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ELEVEN YEARS AGO, at age 56, I lost my job as a mid-level manager at a Fortune 500 company. I had joined the organization at age 28 with no savings. Twenty-eight years later, I was able to retire at a relatively young age with a pension and a seven-figure 401(k).
During those 28 years, I was passed over several times for promotion to vice president. Instead, I settled into my director-level position, never earning a salary of more than $150,000, plus bonus. Yes, that would be a handsome sum in most parts of the country, but it isn’t in high-cost Los Angeles, where I live.
While I didn’t have as successful a career as I’d hoped, I was—from my first day with the company in March 1982—a firm believer in saving for retirement. I don’t recall receiving any words of wisdom about the importance of starting early on retirement savings. Yes, I had an MBA. But there were no classes on personal finance at the University of California, Los Angeles, when I got my business degree. But the 401(k) came with a company matching contribution, and something told me that this was a no-brainer and that I should capture the full amount of the match.
That proved to be a great decision. As many have written, the power of compounding is one of the “financial wonders of the world.”
Knowing I had my whole career in front of me, and confident I’d always be able to find work with an MBA from UCLA, I invested my portfolio 100% in stocks. Every year, I contributed the maximum to the 401(k) to reduce my annual taxes. I also made no portfolio changes during either the 2000-02 dot-com bust or the 2008-09 market upheaval. Instead, I stuck with my bimonthly payroll deductions.
I also lived below my means and never paid any interest to a credit card company, always paying off all credit cards in full each month. Admittedly, I didn’t marry until age 41. After marrying, my wife and I had a daughter, making me a joyful dad at age 46. Delaying marriage and not starting a family until my 40s undoubtedly made it far easier to save large sums during my initial working years—a powerful addition to my portfolio’s compounding.
Fast forward to 2011. My daughter was now age 10. I had survived two rounds of downsizing, but lost my position on the third go-around. I was 56. The good news: My 401(k) was worth $1.5 million and my pension was valued at $600,000. Here I was, a millionaire at age 56, thanks to saving from day one and despite never rising above mid-level management.
I received a severance package from my former employer. I set out to look for other work—but without any luck. It seemed my age weighed heavily against me. After a year of looking and after crunching the numbers, I decided to retire, turning my attention to part-time work for a nonprofit.
Regrets? Zero. How has my retirement gone? My family has traveled annually to places far and wide away from our home base in Los Angeles. The value of my 401(k), now rolled into an IRA, is worth more today than it was in 2011, even after this year’s stock market swoon.
The secret: starting early, passive investing and never attempting to time the market. What if I hadn’t started saving aggressively at age 28? This story probably wouldn’t have a happy ending—because I’m not sure how I would have coped with my 2011 layoff and my inability to find another job.
Fred Wallace is retired following a career in marketing and sales. He has been a do-it-yourself investor for most of his life and currently serves in a volunteer leadership role for the American Association of Individual Investors. Fred enjoys golf, skiing, and traveling with his wife and daughter.
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At 40 years old, I crossed the $1MM mark. At 50 $2MM. Now at almost 60, $3MM.
My peak earning years was my 30s and as I aged and experienced several career upheavals my income continued to drop. Right now my income is less than what I had 20 years ago.
I work in corporate IT and never rose above mid-level management. Like Fred I live in an expensive area, but on the east coast.
My wife stayed a homemaker and never worked.
What i did do is not assume my income would continue to rise or my employment be secure. Since my spouse didn’t work, I knew it would be on me – at least financially – to keep the family secure.
At 40 and crossing the $1MM mark I finally felt a certain financial stability for the family.
I didn’t do the math, but I am pretty sure my assets are where they are, even as my income shrank (or shrunk?), predominantly because I saved heavily and invested in my 30s and into my 40s, my peak earning years.
Apparently there is a name for what I am doing now – CoastFire – which keep working, save less, spend more and taking it easy. Unlucky for me, I don’t have much of a pension or any sort of retiree health insurance so it is less straightforward when I can retire.
The lesson here is the same: save early, save a lot and consistently. The past doesn’t determine the future so don’t assume anything.
The most important financial concept in all of the universe is savings. Not where you allocate dollars or what etf you buy, it’s savings. If you save 20-30% of your income over a long period of time, you will win. Period. If you save 30% of your income while making 150k annually, and just get a interest rate of 2%, you would end up with 1.8M. Nothing simpler than that. Yes that’s 30% savings rate at just 2% over 30 year period. Not real risk needed for that.
Thanks for the post Fred. The chopping ax fell on me ten years ago. It took a couple of years to recover from the shock – aged out, and getting a different career started in horology. Lucky for me our 1990 Crown Victoria saved us a ton of money avoiding cash for clunkers and the car dealers. My son now has the Crown Victoria, and appreciates the value of a dollar. We are all fortunate to have this HD site by Jonathon and the knowledge that is passed along.