Like many others, I had a vague goal of $1 million net worth in my 20s. It’s easy to find a theoretical path a million. For example, $750 per month earning 8% returns for 30 years with get you there. Doing the actual earning, saving and investing is the hard part. It gets even harder during a bear market when your money feels like it is burning up in flames.

On the list of “Things I Would Tell My Younger Self”, I would include “Be patient and keep saving. You’ll get there.” Or by changing up the phrase “Always Be Closing” popularized in Glengarry Glen Ross – “Always Be Contributing” (ABC). One of the major benefits of writing this blog was keeping my focus on this path.

This is how a real couple could have gone from zero to $1 million from 2004 to 2017. My spouse and I both had our first full year of full-time jobs in 2004. From 2004 to 2017, we contributed the maximum allowable limit to both of our 401k and IRAs each year. The contribution limits rose gradually over the years. (Company match is not included here.) We invested our money in low-cost index Vanguard funds – mostly stocks with a little bonds – which can be closely approximated by the Vanguard Target Retirement 2045 fund (ticker VTIVX). This fund had its share of ups and downs with the market. It crashed a lot in 2008 and 2009. It went back up a lot afterward. We just kept contributing and buying each year.

Using Morningstar tools, I found the final amount today if the limit was invested on January 1st of each year. For example, if both of us invested $16,000 in Vanguard Target Retirement 2045 at the beginning of 2004 ($13k + $3k), that investment would now be worth $104,144 as of June 30, 2018. And so on for each subsequent year. As you can see, if you add all the years up, you would reach over $500,000 for an individual and over $1,000,000 for a couple:

These numbers won’t be the same across other time periods, but they do represent a real-world experience. I’ve done a variation of this before in What If You Invested $10,000 Every Year For the Last 10 Years? 2008-2017 Edition.

According to Vanguard, 13% of their plan participants maxed out their 401k plans in 2017. 58% of participants had their entire account balance invested in a single target-date fund or similar managed allocation.

Bottom line. A real couple that started saving as 26-year-olds in 2004 and maxing out both their 401k and IRA plans each year could have reached $1 million by age 40 in 2018. All with a simple Vanguard Target Retirement index fund. This requires a lot of steady saving, but the important part is that it required no special investment skill. You didn’t need to recognize bubbles. You didn’t need to time bottoms. You didn’t need a fancy asset allocation, estimate future cashflows, understand price/book ratios, or even rebalance. Always be contributing.

Vanguard recently released How America Saves 2018 report [PDF], which looks at the nearly 5 million 401k, 403b, and other defined-contribution retirement plans that they service. If you are curious about how your 401k stats compare with others, there is a great deal of information in this report. Here are a few quick stats based on 2017 data:

• Average aggregate contribution rate amongst participants was 10.3% (employer and employee total).
• Average maximum “employer match” contribution was 7% of income. Nearly 2/3rds of participants received the maximum employer match.
• Average employee contribution was 6.8% of income.
• Maxing out. 13% of participants saved the maximum annual amount of $18,000 ($24,000 age 50+) for 2017.
• Average account balance was $103,866; the median balance was $26,331. A small number of plans with very high balances skews this often-quoted average upward.
• Target-date funds. 58% of participants had their entire account balance invested in a single target-date fund or similar managed allocation. In other words, 58% let someone else pick their portfolio.
• Automatic enrollment. Plans with automatic enrollment have a 92% participation rate.
• Withdrawals and rollovers. About 1/3rd of participants could have cashed out their balance (with taxes and penalties) because they switched jobs. 84% of those folks kept their money in retirement plans. In terms of assets, 98% of all plan assets available for distribution were preserved and only 2% were taken in cash.
• Loans. 15% of participants had a loan outstanding at year-end 2017.

These numbers don’t tell the entire story, as the average includes workers across different age groups, income levels, job tenures, and so on.

T. Rowe Price has a brochure The Benefit of Saving Regularly For Retirement [pdf] which has the common advice that you target saving at least 15% of your gross income each year to prepare for retirement. Of course, the earlier you start, the better. The added wrinkle here is that they offer an alternative route if you find 15% a stretch when you are young.

In their simulation, if you start saving at age 25 at a 6% rate and increase it 1% each year until you reach 15% (and then stay at 15%), you’ll actually come out ahead of someone who starts saving at age 30 at a 15% rate. You’ll even do okay if you start at age 30 at a 6% savings rate and increase it 2% a year until your reach 15% (and then stay at 15%). The two big takeaways are (1} start, even if small and (2) bump up your savings even if just a little by banking some of your raises each year.

The assumptions made seemed largely reasonable:

Examples beginning at age 25 assume a beginning salary of $40,000 escalated 5% a year to age 45 then 3% a year to age 65. Examples beginning at age 30 assume a beginning salary of $50,000 escalated 5% a year to age 45 then 3% a year to age 65. Example beginning at age 40 assumes a beginning salary of $80,000 escalated 5% a year to age 45 then 3% a year to age 65. Annual rate of return is 7%. All savings are assumed tax-deferred. Multiple of ending salary saved divides final ending portfolio balance by ending salary at age 65.

