What You Can Learn From 401(k) Millionaires in the Making

Carmel, Indiana
Years to $1 million: 15
Best move: Never cashed out their 401(k)s

Though only 30, Greg and Jesseca Lyons are well on their way to reaching their retirement goals. The Lyons—he’s an operations manager for a small research company, she’s a product development engineer for a medical device maker—are on the same page when it comes to planning for the future.

College sweethearts who have been married seven years, they made a commitment to start investing for retirement with their first jobs. They contribute 15% of their salaries. Employer matches bring that annual savings rate to about 19%. Together, they have $250,000 in their retirement accounts, invested 90% in stocks and 10% in bonds.

Unlike many young people, they have resisted the temptation to cash out their 401(k)s when they changed jobs. Though they dialed back contributions for about six months when they were saving for a down payment, the Lyons didn’t stop putting money away. “We have stuck with the idea that retirement money is retirement money forever,” says Greg. His goal is to retire by age 60. For Jesseca, saving is about independence and financial security. “I love what I do, so I don’t see retiring early. But I don’t want to be worried or stressed out about our money either,” she says. “I am not going to sacrifice our retirement just to live a certain lifestyle now.”

Indianapolis
Years to $1 million: 17
Best Move: Keeps raising her savings rate

It's taken Tajuana Hill, an employee trainer with Rolls-Royce, two decades to max out her 401(k), but she’s been a steady saver since her twenties. When she joined the firm at age 26, she put 10% of her pay into her plan right away. As her income rose, she ramped that up to 12%, then 17%, and finally 20% in January.

Her reward: $224,000 in her 401(k)—all the more impressive since her employer offers no match. What has helped Hill is a side business she launched three years ago, Mimosa and a Masterpiece, an art studio where students can sip a drink during painting classes taught by local artists. The extra income let her pay off her credit cards, freeing up earnings from her day job so she could boost her 401(k) contributions.

"When I retire, I hope to do it as a millionaire," says Hill. If she sticks to this regimen, her 401(k) could top $1 million just as she reaches 65.

York, Pennsylvania
Years to $1 million: 15
Best move: Invest in low-cost stock index funds

Having a healthy stake in stocks is a hallmark of 401(k) millionaires. With decades to go until retirement, you can ride out market swings. That’s a philosophy Steven and Melanie Thorne have embraced. Together they have $310,000 in their workplace retirement plans, Roth IRAs, and a brokerage account, all invested 100% in stocks. "We are young, so we can be more aggressive," says Steve, a security officer at a nuclear power plant.

Investing is a passion for Steven, who first started saving for retirement with a Roth IRA when he was 18. He says he follows Warren Buffett's philosophy about buying stocks: Be greedy when others are fearful, be fearful when others are greedy. But, he says, he and Melanie, a nurse, are buy-and-hold investors and keep most of their portfolio in low-cost index funds.

Steven and Melanie have been disciplined about hiking their retirement contributions with every raise. Melanie saves 10% of her pay in her plan, while Steven sets aside 12%. They even save extra in Roth IRAs. They live below their means and direct tax refunds into retirement accounts, as well as save for college for their five year old son Chase. "We look for extra ways to save cash and keep our investment costs low,” says Steven.

Westerville, Ohio
Years to $1 million: Four
Best move: Power saving late

Life can get in the way of saving for retirement, but ramping up your savings later in your career pays off. Jonathan and Margaret Kallay contributed only small amounts to their retirement plans early on. "It wasn't much, about $50 a paycheck on a $13,000-a-year salary," says Jonathan, a firefighter. Margaret, then an ER nurse, put away 5% of her pay.

As big expenses fell away, the Kallays saved more. Married in 1993, the couple each paid child support for daughters from previous marriages until the girls reached 18. Once that ended and they paid off car loans, the money went toward retirement.

Earning more has helped too. Jonathan worked extra shifts as a paramedic. Margaret got a business degree and is now a vice president at an insurance company, where she gets a generous company match. They each put about 15% in their 401(k)s, which total $750,000 and could hit $1 million in four years. They plan to quit work soon to spend more time traveling and spending time with their daughters and 5-year-old twin grandsons. “We’ve made a lot of sacrifices to invest for retirement,” says Jonathan. “It’s all been worth it.”

Reidsville, N.C.
Years to $1 million: 17
Best move: Buying rental properties to bring in more money

Despite modest incomes in the early years of their careers, Mel and Heather Petersen have accumulated nearly $200,000 in retirement savings. Their strategy: Consistent saving. Mel, a public school teacher, says his salary has averaged about $40,000 most of his working life. Today he earns $50,000 a year. Heather, a marketing analyst who contributes 10% of her income to her 401(k), has seen a steadier increase in her earnings over the years, bringing the couple to a six-figure combined income.

“We have always saved money for retirement no matter what our income, and never stopped no matter what financial challenges we have faced,” says Mel, dad to two boys, 8-year-old Carter and 4-year-old Perry.

It helps that the Petersens supplement their retirement savings with income from rental properties that they began buying seven years ago. Several are paid off, and after expenses they gross about $5,000 a month in rental income. They hope to continue investing in real estate to boost their retirement savings. “We want to max out our retirement accounts down the road,” says Mel.

Valatie, New York
Years to $1 million: zero
Best move: Kept faith in stocks

Investors have enjoyed a roaring bull market for the past six years. But financial markets are cyclical. Even the most dedicated savers can panic and abandon stocks when the markets goes south.

Despite the massive downturn during the Great Recession, Larry and Christianne Schertel didn’t budge from their 75% stock allocation. “When the market collapsed in 2008, we stayed the course and were nicely rewarded as the markets rebounded,” says Larry, an operations manager at a transportation company until his retirement this January. As they closed in on retirement, the Schertels reduced equities to about 60%. Together with Christianne, who works as an elementary school teaching assistant, the Schertels have just over $1 million in retirement accounts.

In addition to their resolve during market fluctuations, the Schertels say automating their savings, living below their means, limiting debt, and investing in low-cost funds helped them reach the $1 million mark. “There really is no magic to it,” says Larry. “It is just being disciplined.”