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You, Too, Can Be A Middle Class 401(k) Millionaire – Someday!

06/17/2019
By Jack Towarnicky

Times change, and yet they don’t. A recent blog focused on significant changes in 401(k) plan design – earlier eligibility and accelerated vesting.1 However, some things never seem to change, such as the low levels of participation and contributions in voluntary enrollment plans among workers who are younger, have short service and lower wages.2

That eligibility/vesting blog post reminded me of a frequent discussion topic among industry media, plan advisors and plan sponsors: millennial retirement preparation.3 It also reminded me of a challenge I had in my last plan sponsor role. More than 25 years ago, I was tasked with an assignment to present our 401(k) plan to new hires. We had just changed eligibility to at the time of hire. Automatic enrollment wouldn’t become part of our plan design for another 15 years or so.4 With eligibility at one year of service, only 70% of eligible workers were contributing. And, like most plans, participation was much, much lower for recent hires (who typically were younger and/or lower paid).

What message would be most effective at prompting participation? To start, I decided to excise the word “retirement” from my sales pitch. Based on turnover studies, I knew less than 1 in 15 of those new hires would become “retirees” at this firm (who we defined as those age 55 or older with more than 15 years of service). Older new hires knew what a 401(k) was for. In fact, I never used the word “retire.” Instead, I titled my presentation: “Will You Be A 401(k) Middle Class Millionaire, Someday!?” The presentation was in three parts – the absurd, the magic and some fortune telling.

The Absurd

Seeking to startle and draw their attention to the need to save (today we might think of it as an apolitical version of “woke,”) I confirmed to the audience:

  • You now work here; 
  • This is what we are offering as a 401(k) (with details on pre-tax, investment choices, employer match and etc.); 
  • No one cares about what other employers offer, and you shouldn’t either; 
  • Someday you, too, won’t work here anymore and the question will be, did you leave money on the table, or did you get everything you could out of this benefit plan? 

Yes, on the first day of work we were talking about life after “Employer X.”

My embrace of absurd comes from Steve Martin.5 Absurdists believe the world is irrational. Steve Martin is absurdism + comedy. I am in the Absurdist group that includes Søren Kierkegaard: willing to take a “Leap of Faith.”6 There is no rational basis for those who live payday to payday, those who have accumulated significant student loan, credit card and other debts, to believe they can become a millionaire, someday. There are just too many formidable impediments. But look around; there are a lot of middle class, 401(k) millionaires right next door or, right next cubicle.

The Magic

Good magic requires audience participation – and risk. So, I asked workers in the audience to take out their purse/wallets. My props were cash – from their pockets and mine, to demonstrate the reduction in take-home pay and the accumulation in the account – the nature of pre-tax contributions and deferred taxation, employer match and tax-deferred investment earnings.

Asking two people for small amounts of money ($0.70 and $2.00), I did two savings vignettes to demonstrate how a 401(k) enables a worker to rapidly accumulate assets. Then, I asked the audience, “Seeing what you just saw, I need someone to risk $20.” As they reached for $20, I quickly announced that the magic show was over and that I had run out of money. However, I confirmed that going forward, they could be treated that very same way only through our 401(k) plan. I concluded by announcing that those who risked the small sums could keep the money I put into the pot to demonstrate deferred taxes, employer match and investment earnings. I drove home the point that “those who participate, get the money; those that don’t, don’t.”7

Fortune Telling

Using the “Rule of 72”8 I demonstrated the power of compounding – how starting early and investing for 35 years would make it possible to accumulate $1 million.

I asked them to challenge the simplistic model. My favorite was the individual (there is one in every crowd) who would point out that due to inflation, $1 million might not be worth all that much 35 years from now. In response, I would ask three questions:

  • First, I asked “Is $1 million worth something today?” Answering myself, I commented that “less than 10% of American households have investments totaling $1 million or more. So, if you had $1million today, you might not have shown up for work on your first day here at Employer X.” 
  • Next, I asked “Was $1 million worth something 35 years ago in the late 50s?” Someone would respond, ‘Yes, worth a lot more.’ I would agree, noting that less than 5% of households had more than $1 million in investments in the 50s. I sometimes referred to the 50s TV show, The Millionaire.
  • Finally, I asked “OK, will $1 million be worth something in 35 years (2040 or so)? Someone would say, “Less.” I would agree, noting that you can identify the impact of inflation by applying the “Rule of 72” but in reverse: divide the inflation rate into 72, and that would be how long it will take for your purchasing power to be halved. I would finish saying: “I don’t know either. Maybe it will only buy a loaf of bread. But let’s say 20% of households have more than $1 million in investments, double today’s rate. if I am alive by then, I know which group I want to be in! How about you?” 

