I spend my whole life maxing out my Roth. Assuming average return of 7 percent in the long run I will have accumulated close to 5MM in my Roth for retirement at age 65.

Buying power of my money at that point will be close to 2MM dollars assuming 2.5 percent constant inflation.

Assuming I live until I'm 85...for the next 20 years of my life I will have about 100k per year in today's buying power if I want to deplete my savings.

Or much less if I want to live off market gains only....

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I think 7% is already inflation adjusted so you may be discounting an extra 2%

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Good point

When you say maxing your roth do you mean IRA + 401k or about 25,500/yr?

I'm not completely following your numbers but it looks like you are using a 5% withdrawal rate in retirement, assuming no future earnings (hobby or investment) once you retire, and ignoring social security. These are very conservative assumptions. You also indicate these are mostly in Roth so not being taxed in the future makes that 100k similar to about $150k of wages. You may also have a fully paid off house by that point.

The wonderful thing about maxing these accounts early is once you build up a certain amount the investment earnings exceed the annual contributions. Run the numbers on what that $5m would look like if you only maxed Roth IRA and HSA (if eligible) and then contributed to 401k enough to get full match. You might be able to cut back a bit in a few years and still have plenty for retirement.

likehelpful

RN I'm just doing roth 401k at 19500 per year....and thank you I didn't factor in my company match! This all was a very rough conservative estimate.

I also originally thought that I'd be "cashing out" at 65. This is incorrect as I will still have money invested and just live off of the gains afterwards which should be plenty!

Now I will have 6M by 65 assuming 7 percent return every year

I will have about 350k in gains every year with that amount of money which equates to about 125k in today's buying power. Which is more than enough if I'm not even tapping into my saved amount.

I know this is all very rough estimates and I'm no finance guy or expert but seeing this gives me comfort that it is actually worth it.

Thank you!

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You can save in other accounts too

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So you’re Roth is only what, 6k a year? That’s a measly sum in the grand scheme of things. Even as a new analyst making 70k, putting away 6k a year shouldn’t be crippling. It may hurt a little now but your salary will quickly climb and dwarf that contribution in comparison. I’m not too many years, you’ll barely feel the 6k hit anymore.
Also I might add, as you get older, the things competing for your paycheck will increase -soon you may want to pay for a wedding, pay for a house, pay for child’s daycare, etc. when you are at that step, wouldn’t it feel much better to know you spent the last 10 years dutifully contributing, therefore you can re-shift your earnings to other priorities and still feel good about it? I’m sure it wouldn’t feel great to realize in your 30s that right around the time you realize you should probably start saving for retirement, is also the same time your feeling the crunch of competing priorities that need your money first.
Oh, and one more thing, did you know that you can withdraw Roth contributions (not earnings, only contributions) as long as the account has been open for 5 years? So if you’re really itching to spend it, you don’t have to wait till 65, you can access it as early as 5 yrs.
Just a thought. Do with it what you will. Best of luck!

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And I actually didn't know I could withdraw from roth after 5 years....good to know! Thanks!

Your Roth can also continue to grow in retirement if you stay invested. Unless you cashed out the day you retire, you will be able to take more than $100k yearly.

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What makes you rich is your health and your relationships. Get those guys in order first - exercise, spend money on good food, and do things with friends and family. If you end up with some extra $$ then boom you’re extra rich

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This only occurs once you hit $500k in net worth. See the “Algebra of Happiness”

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I would say, don’t save at the expense of joy. I think only you can decide if it’s worth it...

my family doesn’t have a good track record for staying alive or healthy after 65. I spend maybe 1/3 of my income. I don’t skimp on experiences and will buy luxury items if there’s value there. I don’t have kids so that makes a difference I guess.

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Check out this site (link below) - cFIREsim stands for Crowdsourced Financial Independence and Retire Early Simulator.

At it's most basic level, cFIREsim uses historical stock/bond/gold/inflation data from 1871 to present, and calculates how your portfolio would have fared throughout history.

https://cfiresim.com/

helpful

Am I doing something wrong....Is it worth it? Saving all this money now instead of not spending it or taking other riskier investments?

It just feels like I'm allocating a lot of money now and only going to see a measly return of 100k at retirement?
Maxing out won't make me rich......so what will?

I think hypotheticals over 20yrs are a great theoretical exercise. I’d rather just flip a coin or throw darts. It’s pretty much voodoo. I like to leave future problems in the future - where they should be.

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