It is not often the government gets something right. The Law of Unintended Consequences often comes into play and causes the exact opposite of the outcome it wanted. However, the 401(k) retirement plan is at least one thing it got right as it has created hundreds of thousands of 401(k) millionaires.

According to Fidelity Investments, for the 401(k) plans that it serves as record-keeper on, there are 544,000 people with at least $1 million in their account, a 9.5 % increase from last year. And though the stock market has been on an amazing run higher for the past two years, the gains are not just due to stock price appreciation. A high savings rate accounts for it too, with employees contributing 9.4% and employers matching another 4.7%.

A Redditor on the r/MiddleClassFinance subreddit finds himself to be one of these 401(k) millionaires. But surprisingly, he’s not happy. It’s not because he hasn’t saved enough, but rather that he is essentially living paycheck-to-paycheck. He writes, “It just feels so weird like I have enough to go buy a lake house, but still can’t go out to eat very often.”

24/7 Wall St. Insights:

• The 401(k) program is one of the best things the government has created, even if there were some unintended consequences.
• A routine of regularly contributing money to a company’s 401(k) retirement plan could result in you finding yourself a millionaire, even if you don’t feel like one.
• Being asset rich and cash poor is a lot more common than many suspect and likely describes many of your millionaire-next-door neighbors as well.

Unintentional riches

Named after Section 401(k) of the Internal Revenue Code, the retirement program came about from a provision of the Revenue Act of 1978 that allowed employees to choose to receive a portion of their salary as a tax-deferred contribution to a retirement savings account.

It wasn’t until 1981, though, when the Johnson Companies, an insurance and benefits consultant, launched the first 401(k) program for its employees. It didn’t take very long for the plans to catch on and grow in popularity.

Of course, the government had created the provision as a means for employees to supplement their pension plans. But 401(k)s proved to be so popular that many companies began dropping their defined benefits programs in favor of defined contribution plans. 

In 1978, Bureau of Labor Statistics data shows 52% of employees had pensions. Today, 56.6% of workers have access to a 401(k) plan while only 15% have a pension, most of which are government employees. It’s those unintended consequences again, but at least this time it’s working out for workers.

One of the best paths to millionaire status

It is good that so many employees have a 401(k) plan. The stock market is arguably one of the best ways to become wealthy. The S&P 500 has a historical long-term annual average return of 10.2% with dividends reinvested, or about 7% annually when adjusted for inflation.

To put that in perspective, if you start with nothing, but invest $1,000 a month in your 401(k) at the historical inflation-adjusted rate of return, it would take you less than 28 years to amass $1 million in your retirement account. You’ll get there quicker if you max out contributions to the 401(k), or $23,500 a year.

Of course, if you’re like the Redditor, you may already be maxing out your ability to contribute more money even if you’re not maxing out the plan. 

The rich look just like us

Such people are asset rich, but cash poor. Im’ not a financial planner, so this is only my opinion, but this situation isn’t necessarily a problem. In fact, it probably describes a lot of wealthy people, though you might not realize they were rich by observing their lifestyle.

In the book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, authors Thomas Stanley and William Danko highlight a few characteristics of wealthy individuals, such as not being flashy with their money, driving older vehicles, and living below their means. They focused their time on investing wisely in assets that grew over time and sought to achieve financial independence.

From the outside, these millionaires didn’t necessarily appear rich, but instead looked very middle class. Come retirement time, though, these individuals will be able to leave the rate race and comfortably live out their Golden Years.

The 401(k) plan has brought the same opportunity to millions of people if they only take advantage of it. Start saving money in the retirement program from an early age and contribute to it over time. Seeking out the advice of a financial planner who can advise you of the best options available for your situation and lifestyle may just result in you becoming a millionaire as well, even if you don’t look like it.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.