We can do this!10 Some have already reached $1 million, hopefully others are on their way, someday!


1J. Towarnicky, Narrowing Retirement Savings Gaps, 5/16/19, Accessed 6/10/19 at: https://www.psca.org/blog_jack_2019_31
2Vanguard, How America Saves 2009, A Report on Vanguard 2008 Defined Contribution Plan Data, 2009. 2008 voluntary enrollment – Individuals under $30,000 in salary (33%), Individuals under age 25 (24%), Individuals with 0 - 1 years’ service (31%). So, participation probably remains at levels less than 1 in 5 individuals who earn less than $30,000 are under age 25 and have less than 2 years of service. Accessed 6/10/19 at: https://institutional.vanguard.com/iam/pdf/HAS18.pdf
3D. Kline, Nearly 40 percent of millennials say saving for retirement is not a priority right now, The Motley Fool, USA Today, 10/14/18, Accessed 6/10/19 at: https://www.usatoday.com/story/money/personalfinance/retirement/2018/10/14/millennials-retirement-saving-priority/38097397/ See also: J. Brown, Millennials and Retirement: Already Falling Short, National Institute on Retirement Security, February 2018. “… Most Millennials have nothing saved for retirement, and those who are saving aren’t saving nearly enough. … many factors are contributing to this generation’s retirement savings challenges – from depressed wages to the lack of eligibility to participate in employer retirement plans. …66 percent of working Millennials have nothing saved for retirement …” Accessed 6/10/19: https://www.nirsonline.org/reports/millennials-and-retirement-already-falling-short/
4Author’s note: When I joined that firm in a plan sponsor role in 1985, workers were eligible to participate after three years of service (but were 100% vested). Compliance with the Tax Reform Act of 1986 required a change to no more than one year of service effective January 1, 1989. .
5S. Martin, Saturday Night Live Monologue, 1/21/78. “… You.. can be a millionaire.. and never pay taxes! You can be a millionaire.. and never pay taxes! You say.. “Steve.. how can I be a millionaire.. and never pay taxes?” First.. get a million dollars. Now.. you say, “Steve.. what do I say to the tax man when he comes to my door and says, ‘You.. have never paid taxes’?” Two simple words. Two simple words in the English language: “I forgot!” How many times do we let ourselves get into terrible situations because we don’t say “I forgot”? Accessed 6/10/19 at: https://snltranscripts.jt.org/77/77imono.phtml Hear also: S. Martin, You Can Be A Millionaire, Comedy is Not Pretty, Accessed 6/10/19 at: https://www.youtube.com/watch?v=zXmQW_aqBks
6Leap of Faith, starring (you guessed it) Steve Martin, 12/18/92, Accessed 6/10/19 at: https://www.imdb.com/title/tt0104695/
7Author’s note: This is a variant of one of my boss’s favorite sayings: “You don’t ask, you don’t get.”
8W. Kenton, Rule of 72, Investopedia, 4/1/19, Accessed 6/10/19 at: https://www.investopedia.com/terms/r/ruleof72.asp
9The Millionaire, Virginia Lennart, (If You Had A Million, Season 3, Episode 6), Aired 10/17/56, Accessed 6/10/19 at: https://www.bing.com/videos/search?q=betty+white+the+millionaire&view=detail&mid=0D9120735903490548490D912073590349054849&FORM=VIRE See: Who Wants to Be A Millionaire, Accessed 6/10/19 at: https://millionairetv.dadt.com/ See also: Slumdog Millionaire, winner of eight Oscars, 2008. Accessed 6/10/19 at: https://www.imdb.com/title/tt1010048/
10R. Wohlner, 7 Tips to Become a 401(k) Millionaire, 11/21/18. (1) Be consistent and persistent, (2) Contribute enough, (3) Take appropriate risks, (4) Don’t assume Target Date Funds are the answer, (5) Invest during a long bull market, (6) Don’t fumble the ball before crossing the goal line (rebalance), (7) Pay attention to those old 401(k) accounts. Accessed 6/10/19 at: https://thechicagofinancialplanner.com/401k-millionaire/

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