Is 75/week a little much for 401k? | Roth Ira

July 26, 2011 ? Advisor ?

I will able to pay my bills and still possibly contribute roughly $75/week into 401k after taxes, which will go into a Roth IRA. I?m currently 23 yrs old, but I figured from 24-65 if I put in 75 a week at a historically modest 8% return, I would have $1,243,557.56. Continuing to earn that 8% after 65, assuming I pull money out for 30 years, I could get $9,124.78 per month tax free. Assuming at that point that my home and everything will be paid for, that is a bit excessive as far as I can foresee. My plan was to contribute 15 or 20% now and then maybe more as my income grows, but it kinda looks like that may not be necessary.

I watched a video in my college personal financial planning class that said that people really need to contribute 18% of their income to their 401k. I was thinking of possibly going with 20%, but since even 15% seems to be excessive, I?ll probably just stick with the 15%. Is that a bad move? I could live a little better with the extra few bucks now.
I used a financial calculator to crunch the numbers. I?m looking for answers from people w/ a financial background as well.

Number of periods = 2132 (41years * 52 weeks per year)
Interest Rate: 8%
Present Value=0
Pmt per week=$75
Future Value=$1,243,557.56 (in 41 years)

Considering I?ll probably pull it out for 30 years and the money will still be earning interest right before I pull it out. $1.2 million earns nearly $100,000 in interest the final year before I start pulling out.

N=360 (30 years * 12 months per year)
Interest Yield=8%
Present Value=$1,243,557.56
Future Value=0
Payment=$9,124.78/month

I?m not trying to argue, I?m just trying to show my position and how I came to my conclusions. I know I need to save, but I just don?t want to save more than I?ll ever need when I can spend it now and be happier while I?m young.

I have not been able to quickly identify a calculator to measure the result of inflation and that is one critical factor I overlooked. Thank you!

Source: http://rothira.soolutions.com/roth-ira/is-75week-a-little-much-for-401k/

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