401k Millionaires
“Yes, Virginia, you can save more than a million dollars in your 401K!” So says Jeremy Olshan in his article about 401k millionaires at Smart Money.
A Million Bucks-In Your 401k?Confirms this article at Smart Money. The author, Jeremy Olsham, interviewed several brokers who managed money for clients that had amassed more than 7 figures in their 401K.
Most experts feel 401k savings are a failure-that many in our country will be hurtin’ for certain at retirement….
Though the savings plan could use a few tweeks, the failure is OUR FAULT, yes us, the public rather than the plan’s.
Why do they fail?
Cause we don’t use ‘em. I’ll leave it up to you to decide why, though I have strong opinions….
401K Success Stories
In this article, what were the consistent findings for those who saved the most in their 401k?
As usual, it’s not shocking, no not surprising, and certainly not scintillating.
These retirement plan millionaires didn’t have inside information, they didn’t cheat the 99%ers, they didn’t walk all over the middle class.
Nope, they did what every self-respecting financial planner recommends you do to maximize your retirement account.
They participated.
- They put in as much as they could afford.
- They put money in every pay period, every month, every year for long periods of time.
Boring….but effective. You can laugh at ‘em, but they are the ones having a comfortable retirement, while you spent your money on that new truck you couldn’t afford….
What didn’t they do?
- They didn’t use their 401k as an ATM….borrowing money for golf clubs, or braces.
- They didn’t try to time the market, stopping their contribution during down markets (fear) and increasing at market tops (irrational exuberance).
Not rocket surgery as Yogi was known to say….
Included in the article cited above, is a discussion about how employees with modest incomes could be 401k millionaires, with the math and everything. Where have you heard that before???? (hint: see the name of this blog….)
Breaking 401k rules
Some of those interviewed had broken a few standard rules. The most common was having their 401k invested 100% in company stock. {This precaution only applies to those of you working at a publicly traded company who allow company stock purchases in your account.} My employees can’t buy company stock and most of my nurse readers work at facilities with 403b plans. They can’t buy company stock in their plan.
Experts advise that you not keep all your money in one stock-whether in a retirement plan or any account. Failed companies such as Enron, Lehman, Worldcom and Bear Stearns come to mind. If their employees only invested their 401k holdings in company stock, their accounts went to zero overnight. Damn depressing to think about-sorry you guys…
If you worked at Apple or Google and 20 years ago you put all your retirement savings in those company stocks, you are sitting on easy street right now. 20 years from now though, who knows whether even those tech titans will still be here.
In summary, the tried and true is confirmed once again.
If you want to have a large bucket of money in your retirement account at the end of your career, put money into it. Every pay period, every month, every year, for years and years.
And you should learn what and where you are investing, but that’s for another post. I’m sure you’re on the edge of your seat!
Reader Questions:
Do you think you will be a 401k millionaire? Check out this post and survey at Retire by 40 on net worth at retirement goals, and read the comments, very enlightening.
{photo credit: surburbandollar c.c.}
Don’t forget to:
Follow-Twitter-@DrDeanBurke
Like-Facebook
Circle-Google +
Link to me-at Linked In
Friend-Facebook
Don’t miss anything here-RSS
Newsletter, for special people, with my special mini-e-course on personal finance and my special free e-book, at no extra charge-cause that’s the kinda guy I am! Don’t you want to be special?
Tags: a million bucks in your 401k, maximizing your 401k savings, saving a million dollars in my 401k, saving money in your 401k
I don’t know about keeping company stock in a retirement plan, whether it’s a retirement plan or stock options. I bet that for every success story, we could match it with an AMR or an Enron un-success.
Yes it’s a risky thing to do, but for many, they feel they know their company better than they could possibly know other stocks or funds. Not the wisest risk to take, but understandable.
The 2008 crash definitely set me back quite a bit. Although the balance is recovered now, that’s basically three or four lost years, which is a pretty big deal considering the time you have and what I’ve contributed during that time, and what would have happened under ‘ normal’ circumstances. Lucky I still have time on my side versus many older people who lost a lot and won’t have decades to recover before they need the savings.
Yep, the last 10 years were tough, but if you added additional money at the bottom in 2008, then that money is up nicely. That is the secret, to keep plugging away. Even us old folks have time for things to grow.
THanks for the mention! I had a big portion of my company stock in my 401k when I first started – a few years before the dot com bubble. Yeap, you guess it, I don’t have company stocks in my 401k anymore.
It’s too risky. You can always invest in other comparable companies. I wouldn’t put that many eggs in one basket again.
valuable lesson learned, sorry for your losses….
Well, if I keep plugging away at the rate I am now, in 30 years, I’ll have $200k in my retirement account- but that assumes nothing from the market, and also assumes that I don’t up my savings, which, I do, in fact, up 1% every year. Still, that’s kind of pitiful.
Market- I need you to do some work for me here.
I’ve lived through boom times in the market, and of course the last 10 years. Boom times are much, much, much, much more fun….These things usually occur when nobody thinks it’s possible, so maybe this is the year.
I’ve met several people who had company stock and then when the company dissolved, they lost not only their jobs, but their savings too. Diversity is underrated.
Dr Dean – great article but I wanted to point out a few things and maybe get your perspective/opinion on.
