I think there is some confusion on how the market works. You will never consistently get the same rate of return over 40 years but it is about the average annualized rate of return. The 22.5% my 401K portfolio gained in 2017 will one day have to balance out a lost year of returns or maybe even lost decade (like 2000-2010). The market has almost quadrupled since March 2009, but I always hear people say rates of return are unlikely. The average annualized total return for the S&P 500 index over the past 90 years is 9.8%. If you look up the 20 year rates of return for the stock market, the S&P 500 averaged an annualized total return of 18% from 1979-1999 (which would have been around the beginning of the career of the person in the example). An 18% average for the 1st 20 years of the example’s career! While that probably not happening for us (unless you worked in that timeframe) the example could have gotten to 1.5 million. I started young, have never had a financial planner (thank you Vanguard index funds and my company) and I have never made anywhere close to the amount of the example in the article. The Utopia part must be getting people to put in 6%, not pull out of the market, but invest more during down times, and not withdrawing from our 401K plans. The part I disagree with is that the article example was not trying “max out” or get close at that income and age.
@GTalum My solution to the long-term insurance issue is to invest more into my family’s health savings account (HSA). It is the only investment vehicle that is tax free while saving, growing, and withdrawing the money (on medical expenses at least) and my company gives $1,100 a year towards the account. My family has been really healthy up to this point so the account has been really growing, but I understand that HSA’s are not for everyone. My time horizon (22 years more of work if I am lucky) is such that I am hoping to use its investment component in my HSA to grow the account to a level where it will cover medical expenses and also be our long term health insurance in retirement.
ChangeTheGame, I think people here understand annualized returns. We’re not children, we’re…old. 
If you look at the retirement thread, you will see that there are many here with plenty of money in their 401K’s, who have been very successful in funding it over time. The demographic on this forum is skewed towards upper income. But one can still recognize that for most people, life happens. Being consistently employed for 40 years is unlikely. Having an employer who will contribute to your 401K for 40 years is unlikely. People have health emergencies for themselves, their spouses or their kids that set them back. A pension is a luxury few people have anymore.
And the numbers can look great if you conveniently leave out years such as 2008 (S&P total return down approx. 35%), and as in your example of 1979-1999, years 2000 (down 9%), 2001 (down 11%), 2002 (down 22%). People get panicked when the market crashes and pull the money out at the wrong time. They feel they need to have large amounts in cash, particularly as they get older. Not many 60 year olds are still invested mostly in aggressive mutual funds. Sure, you can invest a small amount of money decades ago, and if you choose the right fund and don’t touch it, it will grow to a very large number, but for most people that is not going to happen and they are going to have to aggressively fund their 401K’s in later years. If only we could pick the years we start to invest and then not let market fear and greed affect us.
My husband works really hard to get his employees to enroll in the company 401. It is pretty much wasted. Two new employees in their 20s just were hired and they looked at him like he was nuts for pushing it so hard. For the most part people turn 40 and have the aha moment that they should have been saving and want to start.
Our kids were indoctrinated by their dad all their lives so even though they are in their 20’s they have been saving for retirement for years.
@“Snowball City” I think that there are a couple of things at work there. Besides the obvious fact that many young people don’t feel like they have much to spare, and that retirement is way too far away, sometimes it can be a waste of money. People don’t stay in their jobs for very long anymore. You can end up with a bunch of tiny 401K’s all over the place, with the administrative fees eating them up, and low choices in what to select. For many people, I think the Roth IRA is the better way to go when they’re young, and not making much money. Sure, you don’t get the tax break, but you have something you can consistently contribute to, and the money stays in the same account with no hassle.
However, I suspect that it is rare that young people contribute to the Roth, either.
But then you can direct-rollover them into an IRA of your choice.
@busdriver11 I agree with everything you just detailed. I did mention the lost decade (2000-2010). People sometimes don’t get 40 years like you said and sometimes don’t get employee matches. But even if we looked at just the last 20 years (Jan 1998-Jan 2018) that had 2 large recessions (I call 2008-2009 downturn more of a depression), the S&P 500 still have annualized returns with reinvested dividends of 7.4%. The real problem is human nature and the urge to pull out at the bottom of markets. Investors in the market for the long haul, who invest fairly aggressively, and start young with minimum employment gaps (I have only had 10 months of unemployment over the last 20 years), and good health can get to the 1.5 million. The example investor in the article would have started their career at one of the greatest eras for investing if they had those qualities (13% annualized growth with reinvested dividends in the S&P 500 from Jan 1979 until Jan 2018). I definitely want it to be realistic because our children will need double the amount (inflation is evil) to have the same quality of living in retirement.
