Can Your 401(k) Make You A Millionaire?
The Secrets To How An Everyday Family Can Retire With $1 Million
Last year, Deutsche Bank released a study revealing that 47% of American households are zero-savers. I’ve read and written about a lot of scary statistics, but this one is extremely alarming.
There are many people out there who think that it’s either too late to begin saving or that minor contributions to retirement plans aren’t going to move the needle in the long run. Generally, those are the attitudes that drive people to do nothing other than just throw in the towel.
If you are one of these people, please understand this: it doesn’t take being a high profile executive, a genius young entrepreneur, winning the lottery, or receiving a major inheritance to have enough money to retire happily and comfortably. As you will see in the example below, all it may actually take is automatically saving in your retirement account and a little extra financial discipline.
The Unknown Millionaire
Wela recently released an e-book about an everyday family that retired with over $1 million. The irony of the story is that they didn't even know how much money they had saved. Many years ago they had implemented a "set it and forget it" strategy to the husband's (Don's) 401(k) plan. Don did not check his account often, and then one spring day he opened the statement. He couldn’t believe what he saw- his account statement showed that he had amassed over $1.2 million in his 401(k) over the course of 32 years! Completely unbeknownst to Don, he and his wife were millionaires!
So how did this happen? It was easier than you might think. When Don began his job working in the warehouse at McKesson, he learned the company would match employee 401(k) contributions up to 6%. Keep in mind that 401(k) contributions are made with pre-tax dollars. At that moment, Don and his wife Karen made the decision that Don would make contributions up to the amount that the company would match.
After all, if the company is offering free money, he might as well take it! So Don contributed 6% a year and his company contributed 6% a year, for a combined contributed of 12% every year for 32 years. Don's automatic savings into his 401(k) was first on his and Karen's list of financial priorities. The rest of their budget was based on what they would receive after Don’s contributions.
Don and Karen didn’t become millionaires because of their investment knowledge, but because of their fiscal discipline. Along with their "set it and forget it" approach to saving in Don's 401(k), they made prudent financial choices in other areas. For example:
- They lived within their means; they spent only the money that hit their bank account each month.
- For Karen & Don, living within their means meant zero credit card debt.
- They had an open line of communication as a couple regarding financial planning. They discussed the kind of life they wanted to provide their future children. They even decided that due to their incomes and limitations that they would have just one child
- Instead of taking lavish vacations that required a lot of air travel and accommodations, they got creative and explored all of the places and attractions their very own state had to offer.