. That is not the same thing.

So the point you say you were trying to make was true but irrelevant?

In addition many (actually most) individuals could withdraw much more than $19,050 from their 401k and still keep their taxable rate to 10%.

For simplicity’s sake, I assumed that the withdrawal amount and the taxable income are the same.

No, I don’t assume taxes won’t rise.

You used current tax rates.

What I wrote, which you don’t seem to understand, is that it doesn’t impact the tax deferred compounding within the account which makes any tax increases insignificant in comparison.

I hate to break it to you, but multiplication is commutative. “Tax deferred compounding” is a load of nonsense; it’s just compounding, period. It doesn't matter to the investor when the tax is taken off.

Now... who it does matter to are the people who make money off the investment: mutual fund companies, investment advisors, financial planners, etc. The amount actually in investments is smaller when you're investing with after-tax money instead of pre-tax money, so anyone who gets paid as a percentage of the size of the investment will get paid less if the investing is done with after-tax money.

Out of curiosity: does that describe you? I might be wrong, but I'm getting a vibe like you're selling something.

Furthermore these supposed tax increases that you are touting would have to be increases on the lowest tax brackets. Historically the lowest tax bracket rate don’t go up.

So you're assuming that the person will be in the lowest tax bracket in retirement? Most people I know would hope for a better standard of living than that.

No, I don’t assume that there won’t be any changes to retirement plans by legislation, quite the contrary.

If you can divine the future well enough to accurately predict government policy 30 years out, that's impressive.

But whatever changes are made can be adapted to. Nonetheless the current laws are the only ones we can make our plans with. And the current laws have established 401ks as an excellent vehicle for retirement.

They're fine, but there are better vehicles for most people. Generally, a Roth IRA is better than a traditional IRA or or 401(k) for most people.

For most people for most of their careers, they make less working than they plan to make in retirement. Withdrawals from a Roth IRA also don't incur the same consequences for Social Security that other vehicles do.

If you've maxed out your allowable contribution to your Roth IRA, sure: go for your next best option.

So, no, you don’t understand me correctly. It also appears you make a lot of erroneous assumptions. Which explains why you fail to understand 401ks as you do.

I understand them just fine; I'm not sure you do, though.