I agree with @ChangeTheGame. A lot of people DO achieve 401ks in excess of $1 million over their lifetime. Sure, there are people who don’t follow good investment advice but if you start young (I personally wasted most of my 20s and still did well), stay invested consistently (follow investment experts’ advice and don’t try to time the market especially with a long-term asset). You don’t even need to choose the “right fund” as long as you choose an index fund.
Consistency is key both in terms of investing and staying the course on your investments and riding out market cycles. I know I benefitted from never selling into down periods. Most folks fail at trying to time markets because they sell into weakness and buy on strength, when you should do the opposite. Some people are good at following a contrarian approach but you don’t need to do that to be successful with your investments. Just have a mantra of buy and hold as customers of Vanguard, Fidelity, and the like know well.
Additionally, if this thread is an example, many people do continue to have a solid chunk of their portfolios in equities later in life. With life expectancies of 80, 90, or more, there is risk in being overly conservative.
I’m not saying this applies to everybody but enough to not make it uncommon. That’s one way you get the millionaires next door.
"ou can end up with a bunch of tiny 401K’s all over the place, with the administrative fees eating them up, and low choices in what to select. "
There is a thing called a rollover IRA. You have those balances transferred. If you pick the right investment house (Vanguard, Fidelity), admin fees are extremely low and investment choices are quite broad.
You can also choose to fund a 401K and a Roth IRA. It doesn’t need to be one or the other.
Many companies will not contribute to an employee’s 401K until after a year. My older son went from job to job for a time. Two months here, six months there…unlikely someone (particularly a younger person who doesn’t think they are going to stay at a job for long) is going to do the work to transfer tiny balances from jobs they worked at for a short time. In these situations, there is no reason whatsoever to put money into what will at some time be a taxable event, when you can fund a Roth, if there is no employer match. And very few young people are going to be able to fully fund a Roth and their 401K also. Why not get that eventual million dollar plus account into a tax free status when you take it out?
I would hazard a guess that there are tiny 401K’s all over the place that people have totally forgotten about, or decided they were too small to worry about. Eaten away by administrative fees. When I was younger, I thought I was financially aware, but didn’t even realize that me and my husband’s employer had contributed money into a retirement fund for us, until a year or so after they laid us off. We rolled it over, eventually converted it into a Roth, gave it to a friend to invest, and that mere 20K is worth over 500K now. Actually, thank God we weren’t aware of it, because during dual unemployment with a baby and a toddler, we would have cashed it in for sure. A problem with contributing money when you don’t have much extra to spare, is that you reach to that when you’re in need (and pay the taxes and fees). You need either a good money cushion, or incredible self control.
I agree with that. I am sure that many people get to far more than that. The problem is human nature, job fluctuations and bad luck.
Haven’t read the whole thread. As a financial advisor who focuses on retirement income (living a quality life in retirement) with 30 yrs experience, I would simply consider the following:
Life stages of Money - There are 3 primary stages; accumulation, preservation, and legacy. I have found the leading challenge for the vast majority of people we work with is transitioning their thinking from an accumulation mindset to a preservation mindset. Simply put, the vehicles used to build your nest egg are generally not appropriate to sustain your lifestyle in retirement. People think of retirement as this magical. it can be if finances are properly managed and “staged” ahead of actually retiring (I suggest 10 yrs prior you need to have a plan / strategy). With many people living into their 90s (very realistic these days) , think of retirement as your longest period of unemployment. Where will the income come from?
The happy ending to this potential tragedy is all it takes is education, strategy, and execution. Get educated (nothing to do with your level of formal education - we work with blue collar through boardroom, physicians and business owners. Most just have a lack of knowledge in these areas), and rearrange your assets so they are properly positioned for the Preservation Stage. Lots of ways to get that done, but don’t wait if you’re within 10 yrs of retirement. Otherwise you’ll have to take far too much risk to generate the income you need and the lifestyle you want.
Odd, isn’t it? When something else other than stocks or other investment assets goes on a 50% off sale, people are more likely to buy it…
Note that 401k plans can offer a Roth option as well, although not all do.
The difference between traditional and Roth is tax at the back door (traditional) versus tax at the front door (Roth).