Yes, you are absolutely right that most people today in the U.S have absolutely no retirement account. In fact, most people today cannot afford to save up for retirement because they are up to their necks in debt. They are too busy trying to pay their bills.
I think that someone retiring today lived in a much different American than the one we are living in today.
Someone retiring today lived in a post WW2 America, which has been arguably one of the most prosperous in our nations history.
Babyboomers did not have as much access to credit as people do today and therefore did not over consume and go into deep levels of debt.
People did then did not have to rely on two incomes to keep a family afloat, they did not have to ‘save’ for their children to be able to go to college (they could work and pay for it themselves) and more importantly they had a stronger dollar.
Today it’s quite the opposite.
Don’t get me wrong. These are not excuses I am presenting. However, what I am trying to say is that as time goes on our society seems to be getting poorer and poorer and will be harder for anyone to become, and amass real wealth, because 1)a weaker dollar, high credit availability, higher levels of debt, a government that encourages over consumption, etc.
I can go on and on.
The reality is that I am still very optimistic for people living in America to be able to builds wealth. They just have to prepare and educate themselves about how money really works.
What do you think?
I too am optimistic for the future. But only if we as individuals face hard truths. We can’t live like rich people if we aren’t rich, and blame it on others. We can’t allow our leaders to spend money they don’t have obligating our kids and grandchildren to clean up the mess cause we didn’t want to face the consequences.
But there is more opportunity available for someone to get ahead and build wealth here than in any where else in the world. We have to go to work.
[...] The Millionaire Nurse – $1 Million in a 401K [...]
I also would be leery investing 100% in company stock. You are certainly taking a big gamble with a decision like that. However, it can be sort of viewed as an investment in yourself. The small part you play in the larger corporation will go directly towards helping that stock grow. If more people in the organization feel that way, the company is likely to succeed.
I think that is what makes people take the risk, they feel they have more control, but can be blind towards the bigger risk of having all of your investments in one stock.
I’m torn on the company stock issue.
Obviously, those in Microsoft, especially in the early years, and more recently, Apple, have done fine having as much company stock as they can. I’d bet that most 401(k) millionaires were loaded in their company stock.
Yet, avoiding Enron is key to not crashing and burning. I’d suggest that if one used frequent rebalancing, a crash, even to zero won’t be devastating. Apple for instance has returned 120X (as in 12,000%) over the period since IPO. If each year, the owners rebalanced to 33% co stock, they’d see 40X over this period, with only 1/3 their account at risk should the worst happen. Even an Enroner would have come out pretty whole.
I understand your math, but would caution that having a 1/3 or your retirement portfolio in one stock is still too much risk to me. I think the re balancing, and hedging options can be used to limit losses, but they require sophistication. The article I’m quoting didn’t specify the numbers, but the 401k millionaires I’m familiar with personally don’t have any company stock as they work for non public companies.
Thanks for commenting! (I rescued you from the spam folder:)
at this stage, it doesnt look like I’ll be a 401k millionaire – right now I dont even have a 401k to invest in! Maybe I’ll make in as an IRA million aire though.
Yes it’s a little hard to be a 401k millionaire without a 401k…But IRA millionaires are not too bad, though with IRA limits it’s a little harder to do!
Great article, Dr. Dean. I am not a big proponent of keeping much of your company stock in 401(k)s either. It only makes up about 2 percent of my 401(k) allocations right now.
That being said, I do know one coworker who made a killing by gambling and putting almost all of his 401(k) in our company stock when it was in the tank a few years back; he essentially doubled his money over that time.
Lucky sap! I remember when he told me he was doing it too. He suggested I do the same, but I just couldn’t stomach the risk.
Even so, I still wouldn’t do it if the opportunity presented itself again. My coworker could just as easily wiped out 30 years of retirement savings if our stock had completely tanked.
It is the risk control that is the issue not the lack of potential reward. There is no doubt many millionaires are made by hoarding company stock. Who wants to be 55 and lose everything though if things go the other way…
[...] The Millionaire Nurse – A Million Bucks? In My 401(k)? Ya Gotta Be Kiddin’! [...]
I really never put too much value in saving for retirement but as I became older and wiser, I value it much more now. I regret those days when I didn’t even participate in my company’s 401k.
No doubt looking back, it looks like we could have done more, but we just need to power forward from here.
[...] landlord who hates money and wants to fail.”Dr. Dean – The Millionaire Nurse posted A Million Bucks? In My 401K? Ya Gotta Be Kiddin’! – “Fully funding retirements accounts is not complicated. No rocket science [...]
[...] Dean from The Millionaire Nurse published A Million Bucks? In My 401K? Ya Gotta Be Kiddin’!, saying, ‘The failure of the 401K Retirement Plan has nothing to do with the plan. No, it [...]
[...] Personal Finance Whiz liked my Million bucks…in my 401k post. [...]
I am DEFINITELY going to have at least $1M in my 401K by the time I am ready to retire. I also read (in Smart Money) of so much criticism of 401k plans. Why? The funds are not much different than index funds or mild managed funds you would find in Vanguard or Fidelity. The funds aren’t much more expensive either. So where’s the failure? As you point out – the failure is with the people. Not participating. Not contributing enough. People need to remember that a 401k is a responsibility that needs to be planned for just like other responsibilities in life.
Great to have a goal and a plan. And no doubt we are the one’s at fault for faulty 401k balances.