You probably know by now that you should be contributing to your 401k. It's the best way to start investing in your 20s.
But hindsight is always 20/20. So, how much money would you have in your 401k if you had maxed out your 401k contributions every year since you started working? The answer will probably shock you...
We wanted to go back in time and look at a simple question: if you're a millennial (born between 1980 and 1993), and you had contributed the maximum amount allowed to your 401k, how much money would you have today?
Maxing Your 401k Contributions
Now, we know this requires a lot of assumptions, so we focused exclusively on maximum contributions. We didn't do any averages or minimums, since most 401k investors already do contribute the minimum, and they can look at their own statements to see how much money they have.
The goal here is to be inspirational - how much could you have.
Our assumption for the calculations are as follows:
- $40,000 per year salary
- 6% annual investment return
- Company match of 5% dollar for dollar
Remember, the most you can contribute to your own 401k in 2017 is $18,000, but that will rise to $18,500 in 2018.
If you don't have a 401k through your employer because you freelance or are self employed, consider opening a solo 401k for yourself. This guide breaks down the best places to open a solo 401k.
How Rich Would You Be?
Here's the chart showing your total 401k value if you started maxing your 401k from the first day you started your career.
Total 401k Value Today
As you can see, if you started working in 2002 and maxed your 401k every year, you'd have approximately $376,850 in your 401k today!
Doing The Calculation Yourself
Our calculation uses a baseline assumption of a $40,000 per year annual salary. However, you can do the math yourself by inputing your own salary/401k contribution and company match.
The calculation is pretty simple: (Last Year's Balance + This Year's Contribution + This Year's Company Match) * (1 + Stock Market Return). You can then sum this amount over time.
Here's the spreadsheet we used that you can also customize for yourself if you'd like: DOWNLOAD THE 401k BY AGE SPREADSHEET.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.