Tag: 401k

Financial Advisor Disaster

A referred financial fiduciary contacted me several times wanting to set an appointment. The mistake a friend innocently gave, was to send him my phone number. I firmly stated that I’m nowhere near retirement age, with an easy 7 -10 years to go. He insisted that I start prepping in advance. “Don’t wait until the last moment before retiring.”

The Appointment

We met at the said time/date in my home. To his credit he drove 45 minutes just to give his assessment/sales pitch. But I felt he was fishing. He asked us both (my fiancé was present) about our savings, ownership, debt. We had zero debt. Together we had saved 8x our income. We owned our cars, real estate, etc. In fact, excited we shared how out of the blue how my fiancé had been contacted to lease his mineral rights and had just received a $68K check. We had promptly deposited in the bank for CDs.’ That’s nothing’ he said, his ‘other client just received a check for $300K’, which he just processed. Huh, we thought disappointed.

401K Transfer

He really was interested in my 401K balance. He wanted to know exactly how much and where. I’ve been very aggressive with my portfolio. Why not? I have access and can move it easily, increase my contributions and have calculated exactly my ratio of input to my estimated outcome. It’s a strategy that for me makes sense and is working to my advantage. Once he learned my 401K balance, he immediately showed his latest clients balance spread sheet (I seen her name and address!!!) ‘she’s your age, he said and she has just invested a million with me.’ Wow. Later, he slipped up to tell me she inherited a home, plus her husband had just died. She sold the home, bought a condo and with the inherited money, home profit and life insurance, had just retired early. That explained a lot, but the damage was done.

The Send Off!!!

Then said advisor/planner asked what I make yearly. He asked while waiting to type in my salary on his spreadsheet, ‘what 100?’ I was stunned. I had already let him know that I was a low earner. My fiancé is a disabled Desert Storm veteran. Oh, no I said, remember I’m nowhere near that! He moved onto putting my 401K into his mutual fund. Stressed that I could still contribute to but would be protected from the roller coaster stock market. He guarantees 7%, but with the markets doing well, the returns have been 10% or higher. By my math, and my calculations, my returns have been consistently 16.9% or higher. I gave my defense for keeping it where it’s at. At the end of the roughly 30-minute meeting he asked if I had any interest to proceed. Never wanting to say never, I asked if we could give it 6 months and I’d let him know. I had a bad taste in my mouth. I felt poor. I felt saddened. I felt deflated.

AI Assessment Scenario

Then after days of feeling POOR, I decided to use my newfound friend AI Mode. I gave my scenario – warts and all. I put how I felt offended and poor. I suspected he was just prying and so on. I hit enter. AI did some thinking. And then the response. It was eye-opening and never, ever would I have surmised this possibility. AI discerned that he may have been impressed by our accomplishments! Impressed by our prudence, our diligence. Impressed by low-earners acquiring so much. Impressed to the point that he felt his services were not needed, yet! Even if AI is off, even if AI was throwing darts, I’ll take it!

401K – The Truth About The Millionaire Myth

From A Gen Xer who REALLY Knows!!!

As a Generation X who was sold on the 401K Millionaire Myth, I know first-hand the truth. MY generation was THE first to rely on the 401K as a retirement plan. All the Baby Boomers landed what was left of the union jobs (they were bequeath from their Silent Generation parents via nepotism or networking). Which left us out, scrounging for any entry level jobs. And they were entry level. Made all the worse if you did not have a college education. Most of us in rural areas went to trade/vocational high schools. The idea was, that you would arrive at the work place with some specific skill sets geared to a certain industry. Thus, you’d have a leg up on the competition and your chances (though slim) would get you an interview. With that said, this is where the majority on Gen Xers found themselves within the workforce.

The Average Yearly Salary In The Midwest is $31,500.00

And for most Gen Xers it remained that amount for several decades. So we will use $32K as our base model for this article. By law you can only contribute 10% of your yearly income to your 401K. This includes any employer match. So if you put in 5% and your employer would match up to 5% you were very fortunate. But after a few years suddenly employer policy always seemed to change to 4% match, then dropping to 3% in most cases. Afterall, most of us were never employed by a Fortune 500 company. So small business or retail was our lot.

The 401K is Based On Compound Interest…

So if we take the $32K and contribute 10% (with our 5% and employer 5%) we are at $3200.00. So, if you enrolled into the program at say 25 years old, (the average age one started) back then once you chose your ‘portfolio’ you were pretty much locked in. Also, we had very little play in where and what we were investing in. You were given options usually three choices and given recommendations. This was in a brief hour long seminar. Many promises were given about investing in the stock market. Of course no details were divulged, but it seemed like a great mysterious plan to acquire wealth beyond anything your average lower middle class family ever had. It was an automatic withdrawal from your pre-tax dollars ‘you’d never miss it!’

Autopilot Deduction…

So…we let our deductions roll on year after year to accrue. Back in the 90’s the growth seemed okay (but nothing like 2016-2020) so after 5 years our $16K would be more like $20,800. Again, most of us had to ‘borrow’ from our 401K for downpayments on homes or help with large expenses. (We didn’t get much help from family – we raised ourselves more on that in another post). So for this model, we’ll let this 401K go on for a total of 30 years, hitting the 55 year mark. Why? Because after 55 you can increase your contribution without tax penalties. And even though there were raises, job changes, etc., once we figure in any cash withdrawals, this model still holds. So 30 years later at $3200. 00 a year our 401K should have an average of $ $144,000.00 Except that we lived through the recession of 2008 so subtract $35,000.00 and the great hit of 2022, which lost another $30,000.00. So with the gains on the last year we are back up to $120, 960.00

Retirement Age Increased…

So right when we were knee deep in the workplace, Social Security increased the retirement age from 55 years old to 62 years old. I guess were are living longer now. But! At 62 you would have to pay for your own healthcare if you choose to retire. So, 67 years old it will be for the majority of us Gen Xers. Back to our 401K contributions. So now at 55 years old, we better up our contributions. We have slight increase in salary let’s go with $37, 000.00 yearly. Let’s make a bold 20% deduction, too. Now we are putting in an aggressive $7,400.00 yearly – again no employer match. With the onslaught of easy online access to your 401K, it’s time to move into an aggressive ‘portfolio.’ We need to take this risk for bigger dividends. It works – do it. For the next 12 years (especially if a Republican is sitting in the Whitehouse) our $7,400 should easily balloon to $133, 200.00 plus our initial $120, 960.00 has grown to $181,440.00. This equals $314,640.00.

How? It always seems to come down to this formula. If the economy is good. The stocks doing okay, the amount will be 1.5 times the amount. The Trump years were greater, but for our model, the average Gen X er should retire at 67 years old with at least $300, 000.00 in their 401K. Period. The truth. Again – start at 25 years old. Contribute a sum total of 10% with employer match. We’ve taken in any withdrawals or borrowing. We’ve taken into account changing jobs where you hadn’t earned the right to participate until after 3 months or 6 months depending on the workplace. Also factored in are all of the years, decades where your salary remained stagnant at $32,000.00 a year. Again, keeping in mind that you finally received a small increase, albeit from finding a new employer or finally being recognized. Either way, when all elements are considered – the average Gen Xer Joe should have $300K to retire on. And that’s no small feat. We had immense hardships at work, in our upbringing and all we had to navigate in our lifetime.

But that is for another blog!