D
drewHorn
Guest
Many ads and articles promote Roth IRAs in this manner: Take the money you earn from each summer job you get starting at age 18 until age 22, and contribute to your a Roth IRA for those 4 years....never contribute another dime, and by the time you are ready to retire you will have $1 million or so in the bank waiting tax free (assuming an annual return of 8% - 10%)
Now, I understand what they are getting at, but most vehicles for a Roth are tied to the market such as stocks and mutual funds. Since the only way to get a compounding effect from these is to reinvest the dividends and capital gains, how can you achieve an annual return of 8% or more....especially if you never never contribute again, like the example in the articles.
I ran the numbers using a hypothetical MS excel model using the Fidelity Freedom 2045 (FFFGX). And just with reinvesting dividends and capital gains, I only got to half a million after 40 some odd years. Any clarification is greatly appreciated.
Now, I understand what they are getting at, but most vehicles for a Roth are tied to the market such as stocks and mutual funds. Since the only way to get a compounding effect from these is to reinvest the dividends and capital gains, how can you achieve an annual return of 8% or more....especially if you never never contribute again, like the example in the articles.
I ran the numbers using a hypothetical MS excel model using the Fidelity Freedom 2045 (FFFGX). And just with reinvesting dividends and capital gains, I only got to half a million after 40 some odd years. Any clarification is greatly appreciated.