Many years ago, I came across an article where a woman walked through how she was able to accumulate $1 million in her workplace retirement account and I just devoured it, mentally comparing her early milestones to mine, and taking heart that it would happen for me too if I stayed the course.
In 2020, I finally surpassed $500k in my workplace account after 15 years of contributing, and immediately thought about sharing my milestones to help others in the same way that earlier article had helped me.
Will it take you 15 years? I don’t know. It may take you longer if you invest less and encounter worse returns. It could also take you way less time (especially if you don’t wait to max out your contributions like I did). Your journey is your own but my results show it is possible.
Setting the Stage
I began working for my current employer in Fall 2005 (for those that look at the below charts and nitpick that they actually cover 16 years, it is because they include those four months of 2005 after which point my account balance was a whopping $734.00).
I’ve held different positions while I’ve been with this employer, and gotten promotions along the way, but I’ve had the same retirement account so telling this story is fairly simple. The account is with a well-run entity, and my only options for investing are low-fee index funds which align perfectly with my investment strategy.
My employer also matches a portion of my contributions which is awesome (if your employer does this, I highly recommend taking advantage of it!).
My First $100k
It took me seven long years to accumulate my first $100k. In fairness, even though this time frame included the Great Recession (roughly December 2007 to June 2009), I think this had more to do with how little I was contributing and not market returns.
So how much was I contributing? Between 10% and 12% of my salary (not including the employer match). This was in line with most financial advice I had come across up to that point so it made me think I was doing enough. And it was probably all my budget could withstand as I was still only making in the mid-to-high five figures and I had debt and was trying to cash-flow my non-tuition law school expenses (fees, books and parking).
Here is what those seven years looked like:
My Next $100k
It took me only 2 more years to get to $200k (which I still find mind-boggling!). In 2013 and 2014, contributions (mine plus my employers) were just under $35k which meant the bulk of the growth came from investment returns (meaning the money I had contributed earned money). This was significantly different from how I got to $100k—in that instance, combined individual and employer contributions accounted for about $88k of the total.
Getting to $400k
A lot went on in my life in the five years between $200k and $400k. In 2014, I was passed over for a promotion I thought I wanted which led me to take a different job in 2015. Then in 2016 I was diagnosed with anxiety. The medication I was prescribed helped A LOT—for the first time in I don’t know how long my phone ringing didn’t send me into a frenzy, wondering what bad thing had happened NOW.
With so much of my energy no longer devoted to just getting through the day, I could focus on stuff like my debt and my savings rate. Things weren’t terrible but given I was in my early to mid-40s at the time, they definitely could’ve been better. My non-mortgage debt was especially annoying, because it never seemed to go down even though I was dutifully making payments.
So in 2017, I decided to pay it all off, as fast I could. It was just under $60k and it took me 16 months (I made the last payment on May 4, 2018). By that point, I was making in the very, very low six figures and my expenses could be cut without too much sacrifice. Sure, I didn’t travel during that time or buy anything I didn’t absolutely need, but I was in a position to make it happen.
While I kept contributing to my retirement while getting out of debt, between so-so returns and decreasing my contributions, it wasn’t until 2019 that I crossed that $400k level. Fortunately, my returns in 2019 were spectacular and because of that, combined with the fact I was now contributing up to the IRS match to my account, I had an amazing year. As you can see below, by the end of 2019, not only had I reached $400k, but I was well on my way to half a million.
My First $500k
Which brings me to my first (but not last!) $500k. I hit this milestone sometime in the middle of 2020 (the figures in the charts all reflect end of year balances). This was also the same year that cumulative contributions (mine and my employer’s) were surpassed by cumulative gains. This meant more of the money in my account was the result of my contributions earning returns than represented my actual contributions. In other words, I had created a money-making machine!
How I Did It
Getting to $500k was a combination of two factors: consistently contributing what I could and sticking with my investment strategy (in my case, low-fee index funds). That’s it.
I’ve been contributing at least 10% of my salary to my workplace retirement account since day one. This means every two weeks since Fall 2005, I’ve bought additional shares of the index funds available to purchase in my retirement account. When the markets were down, my money bought more shares than when the markets were up (which is one reason down markets don’t scare me). Up or down, however, I just kept buying (pro-tip: this is known as dollar-cost averaging!).
