How the big money gets saved
The IRS says it doesn't keep data on the highest 401k balances, and providers of the plans refuse to disclose the figures. Anecdotally, however, advisers say it's not uncommon for savers to rack up balances in the $3 million to $5 million range.
Bedda D'Angelo, the president of Fiduciary Solutions in Durham, N.C., says one of her clients amassed $6 million in her 401k. An executive at a pharmaceutical company, the client maxed out her pretax contributions each year, and, including after-tax contributions, saved close to 30% of her earnings annually.
She was the kind of person who never had debt -- not even mortgage debt, D'Angelo says. "She was a disciplined saver, whenever she got a bonus -- she would invest half of it." Her plan had a mix of large cap, small cap, international equities and a bit of bonds, and at 56, when she retired, she was earning $450,000.
Another client who saved more than $1 million worked his entire career at General Electric (GE, news) and invested only up to the company match, but entirely in company stock, D'Angelo said. Though such a strategy seemed dangerous -- even before the collapse of Enron, when many employees suddenly found themselves holding worthless shares -- the employee refused to diversify, she says.
"As soon as I met him, I tried to convince him not to, but he wouldn't hear it," she says.
Other advisers also shared tales of employees making millions with only company stock in their plans. "Those who bet the entire house on a particular stock are always going to have a higher probability of a big win, but they also may end up in big trouble," VanDerhei says.
Kathleen Campbell, the founder of Campbell Financial Partners in Fort Myers, Fla., says the handful of her clients who have saved from $1 million to $2 million in their plans all maxed out their contributions. In addition, they refrained from jumping in and out of investment selections based on the whims of the market. But she also had clients get rich on company stock, a strategy she discourages. "Best not to be holding the bag with your retirement savings in another Enron or Bear Stearns," she says.
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US citizens plain and simple spend too much and expect too much out of government. Live simpler and smaller, save your income in any form you can. I am 46 and have been saving since I was 21. Yes, 21, it can be done - even if you make peanuts for income. I alone now have amassed nearly $250K in various forms of retirement savings. My wife about the same amount. I have worked a wide variety of jobs and have never made more than $50K at any job.
My advice for young people: 1.) Start saving right away and put away 15-20% of your income. Make do with what is left over. 2.) If you marry and want children - wait until you can afford them (at least 30 years old). Having children too young is the worst thing you can do. Children are very expensive and will not allow you to get a solid start and to develop the savings habits you will need to reach your retirement goals. 3.) Buy only used vehicles and take care of them and run them into the ground. Do not get into the habit of getting a new vehicle ever few years - it is a losing proposition. 4.) Don't buy too large of a house. Everyone seems to blame the banks for the housing crisis. Sure they had a hand in it, but it was the consumers who bit off more than they could chew. 4.) Eat at home and bring your own lunch to work. Eating out is expensive and bad for you.
I would love to hear comments from some of the writers on this line of responses. Many seem to be delusional and not taking responsibility for their own actions.
How did we do it with 4 Kids and a stay at home wife? Work hard, saving is treated like a bill you have to pay, buy your first color TV after age 40, buy cable after age 50 (World Trade Center antenna collapsed.), do not watch TV, work, save, do things yourself, do not have affairs, do not get divorced, inspect homes on weekend as a paid hobby, start two successful businesses, do not buy crap, and most of all stop whining.
Be afraid of the face you see in the mirror in the morning. Work and save
Where in this universe would anyone receive a 3.5% raise annually (besides Washington D.C.)?/ The average annual raise IN GOOD TIMES was 2% or less. Puttin the expectation is someones head that they should EXPECT a 3.5% annual raise is irresponsible reporting.7% annual returns?? You better believe theyr'e going to need someone else to manage their account. This article is rubish!! Look we all have to do what are Grandparents did, work 2 jobs, SAVR money, CUT expenses LOWER EXPECTATIONS and be happy with a roof over our heads and food on our table. A simple sense of welf worth would go a long way for the American worker. The key word is SELF, do it yourSELF, count on YOURSELF, do it YOURSELF. It is not up to your boss, your community or your Government to coddle you or to cover your **** if you fail. Personal responsibility that's the TRUE path to success, financially and personally.
How hard can it be to save $1 million when you're making half that each year? With the average Joe trying to raise a family on 60 grand or less, it's really tough to plan for retirement and keep up with the Jones's.