Bottom line. Start saving regularly, no matter the amount. Even if you feel like you can’t save 10% or 20% or whatever you read somewhere, just should start as soon as possible with a smaller number. After a year, try to increase your savings rate by 1% or 2%. Repeat each year. This can help minimize how much you “feel” the savings, while still ending up with a healthy nest egg. Build the habit.

Every time a large corporation stumbles, you will see something along these lines: Having Too Much Employer Stock in Your 401(k) Is Dangerous. That doesn’t prevent it from being solid advice. The best advice bears repeating.

Why? If your retirement savings are heavily concentrated in your employer stock, you human capital and your investment capital are directly linked. If your company falters, then you can lose both your job and your retirement security. Past examples include Enron, MCI Worldcom, and Tyco. Remember that any individual stock can go to zero.

In a large, multinational corporation, even a mid-level executive simply won’t affect the bottom line that much. You could be doing a great job, but what if the top brass commits fraud, takes on too much debt, or otherwise mismanages the company.

This time around, it is General Electric (GE). Per Morningstar data, $100,000 invested in GE stock on January 1st, 2017 would be about $47,000 today. Over the same period, $100,000 invested in a S&P 500 index fund would be about $124,000. That’s a gap of over $75,000 on a starting balance of $100,000. GE may recover eventually, but even that won’t help a retiree who needs the money now.

The Fortune article provides a list of other large company 401(k) plans that have heavy allocations to their own stock. Some of these are highly-respected companies, but then again so was GE.

• Sherwin Williams (62%)
• Colgate Palmolive (56%)
• Exxon Mobil (54%)
• Lowe’s Home Improvement (50%)
• PACCAR (50%)
• Dillard’s Department Stores (48%)
• Chevron (44%)
• McDonalds (39%)
• Costco (38%)
• Cerner (37%)

In my opinion, things are different if you are a majority owner of a small, private business. Yes, you also have a lot of eggs in one basket, but you directly control that basket! In addition, your upside could be much, much greater.

Consider that Vanguard charges money for financial advice through their Vanguard Managed Account Program (VMAP). When they analyzed the before-and-after results from actual participants, they found that their biggest impact was simply helping people reduce their exposure to company stock. They found that 12% of participants initially had a concentrated position of 20% or more in employer stock.

If you’re reading this, you can implement this advice for free! Do not invest more than 10% of your 401(k) plan in company stock. Consider reallocating funds into a low-cost, diversified index fund or other similar alternative. (Companies themselves are not allowed to exceed 10% in company stock for pension plans.)

Should a person who retires at age 70 withdraw the same amount of money from their portfolio as someone who is age 40? You’re talking about a retirement period that is likely twice as long as the other. In an article titled The “Feel Free” Retirement Spending Strategy [pdf], Evan Inglis of Nuveen Asset Management and a fellow of the Society of Actuaries proposed a safe withdrawal strategy that adjusts for age.

To determine a safe percentage of savings to spend, just divide your age by 20 (for couples, use the younger spouse’s age). For someone who is 70 years old, it’s safe to spend 3.5 percent (70/20 = 3.5) of their savings. That is the amount one can spend over and above the amount of Social Security, pension, employment or other annuity-type income. I call this the “feel free” spending level because one can feel free to spend at this level with little worry about significantly depleting one’s savings.

You can think of this is as a lower bound. He also proposes an upper bound:

At the other end of the spectrum, divide your age by 10 to get what I call the “no more” level of spending. If one regularly spends a percentage of their savings that is close to their age divided by 10 (e.g., at age 70, 70/10 = 7.0 percent) then their available spending will almost certainly drop significantly over the years, especially after inflation is considered.

Therefore, the lower and upper bounds for a person retiring at 70 would be 3.5% and 7%. The lower and upper bounds for a person retiring at 40 would be 2% and 4%.

Note that he also admits that spending 3% of your assets each year is an even simpler rule of thumb:

Even though there are lots of things to think about, for the vast majority of people, very simple guidelines will be most useful. My simple answer to the questions “How much can I spend?” or “Do we have money enough saved?” is that if someone plans to spend less than 3 percent of their assets in a year (over and above any Social Security or other pension, annuity or employment income), then they have enough money saved and they aren’t spending too much. This is a fairly conservative estimate, but people tell me they want to be conservative with their retirement spending. They would rather feel safe than spend a lot of money, and I think that is very appropriate in our current economic environment.

Another idea to add to your knowledge banks. Basically, if you are young you have to be sensitive about permanently damaging your portfolio early on with the double-whammy of negative returns and high spending.

Others will say that you should spend more when you’re young, as you’ll be able to enjoy it more. That may be true if you have long-term care insurance. I know lots of people who are still quite active and traveling at 70. I’m also at that age where I have checked out some of those “nice” assisted-living facilities for my parents, and they cost serious bucks.