They’re everyday workers who clocked into their jobs day in and day out, all the while faithfully socking away money for the time, decades out, when they finally retired. And now they’re millionaires.
Fidelity Investments announced this week that the number of people with seven figures in their 401(k) accounts jumped 20% from September to the end of December. That struck a major chord with readers — nearly 4,000 of you weighed in on the news of so many regular folks saving for retirement and reaching the million-dollar mountaintop.
As I wrote in my column, the bigger balances came from a combination of a few things, not just the strong stock market. These people played the long game. The average savings tenure of Fidelity account millionaires is 26 years. And they save at a high rate — 17.5% of their pay on average.
Your comments fired me up. You found sage advice in the success of these long-haul savers and added in your own strategies and personal insights, which I loved. I especially took to heart those who touched on older generations teaching younger people about the importance of saving.
Sure, there were some cynics talking about inflation and low wages, but that’s to be expected.
The following is an edited sampler of some of those thousands of comments — and my take on them. Feel free to weigh in, of course, in the comments section at the end of this sequel.
The value of early influencers
When I got my first job at 16 my grandfather wrote me a letter and explained the importance of investing and offered to match my first year, and I’ve been doing it ever since. Allowed me to put 20% down on my first house tax free. Receiving that letter fundamentally changed my life.
Me: This is where it starts. For me, I was in my early 20s and working at my first job that offered a 401(k) plan. I was going to skip it because I felt I really couldn’t afford to set money aside on my meager salary. Holy Mackerel, when my father heard that foolish idea, he read me the riot act and pushed me to learn about investing — even when the notion of retirement was something so far down the road I couldn’t even imagine it. Thanks, Dad!
The importance of employer education
I manage the 401(k) plan at my company. When the company started the plan back in the late 1980s, my predecessor took great pains to explain how a 401(k) works and to help employees pick appropriate investments. All of the employees who have been consistently contributing to the plan for 25 years or more are millionaires, with a few having balances in excess of $2 million. Only one of these people has ever earned $100K in any one year.
The common traits: 1) Consistent investments for 25-30 years with employer match; 2) Investing 10-20% of income; 3) Living within their means to avoid financial disaster; and 4)Not getting divorced.
Me: Bingo. We need more employers to do just that, even today. So many folks are flummoxed about even the basics of investing for retirement. Most Americans between the ages of 50 and 75 flunked a retirement income literacy quiz that tested their knowledge across a dozen areas, including inflation, investments, long-term care costs, and Social Security, according to a recent retirement income literacy study.
The average grade on the exam was 31% — out of a possible score of 100%.
Read more: Retirement planning: A step-by-step guide
Younger workers, listen up
Anybody that’s under 35 needs to heed the advice on this thread about the importance of a 401(k) if your company offers one.
I qualify for the max Social Security payment. It’s still not enough to cover expenses as well as maintain my lifestyle when I was working. Thankfully, I got smart and started my 401(k) contributions when I was about 35, and it’s totally saved the bacon.
I just passed the $1m mark this year (I’m 77). My lifestyle post-retirement hasn’t changed a bit. I still travel, can afford a nice home and even have enough cash to fund a small scholarship at my University. I have enough money to carry me through the rest of my life.
Max out your annual contribution, the years go by in a blink of the eye.
Me: I couldn’t ask for a better note of real-life encouragement. Social Security isn’t enough for many Americans to match their pre-retirement lifestyle. Retirees received a 3.2% Social Security cost-of-living adjustment this year. That juiced the average retirement benefit by $59 a month, from $1,848 to $1,907, according to the Social Security Administration (SSA). Could you live on that?
The adjustment provides some relief to the more than 70 million retired senior citizens and disabled workers, but many older adults say their monthly budget for essential items such as housing, food, and prescription drugs is 10% higher than one year ago, according to a recent report by the Senior Citizens League.
Max it out, don’t touch it
The key is to start maximizing 401(k) growth as soon as you enter the workforce. I spend a lot of time explaining this to my younger 20-something-year-old relatives who have really good jobs but they’re not maximizing investing as they should be — because they enjoy spending on things that they really don’t need.
Whatever your company’s maximum match is, you should contribute that amount and most importantly, while you’re employed don’t ever withdraw/borrow funds from your 401(k).
Also the younger you are the more aggressive you can be with your investment portfolio, which also maximizes your 401(k) when the markets are doing great. You can always move to a more conservative position when the markets cool off.
Me: Yes! Thanks for bringing up the warning on withdrawing or borrowing funds from your 401(k). Taking a loan from retirement savings is undeniably a quick cash move during uncertain times, but consequences exist. Withdrawals, of course, are the most damaging for savers because an early withdrawal triggers some weighty taxes and penalties. Another fallout from using your retirement cache for short-term expenses is that by pulling cash out, even for a short period, your retirement funds miss out on compounding growth on the amount, and that never comes back.
It’s your life — take charge
A word to anyone under 30 reading this article if I may?
Your life right now seems like forever — no need to save — time to be cool, quit your job, live the “van life.” Who needs money? Right?
Be aware that the next 20 years will go by in a flash. Your children will grow, leave to their own lives, and you will be alone — older and less employable. You will work until 60…get pushed out of your company in favor of someone younger (it’s reality — face it) and then what?
Be a burden to your own family because you preferred to avoid responsibility? Depend on the government to provide for your every need? (Take a look at the people over 60 who are living on the street if you believe that’s a good plan)
A 401(k) is way better than Social Security or a company pension. YOU are in charge. Your employer will match your contribution. Contributions are TAX FREE. Be smart. Invest now.
Me: Hurrah. It does go by in a blink. My 25-year-old self needed to hear this. Let’s shout it out to all those Gen Zers new to the job market and scrambling to make sense of it all.
Priceless wisdom
My niece just got her first job. I told her to get online and open a Roth IRA. I wish I did when I was that age.
Me: That’s love. Better than any birthday present.
If you feel like you’ve fallen behind
All of these accounts started with a zero balance. The longest walk begins with a single step.
Me: This is it. Baby steps. Saving 15% of income per year (including employer contributions) is an appropriate savings level for many people. Someone at age 25 might start saving 6% and ramp up savings by one percentage point each year to reach 15% in their 30s.
The role of education and public policy
Every high school in America should teach the power of compounding, dollar cost averaging and consistent investing. From your first job until you retire, you should sock money away.
Me: Agree. More needs to be done to ramp up basic financial skills at an early age that will have a lasting impact on the finances of millions of Americans. But it’s only part of the story. Other factors complicate your ability to get traction — like your income, whether or not you have a college degree, your race, and if you work for a company that provides an employer-provided retirement plan to help you get started and automatically put money aside each paycheck.
The kids are all right
Half way there in my 30s!
Me: Keep on truckin’. And tell your friends.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.
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