POSTED BY: Erik Whiting (January 11, 2008 09:41 AM)
With all due respect to the financial consultants who've touted the 401K road to millionaire status over the past years, isn't there anything new to be said on this topic? Every piece of literature on investing I've received via email, Internet or traditional post office mail has said the same thing: "start early, max out your 401K contibutions, earn the average 8% return per year, after 40 years you're a millionaire". It's true and the numbers don't lie. If you do the math this will work in an ideal world and if all assumptions hold true. However, these figures do not account for inflation and the power of time that erodes today's purchasing power. The 25-year-old who starts saving in 2008 and has 1.5 million dollars in his 401K or Roth by age 65 will not have nearly as much purchasing power as $1.5 million has today. While it will certainly be a nice chunk of money, I would like to see numbers that address the time value of money. What will be the buying power of that $1.5 million in the year 2048? People need to consider this and look for investments that will beat the traditional 8% annualized return if they want to live like a millionaire does today....Rich people don't get rich making easy monthly paycheck deductions into retirement plans; rich people get rich beating the odds and taking the path lazy investors avoid.

POSTED BY: ron rag (January 22, 2008 10:16 PM)
So, let me get this straight... The 55 year old who is 70 stocks and 30 bonds...had this person taken this advice in year 2000, they'd be 8 years in to the program. Where would he/she be? Assuming the investor takes the advice of this author and puts 70% in stocks and 30% in bonds with only 10 years to invest (these numbers are annualized and assume a constant 5% return in bonds which is higher than actual and the actual return on the S&P500): 1. the $200,000 (70% stocks 30% bonds, with the $36,480 annual payment split in the same 70/30 manner would total $658K today. -- A mere 35% short of the authors goal with two years to go and already down 10% for 2008. ...The only thing that matters is the actual 10 year period you invest in. For some it will work. For others it won't. The main objective in such a short time period is to not lose money. It takes twice the performance to make it back.

POSTED BY: Ryan (January 30, 2008 01:54 PM)
In regards to the comment by Erik, this is not taking into account for pay raises given over a persons career. For instance a 25 year old making 50K a year saving 7% ($291 a month) of their pay for 40 years is going to have much more than $1.5 million if they are averaging 4-6% pay increases annually and letting the extra money go into the 401K or IRA etc. Pay raises/promotions increase the amount going into the 401K to hopefully match inflation. I expect someone who will retire in 2048 to need 4-6 million dollars to live comfortably. You can't just tell a 25 year old to save $286 a month until age 65 and they will live happily ever after. Savings needs to be increased automatically as their pay increases to cover inflation. It is all about increasing your savings as you increase your income.