Most 401K's leave employees few options for investing, and most provide little if any useful advice. How stupid to berate private investors when professional fund managers have been unable to prevent losses of 40% and more - all the while sucking an additional 2 - 3% out of them despite their dreadful perforrmance. In my opinion, 401K's have become as big a scam as Bernie Madoff's. For the most part the only ones making any decent money are the fund managers. They get theirs win or lose.
At least I have passed the magic 59 1/2 mark so if the White House Joker starts messing with mine, I'll pull everything out and set up my own Cayman Islands account.
How on earth can someone earning 35,000 dollars a year begin to afford to put 10% into a 401 (assuming the employer kicks in 3%)? And who gets a 3.5% raise every year? I realize that times have been tough and that the working class has not received raises, but even in good times, I don't remember a 3.5% raise. My return on my 401 investment has been much less than 7% and I have been investing for awhile now. Please check what you are saying and apply it to reality.
Fortunately for me, I do make a little more and can afford to put a little more away, but I see people every day who are struggling on that $35,000 a year income to feed their family. This article makes it sound like these people are doing fine. They are not.
easy though it sounds most people cannot put 12% away into 401ks, and many companies do not match and have not given out raises in 3 or 4 yrs.
Dear Mr. Vision President,
Your comments are heard, but there are exceptions to the rule! I am self employed so i am subjected to the ridiculous 15+% Social Security tax and because I am only 45 years old, unless this government gets its S@@@ together, i will probably never see a dime of the money I have contributed in my 20+ career. I would LOVE to be able to invest 15% of my income in an IRA and I would probably be set in my retirement years. Further to the point, after I pay my 15% to FICA and my Federal and state taxes, there is little left over for a retirement fund. Yes, it is my choice to be self employed, but it is not my choice to pay 15% of my income into a system that is on the verge of collapse.
In this economy, it makes sense more than ever to contribute to a 401k. Here's why? These are pretax dollars invested. Right away, this is money I don't have to pay to Uncle Sam. Also, with the match, it's a win win, even if the market doesn't meet your expectations. The market will go back up. As one person commented, "the maket goes up, the market goes down, but it always trends up." Don't like paying taxes? Max out yoru 401k. Want to retire one day and not be a slave to the workforce? Max out your 401k. If you can't max out, you should be at least contributing 10% of your pay. what most skeptics don't realize is that a 10% contribution doesn't mean a 10% reduction in take home pay. It'll be far less, maybe 6 or 7% because you don't pay payroll taxes on the contributions. Yet, you're getting the whole 10%. I think that's a pretty good deal, and a good incentive to save!
The ONLY way to maximize your savings is to MANAGE THEM! That means invest carefully and wisely after researching your potential investments. 401k is only part of the picture. Youi have to discipline yourself to invest a good percentage of your income, even some after-tax investments. We lived beneath our income for years, did without expensive second homes, cruises, other expensive goodies and heavily invested. I retired at 58 with over $2MM invested, and with our SS we enjoy an annual income over $130K. Now we have that second hoime, travel, and enjoy life.
It takes discipline and unfortunately most people don't have that. Forget that expensive cup of Starbucks and the new car every 2 years. Live like your parents did and you can save money for retirement. Live like you're spending every dollar you make and you'll have nothing to retire on.
I started contributing to a 403b in 1977. Later I had 401Ks. Over the the last 35 years, I have put in about $70,000 and my employers have contributed about $25,000. Today, all of the plans combined are worth $650,000. At the market top, they were worth maybe $700,000.
I make $40,000 per year. I have never made, even with overtime, more than $70,000 per year. My only secret is to never touch them. I make no withdrawals. There have been about 12 really good years, 15 so-so years and 6 bad years plus two disaster years. Bottom line, 401Ks do work if you give them long enough. Good years will come again. It may not be til 2025, but they will come back. The only way to achieve the results that I have had is to be invested when the good times roll and neither I nor anyone else knows when that will be.
A 401K is one of the best tools for an average worker to easily save for a comfortable retirement. Employer matching funds alone are reason enough to participate. I can't believe that so many employees don't take advantage of this great benefit. I've socked away nearly half a million over the years, and I wasn't a highly compensated employee. I've done it by maxing out my contirbution and investing in indexed mutual funds. Since the money is withheld from my paycheck, I never missed it and was never tempted to spend it. It's one of the easiest ways to save. You just have to realize that the stock market will have its up and down cycles but will pay-off in the long-term.
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