Question on IRA returns

[LivingAlmostLarge]

Okay I read other boards but I don't want to ask a really stupid question. We've maxed out our Roth IRA since 2005. it is now 2024. We are halfway to the 40 years and maxing it out. Someone posted if you max out your Roth IRA from ages 25 to 65 with a 9% return you will have $3m. I am looking at my roth and my DH's roth and 401ks as well. Neither of us after 40 years is going to have $3m in an IRA.

The total contribution since 2003 in IRA is $107,500 till now. So I'm not sure how does it become $3M at age 65? And if it's so easy investing in index funds why doesn't more people have $3m or even $1m in an IRA at age 65?

I ask honestly because i can't see us having $3m in one account our Roth IRA by age 65 about 20 more years. I did a simple calculator and $7000 every year for 40 years at 9% is $2.6M. But for me? from my age 25-65 it doesn't appear we'll even be close to $3m.

Where are these numbers coming from? I get it from maybe a 401k now that the amounts but since we had a 401k in 2005, it's been maxed out except for 2022, and with 2022 it's only been $358,000 contributions. Okay there is a match, but still that's more feasible to reach $3m, but an ira?

[bjl584]

I've been maxing my ROTH since 2006, and at 45 I don't see how it becomes $3M either, but I suppose it matters what you are invested in.

[kork13]

Generally, I just don't try to understand the empty promises that people make....

This time I actually did. My best guess is that they did their math with 9% returns after inflation (so actually 11-12% return, which becomes a less reasonable estimate), then looking at the inflated value. That took my calculations pretty easily above $3M (even above $4M).

But really, it doesn't matter. I expect you haven't had all of you planning off of their offhand remark. And if you manage to build up $4M-$5M between the pair of your IRAs, plus whatever you have in 401k's & taxable .... You'll easily be sitting pretty. So I wouldn't worry about it -- they simply are what we like to call "WRONG".

Although not addressed in the claim, there are other ways to get IRAs well higher that that ... Mostly involving rolling money from 401k's, "super-backdoor" rollovers, or I think you can rollover certain flavors of pension or annuity as well.

[LivingAlmostLarge]

Which we've done so you can see the difference between my vanilla ira and DH's backdoor roth ira differential of two different accounts. It's just the IRA is worth $3m from 40 years of contributions. mine is not even close after 20

[srblanco7]

Okay I read other boards but I don't want to ask a really stupid question. We've maxed out our Roth IRA since 2005. it is now 2024. We are halfway to the 40 years and maxing it out. Someone posted if you max out your Roth IRA from ages 25 to 65 with a 9% return you will have $3m. I am looking at my roth and my DH's roth and 401ks as well. Neither of us after 40 years is going to have $3m in an IRA.

The total contribution since 2003 in IRA is $107,500 till now. So I'm not sure how does it become $3M at age 65? And if it's so easy investing in index funds why doesn't more people have $3m or even $1m in an IRA at age 65?

I ask honestly because i can't see us having $3m in one account our Roth IRA by age 65 about 20 more years. I did a simple calculator and $7000 every year for 40 years at 9% is $2.6M. But for me? from my age 25-65 it doesn't appear we'll even be close to $3m.

Where are these numbers coming from? I get it from maybe a 401k now that the amounts but since we had a 401k in 2005, it's been maxed out except for 2022, and with 2022 it's only been $358,000 contributions. Okay there is a match, but still that's more feasible to reach $3m, but an ira?

I ran a simple future value (FV) calculation using excel. 40 years at 9% and either $6500 and $13000 contributed annually. I come up with a future value of $2.2M for a single contributor and $4.4.M if both spouses contribute. These values are nominal - that is, not adjusted for inflation.

[LivingAlmostLarge]

I ran a simple future value (FV) calculation using excel. 40 years at 9% and either $6500 and $13000 contributed annually. I come up with a future value of $2.2M for a single contributor and $4.4.M if both spouses contribute. These values are nominal - that is, not adjusted for inflation.

Is it that the contribution limits were so much lower when I started? Like $2k roths and $10k 401k?

[srblanco7]

Is it that the contribution limits were so much lower when I started? Like $2k roths and $10k 401k?

For sure. If you project $2k for 40 years at 9%, you'd end up with approximately $675k. Compounding makes a huge difference over a 40 year projection, and as such the amount invested, especially in the first 20 years, makes a substantial difference in the outcome.

By way of illustration, the $6500 per year over 40 years means you've invested $260k and have a $2.3M outcome. You could achieve the same $2.3M outcome with an initial $75k investment and then adding nothing for the remaining 39 years.

[LivingAlmostLarge]

$107,000 and $358,000 total contributions since we've started working. We do have more and have contributed more, but at the same time, I don't think it'll be $2.3M because we haven't been contributing $6500 for 40 years. Of course I don't want to work for 20 more years.