A 401(k) is a retirement savings plan offered by most employers to employees. It lets employees save and invest part of their paycheck before taxes are taken out. The most an employee can contribute to their 401(k) in a given year is $18,000. This grid shows how much you can save using your 401(k) based on how much you contribute each year and how many years you contribute.
This grid assumes your investments will grow at a rate of 7% annually and that your starting balance is $0. It does not take into account any employer match.
Some Interesting Observations
- By contributing the maximum of $18,000 per year for only 10 years you can save $266,000
- By maxing out your contributions each year, you can become a 401(k) millionaire in just 24 years (assuming a 7% annual growth rate on investments)
- In a How America Saves report by Vanguard, among a sample of 3 million people with Vanguard 401(k) accounts, only 11% maxed out their yearly contribution in 2012.
- Contributing to a 401(k) is one of the best ways to reduce your taxable income each year and turbo-charge your path to financial independence.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
He quit his day job as a data scientist in 2019 because he was able to earn enough income from profitable websites to replace his salary. He now teaches people how to start and grow their own profitable websites from scratch in the Income Community.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free, has no trading or maintenance fees, and even allows him to set up automated target-allocated investments.
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This is a great visual! It very clearly shows the power of compounding and the importance of saving for retirement starting as soon as you possibly can.
I’m glad you found it useful! 🙂