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Retiring as Millionaires
If the Petersons had their portfolio set up this way last year, they would have been down only 12 percent as compared to 57 percent. Plus, that 12 percent loss would be substantially better than how the overall market has done. The S&P 500, the broad market indicator, was down 26 percent for the last year.
The Petersons currently have $31,000 in their 401(k), and would ideally like to retire at age 55, meaning they have 22 years left to save and invest.
To be able to retire at 55, they should maximize their 401(k) contributions every single year. Currently, they can only contribute $10,500 each, but over the next few years, that number will increase under a new tax law that ultimately sets the maximum annual contribution to $15,000 per person by 2006.
If the Petersons make the maximum contribution and achieve a 10 percent return on their entire 401(k) portfolio, they will have $2,523,005 in their 401(k) plan by the time they retire at age 55. That does not factor in their IRA investments and social security, or retirement money that will likely come from Alex Peterson's military work.
But working until age 65 would be even more fruitful for the couple. If they keep working until that age, they will nearly triple their retirement money to $7,343,431.