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I WAS HAPPY to read in The Wall Street Journal that 401(k) plans are “minting a generation of moderate millionaires.” I spent the last two decades of my professional life promoting 401(k) plans to workers, so the news felt like validation.
Moderate millionaires were loosely defined as coupon-clippers with seven figures. Sound familiar? It should to many HD readers. At Fidelity, a record 654,000 investors had a million or more in the 401(k) in the third quarter of 2025.
I can’t get too carried away, however. The typical 401(k) balance is way, way lower—a median of $38,176 in 2024 among 4.7 million savers at Vanguard. That dismal figure is due in part to young employees and recent job changers who haven’t had much time to save. Those with 10 or more years in a 401(k) plan had a median balance of $165,000.
Still not enough to keep us warm, fed, and housed in retirement. Yet the evidence suggests that the 401(k) has growing value to workers. In plans run by Vanguard, 85% of workers contribute, or nearly seven out of eight employees. Why? Here are five benefits that make the 401(k) hard to kick:
Once you’ve filed a tax return sheltering a big hunk of income within a 401(k), however, it’s hard to imagine backtracking. I came to depend on the 401(k) as a big tax shelter every April 15, along with millions of other workers. Eventually, I maxed out my plan savings and, later on, so did my wife.
The phone representatives at Vanguard go over these numbers in excruciating detail on a recorded line before asking, “Do you still wish to continue?” For anyone not in dire need of money, that cold shower tends to keep 401(k) balances intact. Because returns compound, being a long-term investor has great value.
Employers put out requests for proposals all the time. Investment companies scrap for the business, cutting investment fees and adding benefits like automatic enrollment, target-date index funds, and free investment checkups. Workers are better invested, at lower cost, than ever before.
Little wonder. The idea of making money without setting an alarm, or joining another Zoom meeting from home, has greater appeal the longer you work.
Greg Spears was HumbleDollar’s deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.
I got my first full time job at age 25. Eleven months into the job, my boss called me in to his office. He asked me if I was in the 403(b) plan. I said, no. He explained that the school would match the first 7% I put in. He said that this was free money and even though he knew I was underpaid, I had to put away at least 7% to get the match. I signed up for the full 10%.
A year or two later I found Jonathan Clements’ column in the WSJ. A few years later I went to the retirment plan committee and pushed them to move the plan to a different company with lower fees. They convinced the school to contract with Fidelity and suddenly we had lower fee funds including a treasuries only money market.
I do have two regrets.
1. Missing the first year.
2. Being too conservative with stocks following the 2008 crash. I didn’t sell at a loss, but I should have had a higher allocation in stock.
How much of the success of the stock market is due to 401(k) (and similar) plans?
Every month more money has to be invested. Is this a significant, or even dominant, reason the market keeps going up?
Sorry to be a “broken record” on this topic! In Australia our superannuation system is most easily thought of as a compulsory 401K scheme. I think we are very lucky to have this in place, and it will change the retirement of many, many millions of Australians.
I’m a huge fan of the 401k. I continue to maintain that the 401k is how most middle-class Americans can become millionaires and retire with dignity.
Or Roth IRA to some extent for many without access to a 401(k).
Great article, the 401K is the only reason I have retired comfortably. I get no pension, so I was lucky to recognize in the 1970’s, that this was the way to save for retirement. And the kicker, was the company was giving us 3% FREE money, how often does that happen!! The real problem is people just are not disciplined to save, they just want to SPEND, and that is the real problem for most folks. No matter how little you have, you can save something, especially when your company will offer FREE money.
I reached millionaire status because of the 401K.
I installed a 401k in my company in 1982 and spent the next 30 years promoting it to employees. It was very frustrating at times.
The hardest sell was to union workers even with the support of the union leaders. That was a shame because they worked so much overtime many workers could have saved a great deal more than they did.
Some workers couldn’t understand where their money was going. A few were convinced it was being used by the company.
Participation grew over the years as did the company match and immediate vesting. I hope today there are a large number of millionaires-no excuse if there aren’t.
It’s not just union workers that either don’t believe or don’t understand the 401K opportunity. Next week I will celebrate 22 years of retirement, so this story goes back to the 1990s. I was the general manager of the product engineering department in a Fortune 500 company, all salaried personnel. Quarterly I had an “all hands” meeting of our 75 engineers and technicians to talk about the company performance in general. In one of those presentations, I explained the current tax benefit of a 401K, the future benefit of tax-free growth, and the “free money” of the company 50% match. Our company offered alternatives of money market funds, broad index funds, or blended funds. I told them that I would give no advice on what investment to choose, just that in was in their economic interest to participate. About 10 years ago I bumped into a single mom at Home Depot from that department who had happily just retired. She gave me a hug and thanked me for that presentation that turned her economic life around and enabled her comfortable retirement. Probably the best feedback I ever got from one of my quarterly meetings.
You are correct, not just union folks who don’t get it, but many were the toughest sell perhaps because they didn’t trust the company and it sounded too good.
I wonder to what extent auto-enrollment will help. Sometimes it’s not enough to lead a horse to water.
Auto enrollment has helped increase participation, but then the problem is many people just stay with that percentage and investment choice which could be fixed income.
The percentage may not even maximize the employer match.
I saw too many people tapping into their 401K balances during their working years.This slows growth drastically.
Greg, it’s great to see this article from you. Like you, I can hardly stop my praise for the 401(k). It gave me, a novice with a desire to retire one day but no knowledge of investing, easy access to the stocks that would make it possible. I’m still amazed and thankful, and don’t pass up an opportunity to “implore people” to participate, as you say.