If I Had a Million Dollars

Alison Cooke Mintzer (photo by Chris Ramirez)

In the early 1990s, there was a song by the Barenaked Ladies titled “If I Had a Million Dollars.” It was about all of the various items the singer would buy if he had that sum of money. The song culminates in the line, “If I had a million dollars, I’d be rich.”

One million seems like a massive sum of money, but when it comes to retirement, we know those who have that amount aren’t traditionally rich, per se. The purchasing power of $1 million, given a 4% drawdown rate over 25 years, provides an annual “income” or “salary” of $40,000. That is not rich but, coupled with Social Security, can likely meet the average income replacement of the average retiree. Consider that the Bureau of Labor Statistics notes that Americans ages 65 and older who work full-time earn an average of $888 per week—$46,176 per year.

For so many people, $1 million seems out of reach—and the idea seems unattainable. In the world of defined contribution (DC) retirement plans—even considering the dismal average account balances often cited by various studies—this doesn’t have to be, however. It can be attained by the average American with strong, smart behaviors, as cited in a recent study examining 10,000 millionaires.

The book on the study, “Everyday Millionaires,” found that most who had passed the $1 million mark reinforced that positive outcomes are possible through saving in a retirement plan. Eight out of 10 millionaires reached millionaire status through their company’s 401(k)! On average, the book says, they invested for 28 years before hitting the million-dollar mark, and most of them reached that milestone at age 49. It is possible, with the magic of compounding and staying the course.

What other evidence can you present to plan sponsors and participants to prove this large sum of money is attainable and these savings programs can work? Letting them know the book says that one-third of those millionaires never made six figures in any single working year of their career. They attained that figure just by setting aside money on a regular basis, and the most common careers were engineer, accountant, teacher, manager and attorney. The vast majority of these millionaires (79%) received no inheritance from their parents or other family members at all.

In light of April being Financial Literacy month, there’s another point worth adding here: Almost two-thirds (62%) of millionaires included in the “Everyday Millionaires” study graduated from public state schools, while only 8% went to a prestigious private schools. This is worth considering when thinking about the effect student loan debt has on savings or the ability to save.

Just last week, we celebrated our PLANSPONSOR/PLANADVISER Excellence in Retirement Awards, recognizing the Best in Class 401(k) plans and our Plan Sponsor of the Year finalists and winners as we also honored and awarded the Top 100 Advisers and the Retirement Plan Advisers of the Year finalists and winners. They have stories of successful savings behaviors and strong plan design that reinforces the ability of plans to achieve decent retirement income potential.

With all the talk of retirement crises, let’s remember a simple fact that reinforces why we do what we do, and why we take the time to celebrate it: The most money that most Americans will ever amass in their lives is in the employer-sponsored retirement plan system.

Whether participants get to $1 million or not, it’s important for all of us in our industry to remember that the retirement crisis talked about, written about, is largely a coverage crisis. As exhibited by the many people and stories attending the Excellence in Retirement Awards last week, the employer system, when used properly, and thanks to payroll deduction, works!