The Expert Podcast

…So you have a 401k fund and you've noticed that your balance has decreased dramatically Well you're not alone. According to money Watch the number of 401k millionaires have plunged by over a third In fact, in some areas it's more than 50%. What that means is that the vast wealth creation and accumulation that a 401k fund. Has been part of in a personal financial, assessed. has gone way down now at the same time many people's real estate holdings Most people that have a 401k or homeowners in your equity in your home may have gone up.

But if your 401k is going down and it's an even wash that might have a negative effect on what's called the wealth effect where people feel like they have so much wealth and they're spending money, that could be a pretty significant factor on a recession. So. Drop your comment below what has happened to your 401k balance Is it gone down dramatically? This is affected by the stock market by mutual funds. By bond holdings.

And over the last year when interest rates went up a lot of stock funds went down. Does this give you confidence in your 401k? Does it give you confidence in your retirement? Right. But even if you have a million dollars in your 401k, how far is that going to go in retirement?

Let's say that you are a.

an employee that makes let's say a hundred thousand dollars a year right Which isn't, you know, filthy rich. it's above average It's solid healthy Middle-class upper middle-class. But let's say you make $100,000 per year and you have a million dollars in your 401k. How far is that going to go Well, if you take that same 100,000 out in retirement, It's going to last you 10 years. Now suppose you want to retire at age 60 or 65.

That means you're going to be at age 70 or 75 and you're going to run out of money. Now that also assumes that you only need to take out a hundred thousand dollars every year. And you might say well maybe I'll spend less in retirement Right I don't have to pay for dry cleaning or eating out or things like that. But that overlooks a couple of factors First of all in retirement, having more time means you have more time to spend money. You might want to take vacations more often You might want to eat out more often.

You might want to go to the movies more often, part of the reason that daily expenditures and your day to day discretionary spending is kept artificially low is because you work And if you work you don't have time to spend money on things. So sometimes in retirement you have a tendency to spend more money Also you're forgetting about inflation, even if inflation goes up 5% a year which obviously we've seen inflation go up more than that. At 5% a year. Prices of things double in roughly seven years And you might say well, 5% time seven years it's only 35%. Well by the time you compound.

The inflation by the time you get to seven or 10 years. prices of things are close to double. So you might have to spend more than a hundred thousand just to have the same level of income In fact some of these things that you spend money on in retirement like healthcare might go up even more than 5% a year. So keep in mind that million dollar it seems like a lot of money and you know a million is a number that comes to mind if of wealth. But it may not go as far as you think And in fact, if your…

number of millionaires has gone down by a third, there's a third left people that even have that million dollars to spend So. Let us know in the comments below what you think about your 401k as a retirement vehicle. And if it's something you're going to continue putting money into and have you had to take money out for any kind of emergencies.