401K Millionaire Advice

I couldn’t believe it when earlier this year I checked my retirement accounts and found that their total value had eclipsed one million dollars. Being a superstitious person (the kind who won’t mention during a game that a pitcher is throwing a no-hitter) I reveled over my fortune for about two minutes and then put it out of my head for a little while. As in for a day when I checked my accounts again after the following days close. Still over a million! The number was exciting to see as the one million dollar amount has been drilled into my head since I was a kid via the culture (with game shows like Who Wants To Be A Millionaire?), politicians (always talking about taxing millionaires and having them pay their fair share of taxes) and family (telling stories over coffee and Sambuca about some distant family member or friend who had struck it rich). In practice what a million dollars in my retirement accounts mean to me now is that a) I’m not likely to be eating lots of canned food when I eventually retire; and b) My mantra of patience and discipline when it comes to money is paying off.

Honestly, I’ve been a bit reticent about writing about this milestone for a couple of reasons. First, due to the superstition that I mentioned above. In fact, in the months since the number topped a million there were a couple of stock market dips that took my retirement account values below that mythical threshold. The values have since recovered and are now above one million. Second, because I’m not one to brag about my finances. On the other hand, I’m compelled to write about my situation because I know there are many people who desire to build financial wealth and they would like some insight regarding how it’s done. I also know that I wish I’d had the kind of guidance that I can offer now many years ago as I might even be in a better financial position to day. So (as the kids like to say) no brag, just fact.

Here are some truths about my situation regardless of the amount of money in my retirement accounts.

• I’m still several years (at a minimum) away from retirement regardless of the current value of my accounts due to the requirement for penalty free withdrawals to occur from 59.5 years of age onward. So the grind continues!
• My savings goal for retirement is also $1.5 million at a minimum so the million dollar value of my accounts is less a touchdown and more of getting the ball into the red zone, to use an American football analogy.
• A million dollars is simply not worth what it used to be so even if I could withdraw the money without penalty now it would be a bit reckless to do so.
• Regardless of the points above, I do have goals for retirement account balances and I have reached the million dollar total about two years ahead of schedule. So that is cause for a bit of celebration.

Above all there is one point regarding my retirement financial situation that is at the front of my mind. The grind continues! Because reaching a milestone in the service of any life goal is no reason to forget the larger goals that you have. All I’ve learned over decades has taught me that a million dollars will not be enough for me to comfortably live the life that I want to in retirement (although my lifestyle will be modest) as we have no idea what inflation will do the value of a dollar in coming years and I do hope to attain a better than average life expectancy. God, and my health and fitness goals, willing!

The most important aspect of this post in terms of fulfilling my mission of providing guidance to others is letting you know how I got to where I am financially. Patience and discipline are at the core of it all. I finally got serious about retirement investing over twenty years ago. Around that time I flipped the switch on my attitude which was based in alternately obsessing over every little fluctuation in my retirement account and telling myself saving was pointless because I may not even live to retire. At some point in my early thirties I came to the realization that I would probably live to retire someday and that I’d be a fool if I spent all of my money now and banked on Social Security or an inheritance to live decently in my older years. This was also around the same time that I got married and started having children. So the additional responsibilities I took on were definitely a catalyst for change.

Here are a few of the specific things I’ve done over the years that I believe have contributed to the growth in my retirement accounts.

• Committing 10-15% of my gross income before taxes to retirement accounts, whether they are employer 401(k) accounts or Individual Retirement Accounts (IRAs).
• Taking advantage of company 401(k) matching programs and profit sharing programs that yield additional deposits into my retirement accounts.
• I invested in index funds (following the NASDAQ and S&P 500 in particular) with low turnover and low management fees.
• Never drawing on my 401(K) or IRA accounts prematurely, either via withdrawal or a loan.
• Seeking opportunities to increase my income so that the 10%-15% amounts (and the company matches) grew larger over time.
• Placing strong consideration on how major financial expenditures would impact my long-term retirement savings goals.

As you see above there is nothing exotic about the approach that I have taken to grow my retirement accounts. It’s the kind of bread and butter, rise and grind approach to wealth building that get rich quicksters despise! And believe me when I say that I salute the people who hit it big financially with some hot deal, great stock tip or revolutionary business decision. There was a point in my life where I decided that my path to financial security would rely on a different (albeit very boring) approach. I should add that it doesn’t mean that I haven’t taken a few shots in my life at investments or opportunities that could potentially change the game for me financially. I have. But they have been measured risks and I never bet everything (not even close) on one opportunity.

I know that there are a number of different schools of thought when it comes to building wealth and I accept that there will be skeptics regarding the approach I’m espousing. I wish those folks luck with their plans. A little luck never hurts! I will say that I think one point applies regardless of your philosophy. If you do nothing, then you’ll have nothing. The saddest financial stories I see are the ones where people are in their sixties and beyond, and they’re trying to live off of Social Security and reverse mortgages to maintain a basic lifestyle. Some elderly people turn to low paying jobs (Social Security income thresholds are an issue) to make ends meet. I salute those people for their desire to do what it takes, but I also know that as people age having to get out of bed for work and stand for an eight hour shift becomes increasingly painful.

I think it’s also important to point out that I’ve navigated personal, financial and physical ups and downs over the years. I’ve dealt with pay cuts, medical expenses, legal expenses, unexpected home and car repair expenses and just plain financial bad luck. In some of those cases I slowed down my contributions to retirement accounts. But I never stopped! That’s where discipline becomes such a valuable partner in your goals. I decided that any plan that caused me to halt contributions to my retirement savings was a bad plan and I would have to find another way. I will offer that I never suffered an involuntary job loss and feel fortunate about that. I also know that I’ve shaped my career such that the value I’ve offered to my employers (and I have changed employers) is high enough that they’re preferred to keep me employed in situations where they may have let go of other employees. Providing fantastic value in whatever you do is another great tip in terms of facilitating wealth building but it’s also an issue for a separate post.

The final thing I want to leave you with is this. I’m a regular person. I don’t come from a wealthy family. I don’t have a family name that is special to anyone. There’s really nothing extraordinary about who I am or where I’m from. The belief that some extraordinary qualities are required to build wealth and live a wonderful life is the most limiting belief there is. I know because at one time that’s what I believed! Once I changed my own mind and committed to my plan over the long haul everything changed. It took time. It required patience and discipline, as anything worthwhile in this life requires. Go and do likewise, and I think you’ll be pleased with where that philosophy takes you.