Who wants to be a 401(k) millionaire? – Washington Post


They are as rare as having an empty middle seat next to you on an airline flight these days.

But seated in the cubicle next to you at work could be a 401 (k) millionaire. If you’re employed by the federal government one of your co-workers could be a Thrift Savings Plan (TSP) millionaire.

It’s not likely these millionaires will boast about their elite financial status. They typically keep their savings prowess secret. Yet, these ordinary people have done something extraordinary. They’ve amassed a great deal of wealth one paycheck at a time.

Fidelity Investments recently reported that for the third quarter of 2018, the number of people with $1 million or more in the employer plans it manages jumped to 187,400 — 10 times the 19,300 millionaires it reported a decade ago.

As of September 28 this year there were 34,128 TSP millionaires, up from the 16,475 millionaires reported as of August in 2017, according to the Federal Retirement Thrift Investment Board. By comparison, the average TSP balance at the end of September was $107,333.

In the not-so-shabby category were the 64,138 TSP participants who had between $750,000 and $999,0000. Another 160,760 participants have account balances between $500,000 and $749,000.

There is one TSP account holder who has more than $6 million. TSP millionaires are a small group relative to the 5.2 million participants, but more people are joining their ranks.

Even accounting for the taxes that will eventually have to be paid there’s something impressive about people who started saving at the beginning of their working careers and now have a really nice retirement nest egg.

How much money do you really need to feel rich?

I recently talked to Katie Taylor, vice president of Thought Leadership at Fidelity, and asked her about people who have saved $1 million in their workplace plan.

Q: What’s the secret to becoming a 401 (k) millionaire?

Taylor: There are a couple of key things that all of these people have in common. So these are the folks who are doing everything right. One is that they’re starting to save early in their career and they are saving and they’re trying to put as much away as they can. They’re saving either at or beyond the 15 percent that we would recommend that people save throughout their career and that can be a combination of what they’re putting in from their paycheck as well as any matching contribution from their employer. The second thing is that they are appropriately allocated in equities based on their time horizon. So making sure that you are allocated appropriately is a really great idea and ‘target date funds’ make it really easy to do that.”

Fidelity reported that for the first time, more than half (50.4 percent) of 401(k) savers have all of their assets in a target date fund. The appeal of the funds is that investors don’t have to rebalance their holdings. The funds hold a mix of stocks and bonds. Generally, the longer the retirement horizon the more stocks in the funds. As the retirement year gets closer the fund becomes more conservative and may be weighted more in bonds.

Read: How to stay on point with target-date funds

Q: Is it realistic that more people can be 401 (k) millionaires?

Taylor: “I tell people all the time that don’t have to make a million to save a million. Most of these millionaires are not people who are making millions of dollars a year and saving in these accounts. It’s really just ordinary people who have taken a very serious approach to making it a priority to save for retirement. And that consistency over time has paid off. If you’re someone who’s just starting out or even if you got a late start continue to save as much as you can. If you’re older and you didn’t save as much earlier in your career there are things you can do to save more once you hit age 50. Even saving 1 or 2 percent more each year can make a big impact in the long term.”

Q: What can people do to remember to increase their retirement savings?

Taylor: “Between 70 and 80 percent of employers offer a program that you can sign up for that’s called ‘automatic increase.’ A lot of times people will tell us that they don’t even really notice the difference in their paycheck.”

Q: What do you say to people who scoff at the idea that anybody can become a 401(k) millionaire?

Taylor: “I would just reiterate that in many cases those people are just everyday people like the rest of us who are just saving. The compounding over time makes a really big impact.”

Look, life can get in the way of you saving more for retirement. So don’t beat yourself up if you’re nowhere near the rarefied atmosphere of the millionaire’s club. But in aspiring to be like them you’ll have more than most when it comes time to retire.

Read: Is $1 million enough to retire? Why this benchmark is both real and unrealistic.

Color of Money Question of the Week

If you’re a 401(k) or TSP millionaire what advice would you give to people who want to join your club? Send your comments to colorofmoney@washpost.com. Please include your name, city and state. Put “Who Wants to Be A Millionaire?” in the subject line.

Send your comments to colorofmoney@washpost.com. If you want to remain anonymous, which I understand please at least include your first name, last initial, city and state.

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Happy belated birthday bitcoin. You’re still too young for most investors.

Bitcoin turned 10 on Oct. 31 and the North American Securities Administrators Association (NASAA) took the opportunity to warn consumers about investing in this and other cryptocurrencies.

Bitcoin is 10 years old

NASAA has released a new video, the second in a series called “Get in the Know,” in an effort to raise awareness of the risks of virtual money-related investments.

The animated video hones in on what NASAA says are the three major issues with investing in electronic cash: It’s untraceable, uninsured, and unregulated.

Watch: Cryptocurrency and Crypto-Investment Risks.

Last week I asked: Have you considered investing in bitcoin?

“No, I am not tempted to join in the bitcoin frenzy,” Thomas J. Druitt of Paducah, Kentucky, a regular commenter who does financial markets research and analysis. “For anyone thinking about speculating in bitcoin I suggest that they read a book written in 1841 by a Scottish journalist named Charles Mackay titled ‘Extraordinary Popular Delusions and the Madness of Crowds.’ They might find after reading Mackay’s book that the current bitcoin mania has much more in common with the Dutch tulip bulb mania of the early 1600s than with anything that might be called an investment vehicle. Like bitcoin, tulip bulbs had no underlying rate of return and nothing to financially support their ever-increasing price other than the hope that they could be sold a little later on at a higher price to some poor sucker who bought in to the madness closer to its end than to its beginning. Anyone buying into the bitcoin popular delusion should be made aware that they are buying into a high-stakes game of musical chairs in which the only certain outcome is that when the music stops playing there will be a lamentable acute shortage of chairs available to accommodate the vast hordes of bitcoin owners desperately seeking any landing spot where they might ditch off their now rapidly depreciating bitcoin assets.”

Color of Money Columns This Week

Knowledge isn’t power. The right knowledge is power.

Stay informed about your money.

In addition to this newsletter, please read and share my weekly personal finance columns.

You, too, can join the 401(k) millionaire’s club

The best and worst 529 plans, according to Morningstar

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Please note it is my personal policy to identify readers who respond to questions I ask in my newsletters. I find it encourages thoughtful and civil conversation. I want my newsletters to be a safe place to express your opinion. On sensitive matters or upon request, I’m happy to include just your first name and/or last initial. But I prefer not to post anonymous comments (I do make exceptions when I’m asking questions that might reveal sensitive information or cause conflict.)

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