Ask Terry Questions Retirement 401k

Retirement 401k

By Terry Savage on October 13, 2019 | Investments

Hi Terry, ok, I turn 55 next month and want to put myself on a 10 year plan to retire (65).This is my goal, to have enough in my 401k to pay off my house and live off my teamsters pension ,my ss and my wife’s ssd.
Pension at 65=$1100 mo
SS=$2500 mo at 65
Wife’s ssd = $1600 mo
I only have $55,000 in my 401k now, my company puts in $3.00 for every hour I work (50hrs wk x $3=$150 wk). I owe $280,000 at a 4.00 interest loan on the house. My 401k is earning about 20% in Faang stocks for the last 2 years. So my question is will my 401k reach $280,000 when I hit 65. (It is growing about $10,000 a year in the last couple years. )

Would it be better to receive my pension now at a reduced rate about $320 a month and put that money in my 401k till I’m 65?  thank you

Terry Says

Gosh, I’m glad you’re trying to plan — but you need some more realistic expectations! I hate to bet against you, but I’m willing to make a huge bet that your 40l(k) will not grow at 20 percent a year for the next 10 years! (The average historical rate of growth for the S&P 500 is 10 percent with dividends reinvested. We have been way above the mean for the past decade, which implies some future years with far lower returns!)

You’ve done a good job of keeping your debt down,and low cost.  Stick with the pension as it is a guaranteed income for the future.  Keep adding as much as possible to your 40l(k) — and DIVERSIFY your investments inside the plan, adding something more conservative in the investment choices with future contributions.

And here’s something to give you perspective.  It’s called the Rule of 72.  Divide any number into 72 and it will tell you how long it will take your money to double.  For example, if you divide 10 (as in a 10 percent return) into 72, it will take just over 7 years for your money to double.  But if we have 3 percent inflation, the value of your spending power will be cut in half in about 25 years!

It’s fun to speculate about future rates of return — but your hope is beyond unrealistic!

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