As time went on, I increased my contributions. This meant I bought more shares than ever before with each paycheck. Eventually, I started contributing up to the maximum allowed by the IRS and so I was buying the most shares possible every two weeks.
By starting on day one, I also captured the employer match from day one. Some people refer to this as “free money” because you don’t have to do anything for it except contribute to your retirement account. Another way to look at it, however, is “earned money” because it is part of your overall compensation package. No matter how you think of it, however, if you can possible do so, capture any match offered.
This chart reflects annual contributions, both mine and my employers.
The money came out of my paycheck before it hit my bank account so I didn’t have to do anything to keep buying more shares. This is the best strategy for me because, while I am good with money, I am not perfect. Not having to think about it has allowed me to keep buying shares with no breaks.
If the thing that’s holding you back from investing is not knowing what stocks to buy, then have I got an opportunity for you: index funds! Instead of buying a couple of stocks, index funds lets you buy all the stocks—well at least all the stocks tracked by a particular index.
How does it work? Well, if you buy a share of an S&P index fund, it means you are buying a sliver of all the companies that are tracked by the S&P 500 Index (which are 500 large U.S. companies). It’s like cheering on all the teams in a league instead of just one team.
My retirement account is invested almost entirely in an index fund that tracks the S&P 500 Index. Many people would consider this too volatile an investment approach but I’m okay with it because these aren’t the only funds I am putting aside for retirement (although they are the bulk). My other funds are in other types of investments, such as real estate and bonds funds, which balances out the volatility.
Investing in Index Funds doesn’t keep the value of your account from going up and down because markets go up and down. But all the companies that you own a sliver of through the Index Fund are unlikely to lose most or all of their value at the same time, so the ups and downs will be tempered.
Don’t get me wrong: day-to-day fluctuations can still be gut-wrenching (which is why I don’t check my balances daily!). Even year-to-year results can cause you to wonder if it is worth it. Over the long-term, however, the results have been positive. In the end, the market has always gone up more than it’s gone down.
I’m also less worried about market fluctuations because I am still about nine years out from retirement. As I get closer to the date when I will actually start needing to live off of these funds, I will gradually move the amounts I will need to less volatile investments.
DISCLAIMER: This is not investment advice. Educate yourself to figure out the investment strategy that works for you in the sense that you see growth but can also sleep at night.
For example, when the stock market fell in March 2020 after the beginning of the COVID lock down, the value of the investments in my retirement account dropped by as much as $120k. Not only did I not panic, I honestly didn’t even notice. I was really busy at work and very worried about what was happening with the virus. I knew the stock market had fallen but it wasn’t until December of 2020 (by which time the market had recovered) that I went back to look at what had happened to my account.
If such a drastic drop would have had you selling and/or kept you up at night, then please don’t put all your money in stock index funds.
How Debt Factors Into Savings
Debt is not a moral failing, but it can limit your options, especially when it comes to being able to invest for retirement.
In my case, I had to make payments on my car loan, student loans, home equity loan, and credit cards each month, which meant this money was not available for other purposes including investing. And it is why, when I finally got out of non-mortgage debt, I was able to start maxing out contributions to my workplace retirement account up to the IRS limit. More money meant more shares which meant when the value of those shares increased in 2019, the value of my retirement account grew (by a lot!).
Didn’t Start 15 Years Ago? Then Start Today
Maybe you’re reading this and thinking, “I am so behind! I should’ve started ages ago!”. Well, maybe you should have. But, while starting before today might have been the best thing, starting today is for sure the second-best thing.
Take someone who is my age with nothing saved but who has a decent salary and the desire to build her wealth to support her in retirement. This would mean she is 48 and in 15 years, will be 63. That’s still young. And if she is willing to continue working until she is at least 65, she could contribute even more to her retirement accounts, postpone taking Social Security a few more years so she could maximize her benefit, and also be eligible for Medicare so she wouldn’t have to worry about finding health insurance.
Fifteen years is (hopefully) going to pass no matter what. Putting even small amounts aside today could really add up to something.
I really hope you found this post as motivating as the one I read all those years ago was for me. Too many single women in retirement rely solely on Social Security and that’s just not enough for most people.
Putting money aside today and investing for the long term can actually lead to something. It may take time, especially in those early years, but you will see progress if you stick with it.